Amneal Pharmaceuticals, Inc. (AMRX) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining us. My name is Dave Risinger, and I'm responsible for U.S. pharmaceuticals at Morgan Stanley, including both major and specialty pharmaceuticals. And it's very much my pleasure to welcome the senior leaders of Amneal to join us for the conversation. I do need to refer you to the disclaimer at www.morganstanley.com\researchdisclosures. And if you're a member of the press, we ask you to disconnect and reach out to Morgan Stanley public relations. So with us today, we have both Chirag Patel and also Chintu Patel who are the original co-Founders and co-CEOs of the company. They originally founded Amneal in 2002. And they returned last summer, in the summer of 2019 as co-CEOs. They also brought in Tasos Konidaris who is the company's CFO. So we're pleased to have Tasos with us as well.

I thought I would first turn it over to you, Chirag, just to maybe introduce yourself briefly. I actually think it would be helpful for you to just touch on how you are spending your time. And then, Chirag, would also love to hear some opening comments from you as well. So let me pass it to you.

Great. Thank you. So thank you, everyone, for joining. And David, thank you very much. Chirag Patel. I'm a co-Founder and co-CEO of Amneal. We founded the company, along with my brother and from help from my father, who is also a pharmacist, scientist. And we call it Amneal 1.0, that story. We grew Amneal substantially from 2002. And when we launched our label in 2007 to '17, we experienced a remarkable growth for the generic side of the business. And we're very excited to be back on Amneal 2.0. And of course let me answer David's question, what I do is my -- as co-CEO structure sometimes sounds confusing, but we are brothers who get along really well. And we have complementary skills that might -- liking and what I add values to Amneal is on the business development, sales and marketing, finance, legal, all those areas, I look after. And my brother looks after R&D, operations, quality, and we always team up on all the key decisions, and great to have Tasos on board as well. The second part of the questions on what we are excited. Somebody of Amneal where we stand after 1 year coming back, we feel very strong where we stand, the foundations. We have stabilized the Generics business. We have grown our base business, launched new products, reignited and refreshed the entire Generics pipeline, including injectables, ophthalmics, the transdermal, pretty much all of the products that are available, we have it. Lots of manufacturing still in the United States. So we're very excited about government actions that may be for bringing manufacturing back to the United States. So very excited about Generics, which is about $1.4 billion of the business, and we expect growth in coming years. The second growth engine we have is distribution. That is a good acquisition we did early part of this year, which is growing. And government business is growing as well. We're able to sell Amneal's product through that channel, which improves our margins and very excited to launch the unit dose business part of our distribution business called AvKARE. And the third part of our business is Specialty, which is quite fully so underappreciated in the market at this point. But we do about $360 million in sales and growing that business as we added -- we've got IPX203 as a pipeline. So existing business is growing. IPX203 is in Phase III. We expect the top line results in third quarter next year. And K127, which is a treatment for the Myasthenia Gravis patient, we added that in the pipeline in the first half of this year, which we are very excited about as well. So we are working on more growth stories within our Specialty. So I'll stop there, David. That's just a highlight where we are headed.

Excellent. So that's a great framework. And maybe you could just add a little bit more for those who aren't familiar with Amneal, and it was helpful for you to start with the revenues. But if you could go into a little bit of the operations, the employee base, just to give a sense for how the company is structured, and how you also expect to leverage that structure with your pipeline over time.

Fantastic. So that's -- everybody asked us that why were we successful in Amneal 1.0. That is because of our teams. And most of the team is intact. The -- it's 5,500 people strong, which includes 2,100 employees in the United States. We are very proud of our United States infrastructure. India, we have 3,200-plus employees, an excellent team. Ireland, we have a smaller team, but it's growing. It's inhalation platform there. So Generics side, we are well set with our infrastructure. We don't spend time on closure of the plant or consolidation, we're solely focused on launching products, increasing our pipeline, increasing our baseline business. So very excited about the team and infrastructure on Generics side. The distribution, we had decided to run separately because it's a different cup of tea. And we have -- the founders of that business that we bought from, they still have a vested interest as they own 35% of the company still. So they're running it and running it well because they did it for over 30 years, and they have a great name in the central part of the country, in Kentucky. So that is well set. And they have about 150 employees. Then Specialty side of the business, we run separately because there is no synergy per se. There's scientific synergy because of CMC and other things. But marketing, market access, we're very proud of leadership provided by our Head of Commercial there and how he was able to build the Specialty business on the commercial side. And now we are looking to strengthen our R&D engine within our Specialty business. So that's -- very proud of the teams, and we're very excited.

Excellent. And so with respect to R&D, could you just discuss your focus there? Clearly, that's on high-value opportunities. But if you could put some framework around that and then discuss key developments we should be watching for your R&D organization in coming years.

