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

Good afternoon, everyone. My name is Balaji Prasad. I lead our specialty pharma coverage for Barclays. Thank you for dialing into the Barclays Global Healthcare Conference. So we are continuing the specialty pharma track of the conference, and I'm pleased to introduce the management of Amneal today. So we have with us Chirag and Chintu Patel, co-CEOs; and Tasos Konidaris, CFO. So Chirag, Chintu and Tasos, pleasure seeing you, and thank you for taking the time to join us today.

Thank you for having us.

So it's been an interesting 2020 for you. You took over the company in 2019. And I was just pulling up the chart and asked my team to look at it. So your stock is up nearly 2x since you joined, so you have been doing lots of things right. So what is it that we can look forward to? Unlike a fair number of peers who are deemphasizing the generics part of the business, our best management to hold it stable, you have been accelerating the Generics business and building the right portfolio for it, and also, at the same time, noting other components of the business. So what should we look out for in 2021? And what is the strategic priority going to be?

Thank you. Thank you, Balaji. So since we are new to the public market side, I would like to give you and our participants here a little bit of background. My brother and I started this company in 2002, grown to be a $1 billion plus in revenue as a private company, one of the fastest-growing generics company. So we are used to with the growth. And then we did a reverse merger with Impax because we saw immense competition coming in generics, so we wanted to diversify and got a specialty business through Impax. In 2019, as Balaji said, we returned as co-CEOs and very excited about Amneal 2.0. This is what we are calling. The strategy is straightforward. First line of our business, which -- since it has 3 components, we are calling it affordable medicine business, which includes generics, retail, which we have -- the products we would sell to CVS, through CVS, Walgreens, Walmart. And we have all categories of Rx products, prescription products there. So whether it's in form of drug device combination, transdermal, topicals, all kind of tablets, capsules, liquids, nasal sprays, inhalation product, ophthalmic products, a very broad portfolio. And this is what we're seeing our growth coming from. The second part of generics is injectables, a part of affordable medicine business which is in hospitals. We are a smaller player today. Therefore, we see much larger growth there as well. And the third leg within affordable medicine business will be biosimilars, which we are just starting out. Our strategy was to be -- wait, watch, let it become cost-efficient to develop these products and market this product, let prescribers get to [ new ] biosimilars. And we have 3 programs, and we're looking at adding more. But Amneal is -- we're going to add, and we see that as a long-term play for us over 10 years. So that's affordable medicine business, which is growing really well, and that's where you will see -- keep seeing the high-value launches. And we are at the right size, so we can withstand the base business reduction and keep launching new products to keep growing. And we got great science team, about 900 scientists. We pretty much do everything in-house. Therefore, our margins should be better as well. So very proud of that part of the business. The second part we are growing is the specialty business, as you mentioned. And that is we have the 2 commercial products and 4 pipeline products. And with KSP, the Kashiv Specialty Pharma, acquisition, we get 2 technologies, and this is making an immense impact on changing the -- using the drug delivery technologies to change the patient experience. So their symptoms are managed really well throughout the day. In movement disorder, 3 products. The pipeline is in movement disorder. So you got Parkinson's disease. You got myasthenia gravis and sialorrhea. In endocrinology, we have one asset as well. And then we have a tuck-in distribution business which allows us to go directly with the VA/DoD, the government business, as well as unit dose, utilizing, again, Amneal's U.S. infrastructure, manufacturing to be more effective there as well. So very excited about all 3 areas of growth in '21 and beyond.

Great, Chirag. And one of the first things that you did when you rejoined business is acquire or increase strength with Kashiv, right? And you did comment about the importance of GRANDE and KRONOTEC platforms and also the pipeline on the specialty side. So could you maybe take us through your thoughts on the specialty side on how you're thinking about this business and the expectation for growth from this over the next couple of years as you look at launching Amneal 2.0.

