Amphastar Pharmaceuticals Inc

NASDAQ:AMPH

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, thank for standing by, and welcome to the Amphastar fourth quarter earnings call. [Operator Instructions]

I'll now say some forward-looking statements. All statements on this conference call that are not historical are forward-looking statements, including, among other things, statements relating to the Company's expectation regarding future financial performance, backlog, sales and marketing of its product, market size and growth.

The timing of FDA filings or approvals, including the DMF of ANP, the timing of product launches, acquisitions and other matters related to its pipeline of product candidates, its share buyback program and other future events. These statements are not historical facts but rather are based on Amphastar's historical performance and its current expectations, estimates and projections regarding Amphastar's business operations and other similar or related factors.

Words such as may, might, will, could, would, should, anticipate, predict, potential, continue, expect, intend, plan, project, belief, estimate and other similar or related expressions are used to identify these forward-looking statements, although not all forward-looking statements contain these words. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and assumptions that are difficult or impossible to predict and, in some cases, beyond Amphastar's control.

Actual results may differ materially for those in the forward-looking statements as a result of a number of factors, including those described in Amphastar's filing with the Securities and Exchange Commission. You can locate these reports through the Company's website at http://ir.amphastar.com and on the SEC's website at www.sec.gov.

Amphastar undertakes no obligation to revise or update information in the press release or the conference call referenced above to reflect events or circumstances in the future, and if new information becomes available or if subsequent events cause Amphastar's expectations to change.

I would now like to turn the conference over to your speaker, Jason Shandell, President. Thank you. Please go ahead sir.

[Jason Shandell, President]

Thank you, operator. Good afternoon, and welcome to Amphastar Pharmaceuticals fourth quarter earnings call. My name is Jason Shandell, President of Amphastar. I'm joined today by our CFO, Bill Peters. We appreciate you joining us on the call today and look forward to speaking with you and answering any questions you may have. As you can see from our financial results, Amphastar had a strong year and is in a position of operational and financial strength, driven by continued execution of our long-term strategy and focus on our key growth drivers and complex pipeline.

Our net revenues for 2019 increased by more than 9% to approximately $322 million and our gross profit increased more than 23% to approximately $132 million, driven by strong sales of Primatene Mist and our critical care portfolio, which continues to show strong demand due to competitor shortages. Net cash provided by operating activities in 2019 was $41.8 million. Gross margins also increased year-over-year from 36% to 41% as Primatene Mist, and our other high-margin products continue to increase as a percentage of our total sales. We expect this margin expansion trend to continue and believe that our continued focus on our pipeline and investments in research and development will allow us to deliver even greater value to patients and shareholders over the long term.

Since our last earnings call, I'm happy to announce that the FDA has accepted two more ANDAs, which have GDUFA dates in the fourth quarter of 2020. One of the ANDAs is for regadenoson, which is a generic of Lexiscan. This ANDA included a Paragraph IV certification and we were sued by the brand sponsor, which triggered a 30 months stay. We now have seven ANDAs on file with the agency, targeting products with the market size of approximately $1.9 billion based on IQVIA data for the 12 months ended December 31, 2019.

The strong momentum of Primatene MIST sales continues to increase at a greater rate as we launched the product into Walmart in November 2019. And we continue to increase consumer awareness through our marketing strategies. As we discussed on the last earnings call, traditional television advertising has been extremely effective in building consumer awareness about Primatene Mist. We began our television advertising campaign in July 2019 on cable channels and saw a very good return on investment.

Therefore. beginning in January 2020, we expanded airing of our commercials on the major broadcast networks, targeting prime, yet cost-effective advertising slots within national recognized TV shows, including Judge Judy, Dr. Phil, The Price Is Right and many other widely viewed programs. This strong advertising push combined with an allergy season that arrived earlier, due to the mild winter resulted in very strong same-store sales across all of our retail partners.

Weekly store sales as of the last week of the fourth quarter of 2019 have increased by more than 140% compared to the first week of the third quarter 2019, which was just before the TV as began to airing. We are very excited about the long-term prospects of this brand, and are currently in discussions with other large potential retail partners. Based on the continued effectiveness of our advertising strategy and the continued positive trend in retail store sales, we maintain our guidance of Primatene Mist, achieving an annual rate of revenue of $65 million by 2021.

We expect the injectable products from our IMS facility to be another strong driver of revenues in 2020. We recently issued a press release announcing that the FDA approved our supplemental ANDA for sodium bicarbonate, which is for manufacturing the product in our new state-of-the-art production line at IMS. This FDA approval further validates our strength in scaling up our manufacturing capabilities in response to increased demand for our products and greatly increases our manufacturing capacity at our IMS facility. Our recent approval will help us meet the high demand for our critical care injectable products and provide us with capacity for future pipeline products, which will be a source of significant revenues going forward.