Sure. So Dave, we've been investing in Generics for a long time. So there is no need to overinvest in Generics. So we have taken certain part of that R&D budget and put it in Specialty. So that the 2 areas where we are focusing is Generics, which includes injectables, which has a certain complex injectables. Ophthalmics, that's where we have inhalation. That is where we are spending generics R&D dollars. And slowly but surely, we are taking 30%, 40%, 50% of our R&D budget, not increasing it, and taking it to Specialty, which our sweet spot, so there's unmet needs, drug delivery technologies between -- the peak sales between $100 million to $400 million, which is ignored by big pharma, and it's not a biotech play. So we are playing in that sandbox. And the investment there would be $20 million to $50 million per product, and likelihood of success is higher as well. So this is how we are allocating our R&D dollars in the platform.

Okay. Very good. And then with respect to the -- just to go back to the top line. So you mentioned $1.4 billion in Generics set to grow. Could you talk about the pushes and pulls for that top line and the opportunity for growth?

Yes. So the baseline, focusing on baseline, which is we have a large portfolio. We have 330 products approved, 250-plus marketed. We're not taking our eyes off those baseline products because we're finding ways to increase business within baseline, which helps us protect against the competition when they show up. The second part is new product launches. So we've been launching key new products since we came back, and we expect to launch even more. Also we have refreshed the pipeline. So every year, we expect to launch new products as well. And within that, the main advantage would be in ophthalmics, few more transdermals coming along, the -- even the OTC side of business is growing with Niclo going OTC, the more injectable products coming in. So those are the -- on the Generics side, which will provide -- we plan to not lose as much in a baseline. We have seen the stabilization in the market much better than '18 and '19 this year. And keep launching new products and increase our efficiency throughout the operations because the margins took hit, and we are recovering. And we know how to do that because we operated at higher margins before, and we're trying to get back in 40s as soon as possible.

Excellent. And what are some of the higher-value new product launch opportunities in coming years? Some -- and obviously, you can really only talk about what you've disclosed. But what are some of those? And what is the potential timing?

So we expect about 8 to 10 high-value launches through -- for the next 9 to 12 months. And then every year, we expect 5 to 10 new high-value launches coming in. The areas these launches will be is still in transdermal. Ophthalmics, we have an entire portfolio that will start getting approval, more injectable products. And we hope to launch our first inhalation product next year as well. And as you disclosed, pipeline has Copaxone and other products, which we have disclosed. Many we do not disclose because of the competitive nature of the Generics industry.

And so you touched on Copaxone. So what are the lessons learned from Copaxone? So not only Amneal, but other companies expected to launch years ago, but it seems like either it was more difficult for you to do what the FDA asked for or the FDA raised the bar versus where it was 3 years ago. Could you just tell us and educate us about that process and the lessons learned?

Sure. I'm going to pass that to Chintu, who's very close with R&D. Chintu?

David, a good question. I think the first company Momenta and then through Sandoz when -- the recent approval, it took them over 10 years to get their approval. So every time complex -- it's a complex fusion protein. It's not an easy process, and you are relying mainly to the entire API play. And FDA is asking for very detailed characterization of the process of every step. So there were a lot of lessons learned. And even the companies that's coming after the first approval -- the bar to approval still remains very high. And it's one of the most complex product because in Europe, let's say, for approval, they require clinical. In U.S., there is a waiver, but a higher degree of characterization is required. The lessons learned is that's why Amneal really transition into complex product. And we are the first movers on many trial complex products as it's shown in the history from Yuvafem launch to NuvaRing to Sucralfate, we work very closely with FDA and kind of clear the pathway. Copaxone, for our perspective, was delayed, that We work on a partnership because it's not an in-house project. Now Amneal, the beauty of our R&D and complex product and our confidence to bring those products to market, we are doing majority or all of the complex -- from development to manufacturing in-house. So a lot of time lines and everything was added. Second thing, it's a very complex product. A lot of lessons are learned. So for future peptide and more it's now the biosimilars are also being developed. These are kind of similar nature of the products where companies, including us for the future product, it will be much easier than what it needs to be done. And actually also, every time it's coming out with new and new questions, even though they had one approved. Usually, once you get the yes, that supplies the queries from FDA, but they keep adding new and new queries as a part of review process, which is not usually on a lesser complex product. So I think we feel good about launching that product in second half of 2021 after all the learnings we have done. It is being delayed. We do accept, but many lessons learned, and I think we are fully prepared on other products that we will be launching 8 or 10 over the next 12 to 14 months.

That's very helpful. So that's interesting. So you see those learnings as an opportunity to do more, not to back away. Meaning it sounds like, as you mentioned, you've always worked on complex generics. Could you just talk about opportunities for other very complex branded drugs for which there are no generics? You mentioned fusion proteins broadly, but -- and I'm not asking you to give specific drug names, but is that a big opportunity for you outside of biosimilars?