Thank you, Balaji. I will start, and I'll hand it off to my brother who is extremely passionate about science and these technologies and all the generics complex products. That's his passion for years now. So it is -- to start out, it's a 505(b)(2) strategy. And we are smartly allocating investments to specialty, not taking our eyes off the affordable business side -- the affordable medicine business side. It is more secure -- more -- we have more certainty of products getting through, unlike NCEs, and investments of $40 million to $60 million per product. And this is several years of work that Kashiv did. So with this, one pipeline asset came from Impax, IPX203, which we have readout coming up, which is even a much better product than Rytary, different product and would give Parkinson patient almost 8 hours of good on time, which is really important for their daily activities. The other 3 products came from Kashiv platform, which Chintu will describe in a second. And then we have a preclinical stage using those 2 technologies, and they're very important technologies because these are older molecules, which Chintu will explain, with a lot of -- bioavailability is a question, and patient experience, the side effects are plentiful. And those are the ones we are addressing. So you'll see us launching from 2023 one new specialty products almost every year, and that's the pipeline. These technology platforms allow us to do that over many years. And then we will move up the value chain, then we'll look into the prodrugs and other types of products. But Chintu, please explain the technology.

So hi, Balaji. Hi, everyone. So at our specialty business, with Kashiv acquisition, we get access to very unique platforms, GRANDE and KRONOTEC, because our goal here is to bring meaningful value to the patient, improve the patient's overall quality of life. So we are repurposing the older molecule to our technology platform that would not have been possible to really design and deliver the drug in its best possible way to take out the fluctuations, take out the -- the Cmaximum, Cmin concentration fluctuation leads to a lot of side effects. Products are not even properly bioavailable in the body. So I think our platform gives us that unique advantage of delivering product optimally in the human body. And we have, as Chirag stated, 3 programs with Kashiv and few other in preclinical early evaluation phase. Plus our IPX203, we get top line readout in the third quarter of 2021 itself. So we are focused so much on a movement disorder and endocrinology, and we are excited about prospect of launching one specialty product starting from '23. But this -- Kashiv gives us also the organic boost. Amneal has always done well when we have the in-house R&D. We get access to 75 employees and the engine, and the teams who has a proven track record. So I think we get the R&D infrastructure that was lacking in our specialty, plus the -- we can also boost our complex generic pipeline through that acquisition. So overall, it's very exciting and plus the manufacturing infrastructure for this technology platform because it's very unique. It's not a CMO that we can go out and do it. So I think we are also shifting our R&D spend a little more towards specialty, not increasing the overall R&D budget and 505(b)(2) programs because they are not costly as NCE allows us to do that within our R&D spend also. So we are being very disciplined in our approach, using our platforms to really bring meaningful products to the market.

So if I understood right, the platform really gives you a much better control over delivery and the -- and release. So Impax203 (sic) [ IPX203 ], for example, gives you a faster-acting drug. And is that what's going to be the claim to fame when you launch this in 2023?

The IPX203 gives us meaningful...

IPX.

Yes. IPX203 gives us meaningful to our better on time than the current available IR products on a CD-LD. So -- which is a meaningful improvement. KOLs are loving this product because it's all about managing the symptoms of the Parkinson's patient and off time.

Got it. So maybe as we look at -- discuss the specialty business more, I don't really think straight to market is explicitly modeling or forecasting or factoring this into the thoughts. And is there anything that you can provide in terms of numbers, in terms of what is the potential share that you can end up with, let's say, the IPX203 launch in 2023 and which could give market that incremental comfort to forecast some cash flows from this part of the business, which I doubt it's happening today.

I'll start again, Balaji, and then pass it on to Tasos, CFO. So let's put it this way. Our current product, the Rytary, there are 1 million-plus Parkinson's patient that are 60,000, 70,000 new diagnosed every year. So unfortunately, it's a pretty big impact out for patients. And almost 60% of 600,000 are on levodopa therapy. Out of that [ Rytary ] is 30,000 patients. With the profile we have seen in Phase II and expect it to be most likely in Phase III, we'll have to see, wait for the data in September. If that continues, we expect a lot more patients using it because then we'll be -- we have learned a lot in PD market, Parkinson's disease community and been engaged. So we know the pitfalls from Impax launch. So we will be using all those learnings to launch IPX203 in a big way, and we expect those patients -- and we do about $160 million in Rytary today in net sales. So we expect that to be much meaningful for IPX203 than Rytary.

