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

Good afternoon, everyone, and thank you for joining us at Morgan Stanley's Healthcare Conference this year. My name is Arek Kurkciyan. I'm with Morgan Stanley's Healthcare Investment Banking Group. And before we kick off, I'd like to read the following disclosure. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And with that, I'd like to welcome the folks here at Amneal Pharmaceuticals. We have a number of the management team with us here. I'm joined by Chirag and Chintu Patel, who are co-founders and co-CEOs of Amneal as well as Tasos Konidaris, who is Chief Financial Officer. Gentlemen, thank you for joining us this afternoon.

Thank you, Arek.

Thank you.

So why don't we start off with a bit of a recap on the recent earnings announcement that you provided. If you can give us a high-level overview there and some of the key takeaways and then we'll transition to some of the more granular aspects of each of your businesses.

Thank you, Arek. So as you have seen our performance for the last 2 years, we're firing on all cylinders. So Generics business is making headways with the new product launches, increase in margins and robust pipeline. So we're very excited with having a diverse Generics business, and will love to share more on how we see the growth within generics. Our Specialty business is also doing really well, especially the branded side pipeline has grown and making progress. We announced IPX-203, one of our key single most important asset successful Phase III results, which we'll be filing with FDA. And our distribution business is doing well as well. And most importantly, all our 6,400 colleagues are doing fantastic, and we are on a mission to take Amneal to even greater heights in coming years. It's a very exciting time at Amneal.

Sounds like it. That's great. So why don't we go into a little bit of your generics business first, that part of your business has been growing in the low single digits over the last few years. And the industry as a whole has experienced a bit of volatility or continued volatility. How do you define what makes your generic business differentiated? What do you kind of see as the growth drivers within generics specifically?

Excellent point. So first, we benefit from our stellar quality and execution records that -- our track records are just amazing. Therefore, we have tremendous support in the market from the customers. We have not one of the best -- the best pipeline and execution of R&D pipeline in multiple dosage forms. So we're not relying -- actually 50% of our entire revenue now comes from nonoral solid side of the business and almost 70%, 80% in the pipeline now are non-oral solids. So with multiple levers in generics, where we can replenish our pipeline, keep adding new products every year and high-value products, more complex products, diversified dosage form. I'll give you an example, when we say generics, generics includes ophthalmics, nasal sprays, transdermals, topical, but also includes injectable where we said that we have a portfolio which will double the current size of injectable business. We're probably 8, 9 in the United States today in injectable. We aim to be in top 5. We're already on a retail generics. So we are ranked number fourth, and we'll keep progressing ourselves. So we still have a business of $1.4 billion, which can grow. We are able to withstand the competition every year and pricing pressure and launch more new products in case of profitability with our own efficiency gains by bringing more product in-house, developing most of our products by ourselves. So we do not have profit sharing outside. So we keep the margins within ourselves. So with all these, we see growth in generics. A couple more levers will come. It's biosimilars. We put it as part of generics. We don't -- we see no difference. It's a complex generics in our mind and international expansion, which would be -- we have started filing the products in China, second largest market after United States. Our strategy is to be focused on certain markets and not go all over. So China would be the second largest market for us after United States. And then some offshoot like Middle East and North Africa and certain other countries where GMP -- I mean, U.S. GMP products are demand premium versus any generics products. So very exciting on an entire generic growth trajectory from now to 5 years.

That's great. I'm sorry, Chintu, were you going to say something.

No, I just wanted to add one or 2 items that we started diversifying our portfolio into complex few years back. And it takes time. But now most of the dosage form as we've been working for the last 4, 5 years is coming to maturity. We have commercialized most of the drug delivery platform like transdermal, the liquid, the nasal. And now our growth every year, this year was, we had an excellent transdermal product. The coming years, it's going to be inhalation. We have a very strong pipeline, our injectable further diversification into long-acting liposomal peptides. We are expanding our capacity also in injectable over ophthalmic and international. So any given time, we have 80 to 100 products pending at FDA, 80 to 100 in pipeline. So we are able to refresh our pipeline every year and launch 20 to 30 new products and 7, 8 new complex product every year. I think that's going to continue to have a growth. And plus, we are very focused on our operational efficiencies. We control our supply chain. We have brought in all the exterior manufacturing in-house. So given our focus on operational efficiencies, cost improvement, our solid pipeline and R&D infrastructure, I think, position us well to have a growth in the generic vector in coming years.

That's very helpful. That's an incredibly detail snapshot on how your business looks today. As we've been tracking and following your business over the last 5 years, what would you say is different today than how you operated your company 3, 4, 5 years ago? Is there a way to kind of characterize what that evolution has really looked like?