With respect to our epinephrine 30 ml vial ANDA, we received a minor CRL in January 2020 and responded to the agency in one business day. As a result, we have a GDUFA date in the second quarter of 2020 and are confident that we will receive approval. Regarding our complex injectable product, which has been through three review cycles with the agency, we received the CRL in Q4 2019 and responded to the FDA in January 2020. As a result, we have a new GDUFA date in Q3 or Q4 2020 depending if another pre-approval inspection is needed.As we discussed on our last earnings call, we have another ANDA on file with the FDA for a very complex injectable product that is off patent and has never had generic competition due to its complexity. We had a productive mid-cycle review meeting with the agency earlier this year and have a GDUFA dates for this product in the second quarter 2020.

With respect to our insulin programs, our first human clinical trials using our insulin began in Q4 2019 and is ongoing. Based on recent FDA guidance and direct communications with the agency, we remain hopeful that our strong analytical tools, including characterization of complex molecules will result in the FDA determining that immunogenicity studies would not be required. This determination would save significant time and expenses thereby allowing us to enter the market sooner than previously expected. Furthermore, based on recent FDA guidance and the purity of our products, we believe that we have the ability to achieve interchangeable status for our insulin product.

Turning to our intranasal naloxone NDA, we have a meeting with the agency scheduled for later this month. The purpose of this meeting is to confirm with the agency that we've addressed all of the issues identified in the CRL and FDA's general advice letters. If the agency agrees that we've addressed all issues we could resubmit the NDA this year.

Finally, I would like to address the impact of the coronavirus on Amphastar. At this time, over 99% of the labor force in our China facility has returned to work and thankfully, none of our employees have contracted the virus. Furthermore, our supply chain is well intact as we had previously built up significant inventory of starting material an API from China as we strategically planned for potential disruptions related to trade negotiations and the African swine flu.

As a result of these planning efforts we have at least two years inventory of starting material and API located in our California facilities. So the coronavirus should not impact our commercial operations in the US. Furthermore, it should be emphasized that Amphastar manufacturers, all of our finished products in the United States, which further insulates the Company's commercial operations from supply disruptions related to global instability.

I will now turn the call over to Bill to go through the fourth quarter financial results.

[Bill Peters, Chief Financial Officer]

Thank you, Jason. Sales for the fourth quarter of 2019 decreased 7% to $83.4 million from $89.7 million dollars in the previous year's period. Importantly Primatene Mist achieved a very strong sales of $9 million as we loaded our product nationally into Walmart and had large orders from all of the other national drugstore chains. Enoxaparin sales dropped to $8.8 million dollars in the fourth quarter from $19.1 million in the prior year's fourth quarter as a market shortage in 2018 resulted in a temporary surge in enoxaparin sales last year.

Gross margins improved 40% of revenue in the fourth quarter of 2019 from 39% of revenues in the fourth quarter of 2018, due to sales of higher margin products such as Primatene Mist. Selling, distribution and marketing expenses increased to $3.5 million from $2.6 million on television and radio expenses for marketing Primatene Mist. General and administrative spending decreased 24% to $10.5 million from $13.8 million primarily due to decreased legal expenses since we settled our lawsuit with Momenta and Sandoz in June of 2019. Research and development expenditures increased 17% to $19.6 million from $16.7 million dollars due to increased clinical trial expenses for inhalation products and increased expenses associated with API development at our Amphastar Nanjing Pharmaceutical subsidiary.

The Company reported a net loss of $1 million or $0.02 per share compared to last year's fourth quarter net income of $1.9 million or $0.04 per share. The Company reported adjusted net income of $3.6 million or $0.07 per share compared to an adjusted net income of approximately $6.2 million or 13% per share in the fourth quarter of last year. Adjusted earnings include or exclude amortization, equity compensation impairments in one-time event. In the fourth quarter, we had cash flows provided by operations of approximately, $5,7 million. During the quarter, the company repurchased approximately $13.8 million of stock to bringing the total repurchases for the year to over $22 million.

Let me review a few of the financial assumptions that we are using as we look to 2020. We expect sales growth to be driven by Primatene Mist and one or two ANDAs, which may be approved later this year. Our sales have already gotten a boost this year from the approval of the supplemental ANDA for sodium bicarbonate, which effectively increases the capacity for pre-filled syringes, many of which are on drug shortage by allowing us to manufacture in our newly modernized facility. We have already begun shipping product from this new room and believe that the sales opportunity for these shortage products is approximately $20 million annually.