Got it. That's helpful.

I think, Balaji, it's exactly that. And the other thing is a couple of thoughts. I think for some reason, people also think Rytary is going out of patent in the next couple of years. That's not the case. We have settled with a number of competitors. So that product has exclusivity until 2025, number one, and growing very nicely. Hopefully, launching IPX203 a couple of years ahead of time, it gives us ample time, right, not only to gain share, but to kind of shift the -- kind of protect the Rytary revenue. So we see $160 million now, growing nicely for the number of new years and IPX203 adding to that, right? And I think this is a huge market, right? This is a huge market, and we'll -- and we think we have a very favorable product profile. So I think based on that, people should have enough to do some type of a range in terms of market share. And obviously, we're going to price accordingly, right? Then the remaining of the products, K127 and the Kashiv products, hopefully, all of them will hit, right? Maybe not. But in general, for us to invest on those products, we anticipate -- we're targeting $100 million to $300 million revenue opportunities, minimum of $100 million. So -- and the size of the company we're at, we don't need $1 billion opportunities, right, to make a dramatic difference to the EBITDA of the company. So hopefully, that's enough for people to kind of start modeling long-term rates.

That's very helpful, Tasos. And Chirag, at most of the earnings call, when we discussed, I could see a significant excitement with your -- both your myasthenia gravis product and your sialorrhea product. And again, you're very excited about it. I think the potential is very high, and the technology is a differentiator. Maybe a couple of quick words on how you're thinking about the time lines and key milestones of each for the next 1 or 2 years?

Sure, Balaji. I'll take that one. So both products, we are very excited on our K127, which is for MG. Pyridostigmine really works well as a molecule, but it's, again, not delivered and not possible to properly develop without having the right technology platform. It's not that people have not tried, but we -- and we have a good profile in a human PK data where we are getting a once-a-day profile with a constant blood concentration that will improve tremendously overall quality of life. We anticipate to file that one in late 2022, by end of 2022. And our sialorrhea product, I think that was the second one. That's our trihexyphenidyl program, right? That's the second one you asked, Balaji, correct? That one -- that program also, we have a very good profile and the kind of TPT, we call targeted product profile, looks very promising in our early human PK data, and we'll be developing that further to clinical and other regulatory requirements. And that product looks like can be filed sometime around '23 and '24. That's a kind of time line for that product.

Great. Thank you, Chintu. And maybe shifting gears towards biosimilars, which is the other segment where you don't have revenues today, but really, it's a big focus area for you. And I think something that you said recently on a [ chart ] when -- you mentioned that you wanted to be the first to market for the next wave of launches. While granted Neupogen, Neulasta, you're going to be fifth, sixth to market, but you said that you will want to be first to market with the other wave of launches. So could you maybe speak a bit more about this, the time frame on this and identify, broad range, what you want to target earlier?

Sure. Thank you, Balaji. So biosimilars, we are late in the game but purposefully because we didn't want to spend, invest a lot of dollars and wait. And if the FDA guidance clearing up more, understanding, using more analytical methods to prove biosimilarities rather than doing unnecessary clinical trials which are time-consuming and not needed in most cases and costly. So we -- what we see as a middle -- mid- to long term for us, so it's a 10-year plan. Yes, we are evaluating next generation -- I mean next wave of products. The current ones are we are going to be in a highly competitive for Neupogen, Neulasta and Avastin. Avastin, we'll be filing soon as well. So just like what we did with complex generics, we are trying to find the niche within the IP, within formulations, within -- could be some different range of cells where people are ignoring it or not too crowded. And those are the ones we would like to be first or second coming out in next several years, which would probably start from '24, '25.

Okay. Maybe last one and definitely want to spend some time on the complex generics part of business. You commented about high-value launches. You have launched a few until now, a fair number of until now. And there's still a few more which is on target by August, right? And we recently saw [indiscernible], which is a meaningful product, and you're only -- second only player in this market. So while you may not be able identify these products, would you be able to directionally tell us if any of these remaining 5 are similar in terms of opportunity with [indiscernible] or...