We expect additional sales growth to come from our A&P subsidiary. Last year, we booked $1.5 million in third party sales from our A&P business. And at this time, we believe that sales from this facility will more than double in 2020. We expect gross margins to increase as we sell more of our high margin Primatene Mist and we anticipate higher margins from new ANDA approvals. Our selling and distribution expenses will rise as we plan to increase our advertising for Primatene Mist. However, the advertising expense will decrease as a percentage of Primatene MIST sales to provide earnings leverage.

We expect G&A spending could decreases as a percentage of sales due to lower spending on legal matters. We expect research and development spending will continue to increase in both dollar terms and as a percentage of sales. As we currently have two inhalation and one insulin clinical trials ongoing and we continue to increase the R&D work at our A&P facility.

I will now turn the call back over to the operator for questions and answers.

[Operator]

Thank you. [Operator Instructions] And the first question is going come from Gary Nachman from BMO Capital Market. Your line is now open.

[Rafay Sardar, BMO Capital Markets]

Hi, good evening. It's Rafay on for Gary. How much of Primatene was Walmart stocking in the quarter? And then can you comment on how reorders are trending overall?

[Bill Peters, Chief Financial Officer]

Sure. So just under $2 million was stocking for Walmart and we've seen continued orders from them since then. So it's going very well there.

[Rafay Sardar, BMO Capital Markets]

Thanks. And then for epinephrine vials, I think you had previously indicated, we could get a response from the FDA by the end of April. Is that still the expectation? And then if approved, how should we think about that potential market opportunity and the market share you're targeting.

[Jason Shandell, President]

Sure. So yes, we've said that we have a GDUFA date for the second quarter. And we were able to respond within one day of that minor CRL. And so when you do the math, that does come out to April. And in terms of market opportunity, we believe that we will be the sole generic and should have a reasonable share of the market.

[Rafay Sardar, BMO Capital Markets]

Thanks. Do you anticipate any additional competition on that over the next couple of years?

[Jason Shandell, President]

It's hard to say.

[Rafay Sardar, BMO Capital Markets]

Okay, thank you.

[Operator]

Thank you. And our next question comes from Elliot Wilbur from Raymond James. Your line is now open.

[Lucas Lee, Raymond James]

Hi guys, this is Lucas Lee on for Elliott. Thanks for taking questions. So on Primatene Mist, what do you think we should be expecting in terms of sales force 2020?

[Bill Peters, Chief Financial Officer]

What we've said so far is that we had $9 million in sales in the fourth quarter, just under $2 million of that was stocking for Walmart, and we expect significant growth this year and we're targeting our goal of the run rate of $65 million next year. So those are the parameters we've given.

[Jason Shandell, President]

Yes. So with those parameters, the $9 million in the fourth quarter and as I've said in my prepared remarks, we just started airing on network television commercials beginning just in January. So with the Walmart launch and the push into mainstream television, we think that the growth will continue at the rate that we've seen.

[Lucas Lee, Raymond James]

Got it. I would really appreciate if you could just comment [indiscernible].

[Bill Peters, Chief Financial Officer]

I'm sorry, we couldn't hear that question, you're breaking up on this end.

[Lucas Lee, Raymond James]

Do you think you could comment on the trends for the [indiscernible] and also medroxyprogesterone?

[Bill Peters, Chief Financial Officer]

Yes. So we see those being fairly constant from the fourth quarter of 2019.

[Operator]

Thank you. [Operator Instructions] And our next question comes from David Steinberg from Jefferies. Your line is now open.

[David Steinberg, Jefferies]

Thanks. Two questions. You mentioned the ramp up in DTC, a national TV for Primatene. Curious, will this be a year-long phenomenon? Or is it just this quarter? And related to that, it. looks like you've done about $10 million in SG&A, each of the last two quarters. With this ramp up, should we expect kind of higher quarterly run rates in SG&A? And then secondly, you mentioned you have the two GDUFA dates is here for these large multiple $100 million branded products that don't currently have generic. Can you give us some more color on the timing of the current GDUFA dates as you know them? Thanks.

[Jason Shandell, President]

Sure. So in terms of the advertising push, yes, I think we do want to continue this throughout the year. The return on investment has been really good. And we think it will continue. And again, as I was saying in my prepared remarks, although it is the broadcast TV and national television, it's still a very cost effective. So we're targeting the prime yet cost-effective advertising slots. So we will continue with that. And in terms of the G&A, I'll turn that to Bill.