So Balaji, as you know, our portfolio is very broad. So we have 100 pending products at FDA, and we try to give more color on our pipeline in our recent investors presentation. It would be in multiple categories, so it could be in ophthalmics, could be in inhalation, could be -- even certain oral solids still command very less competition. So the range is all of our high-value products in generics, the ranges are $20 million to $100 million but very high margin contribution. So it will fall somewhere there. We still expect 5, 6 complex products to be launched this year. And then every year, we have a pipeline to keep launching 6 to 7 high-value products, so keep refreshing our pipeline. And we have 100 in works, 100 pending, 350 approved, 250 launched, so many tentative approvals still waiting. We're very focused in execution, right? That's what we do, steady execution. We get it done. And recently, we also started filing some of the key products in China market, which is becoming quickly or it is already maybe second-largest market in the world.

Great. I'll probably come to the China -- to China at the end of the session, but...

Sure.

Maybe thinking about [ other ], what we noticed is that you priced to parity to Zomig. And is this kind of a strategy that you're thinking about where it's as long as it's limited competition, you're not going to be aggressive on the pricing, but you're being more on parity and then look at the reasonable share? Is that the strategy for some of the launches?

Balaji, we don't comment exactly on pricing. Obviously, the -- as you know, the retail side, there are 3 big buyers or 4 now, and they always expect certain discounts. The pricing you see is IQVIA pricing, which does not reflect the net pricing. Market share would be -- is, again, complex products. We do not invest for all the products because we expect competition. And same thing will happen in biosimilars. We will build out capacity for 25% market share, 50% market share. And that's it. We -- there is -- because we know the capital investment would be heavy, and we cannot do it for 100% for every product while competition comes in. So this one, we had built out up to 50%, and we're gaining almost there now.

Okay. All right. Maybe then I'll get back to...

But great product for us, great product and great achievement from our R&D again.

Got it. Fantastic. So on China, the market has had its shifts, right? You saw [ UBP ] being introduced in 2019, 2018, and then expand and look at significant chunk of -- for growth for most companies. And now we are speaking about unified reimbursement pricing. So -- and despite that, factoring that, do you still consider there's an attractive market to being there? Or could we see some of the volumes of [ UBP ] 2.0 in 3 years from now, which could curtail growth?

Yes. So we're using the same smart strategy to have the complex products and first or second in the way in China. And our partner, Fosun, provides a lot of marketing. They're top 3 in China, the Chinese market. So we are not going for filing everything there, obviously. It takes a lot. And the Chinese FDA has their own requirements now. And meeting them, it's not that easy task. We have a whole team working on it for last -- almost 14 months now, and we have filed 5-or-so products, filing another 10. So now we have engines set. So we'll file the key products. We can withstand the competition as they come in '23, '24, '25. Numbers look better than United States for generics pricing on the retail side. They're better in Europe even. So we are the lowest in advanced economies. We're the lowest in generics pricing right now in the world. They've done a great job in pharma pricing, I guess.

I hear the generics industry here has come in full circle now. Maybe just taking up the last minute, Tasos, thoughts on operating cash flow and leverage goals now between now and next year and what we are to be expecting?

Yes. So as you know, kind of in 2019, we had $2 million of operating cash flow. And I think last, last year, we had $267 million, plus $110 million of the cash tax refund we received as a onetimer, right? So this year -- but we also talked about our cash flow is about $40 million stronger than we expected it, right? So it was about $40 million that many of our customers just paid us earlier. So that was reflected in our full year guidance this year, which is around mid-$200 million, right? So from our perspective, the company right now is stable and growing, and we should be able to see the same thing in terms of cash flow generation, right? Mid-$200 million, $240 million, $250 million and growing. That's kind of how we think of the business. And our intent of that cash, right, is to continue to improve our balance sheet and continue to fuel M&A in a strategic way. Okay?

We look forward to that. And as we kind of run out of time, I want to thank you again for taking the time to join us today, Chirag, Chintu and Tasos. And hopefully, you had a [ friendly ] conference and also engaged.

Thank you. Thank you, Balaji.

Thank you.

Thanks, everyone. Bye-bye.