[Bill Peters, Chief Financial Officer]

Yes. So we have our -- we've break out our G&A from our selling, so the selling distribution or marketing line you've seen some significant growth in that. And that growth is really all advertising for Primatene Mist. And as I said earlier, we are going to grow that -- those dollars relative to this year. However, as a percentage of sales of Primatene Mist that will drop. So we will get earnings leverage on that. And then in terms of the two undisclosed complex injectable products without generic competition, the first one that we've been talking about for quite a while now. That's the one that's been through three review cycles. And we did a pretty fast turnaround on the last call, we had talked about getting the CRL in the fourth quarter.

And at that point, we were just assessing and we felt confident that it was very addressable. And we predicted that we would respond in January, which we did. And so as a result the GDUFA date, we don't give a specific date, but it is Q3 of this year. However, if there was another pre-approval inspection that was needed, then it would be Q4. With respect to the other one that just was on file recently. This is still the first cycle review. So that one is Q2 GDUFA date and because it does have the competitive generic status. We had a very productive mid-cycle review meeting and got a lot of clarity through that meeting. So we are looking forward to a response on that in the second quarter.

[Operator]

Thank you. And our next question comes from David Amsellem from Piper Sandler. Your line is now open.

[David Amsellem, Piper Sandler]

Thanks. So on Primatene, I mean this is a promotion sensitive product and in this period now more restrictive movements and social distancing. What are your thoughts on the potential impact to demand on Primatene. Is that something you're contemplating in anyway. that's Number 1. And then Number 2, I joined late, so maybe I missed this, but any update on your inhalation pipeline and what portion of your file pipeline or inhalation products and give us some color on this extension which is going to be filing later this year on inhalation generics. Thanks.

[Jason Shandell, President]

Definitely. So yes, let's start with Primatene it's really exciting. I mean, to your point this day and age of the coronavirus, people are reluctant to go even to their doctor's office or into a hospital facility. and the fact that you can order either online or very quickly go into your local retailer, we're seeing very strong demand, actually in San Francisco, we heard that there is a shortage of Primatene, people are just buying up as much medicine over the counter as they can. So there's sort of been a panic due to the coronavirus and we are seeing an increase in demand. Also, we believe that increase is related to the mild winter and the early allergy season. But it is interesting and we do believe that we have a competitive advantage as the only over the counter asthma inhaler. So you can avoid the need to go see the doctor and at least have this for your temporary relief of intermittent asthma.

And then with respect to our inhalation portfolio. I know Bill has talked about some of the clinical trial expenses. And so we do have two generic inhalation products that are currently in ongoing clinical trials. And of those, right now we don't have any ANDAs on file they're actively in the clinics and going through trials and we still are targeting filing one inhalation ANDA this year.

[David Amsellem, Piper Sandler]

Okay. Thank you.

[Operator]

Thank you. And our next question comes from Serge Belanger from Needham & Company.

[Tian Sun, Needham & Company]

Hey, this is Tian on for Serge. I just had a few. So I think the FDA recently just approved the first generic for ProAir in late February. So I just wanted to get your thoughts on maybe how this might impact or compete with Primatene sales in the near term. And then in terms of other retailers for Primatene Mist, do you have any other updates regarding additional stores or even online that are being discussed at this point?

[Jason Shandell, President]

Definitely. So. let me address the prior question because it's an interesting one. Well, first, I want to emphasize that after Primatene Mist was approved in late 2018 and early 2019, the brands launched authorized generics. So technically, there have been generic albuterols on the market for over authorized generics. So, technically there have been generic I'll on the market for over a year and really has not had impact to our product. Again, I think the real benefit here is because you do not need to go to the doctor, you do not need a prescription and this is our historical phenomenon because even back during the CFC days when albuterol is only $2 and we were actually not promoting Primatene there was still strong sales of $65 million. So, we still feel very confident with our Primatene Mist, the only over-the-counter asthma inhaler available. And with respect to other retailers, definitely we are currently in discussions with several retailers and we should have updates for that in the coming quarters.

[Tian Sun, Needham & Company]

Great, thank you.

[Operator]

Thank you. And I would now like to turn the call back over to Jason Shandell, President for closing remarks.

[Jason Shandell, President]

Thank you, operator. So I just want to again thank everybody for joining us today. I know it's been a very difficult time recently with the coronavirus. And this is sort of what we deal with in the world and we're going to get through it. Want to make sure everybody stays healthy and safe and want everybody to realize that Amphastar continues to grow and our China facility is strong and we look forward to providing future updates on a go-forward basis. So we'll talk to you soon. Thanks everybody.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.