Yes. So the evolution has been -- we know the market is consolidated. We know FDA has a much bigger staff than they did 5 years ago to review the generics application. So competition is going to be there. So how do we differentiate ourselves? This is where we started investing in injectables. We started investing in inhalation, other complex areas. So within generics, and we are saying biosimilars part of generics. There's enough growth. We know this is an essential industry here to stay. It generates good cash flow, where you can use this to expand the branded side of business, which -- where we do approximately $400 million sales today with our leading CNS product and pipeline. We just announced a positive Phase III results on one of the key new products could be marketed by as early as mid-2023. And it's -- we also have a technology platform there. So the evolution is more on to branded, more within the generics more into the more complexity of the products. And we have a niche distribution, which helps us being a U.S. company expand ourselves into U.S. federal government market where we have a second leading position.

So another point is now our ability to get to the finish line in complex areas, right? We have worked very closely with the FDA, and we have in-depth understanding of bringing the complex products to market. So that's very exciting that going forward, our speed to market and our development time would be much lesser than what we have done in the past. Second, we are continuing to move up the value chain within the generics. So we are focused on a lot of drug device combination, implant products and further differentiating products within the complex areas. And with over 750 strong scientists all across the globe it gives us the tools to really deliver in this space within the generics, plus biosimilar, we are looking to be first or second in the next wave. And also over there, we are working very efficiently with partners on a cost-effective, timely development to bring biosimilar so it serves its purpose. But we are excited on a few products that we'll be adding into a biosimilar pipeline also by the end of the year.

So as I think about your traditional generic business, and I'm not on biosimilars or your branded business yet. It seems that over the years, there's been an evolution toward complex generics, which include injectables, transdermals, inhalation, drug device combos. And then taking the cash flows from that supported by, I think, Chintu, you said operational efficiencies that you've gained and then investing that into even further areas -- complex areas like biosimilars and brands. Is that the right way to characterize the strategy?

Right. Yes, yes.

And let me ask you one or 2 last questions on your generic business, and then we'll transition into biosimilars. On your injectable side, on the sterile injectable side, you -- I think Chirag mentioned that you'd like to double your generics -- your generic injectables business or sales over the next few years. Obviously, a meaningful move in terms of quantum of sales. Can you characterize how achievable that is? And what steps you're taking to solidify that?

Sure. Great question. So we have 20 products pending at FDA, and we always started injectable to more on a complex, high-value product, high barriers of entry. So we were the first one to bring triamcinolone the market, which is a suspension-based injectable product. So we are very fairly optimistic to achieve or exceed our revenue growth for injectables. We are expanding our capacity. We also added large parenteral bags, which was not part of our pipeline before. So now we are filing by end of the year, we're filing a few products into the bag categories. So I think looking at the broad spectrum, we have PFS, wires, we have bags, and we have other auto-injector. And what is in our pipeline and what we are filing by end of the year and we have 20 pending, plus we have a pipeline of about 80 to 100 products within injectable space. So doubling the revenue, we don't see it's a stretch at all.

Excellent. Okay. Let's spend a couple of minutes on your biosimilars platform. Chintu, you mentioned that a couple of times here, and it's quite interesting, given that you have 3 products filed or BLAs filed with the FDA. Talk a little bit about the strategy there and what can investors expect about, one, the market opportunity and then your launch strategies?

So from the 3 BLA, I think we are late coming to the market, and we have learned a lot. And we learn from all the mistakes we have made and that's going to make us better. So now we have much more better understanding from the regulatory perspective, development, clinical, overall product selection, and we are heavily focused also on the IP side of biosimilars. So I think the products we are adding that we will have a chance to be first and second, work with partners where we can overcome all the challenges of FDA scrutiny and all that. So our pipeline going forward would be very much different. We are not only focused on the blockbuster, but we are looking very differently biosimilar pipeline that there could be some first to market and fantastic opportunities. There are low-hanging fruits within biosimilars, how Amneal has done on a small molecules. We have the highest number of first to market CGT applications. So we are looking at very differently to biosimilar market, where we would be first or second on most of the products that we add to our pipeline. The 3 that we have filed, we are fourth or fifth depending on where we get. And the market remains to be seen how it evolves. Being a fourth and fifth, to be honest, it's tough to do the market penetration. But we have a good strategy in place. And as we get closer, we'll be talking a lot more about go-to-market strategy for those products.

We're very cautious on how we move on biosimilars because of the cards are stacked against biosimilar player from the market launch perspective and FDA clinical requirement perspective, which is reducing it. So all of the -- to really bring the access and affordability FDA has to work with the biosimilar developers to reduce the clinical requirements because it just takes too long and too much money. And when you come to the market, it is treated as a branded product. So you would have to have all kind of a brand kind of expenses, which defeats the purpose. And you also have to work with the payers and PBMs and typical players to give all kind of rebates and play that game with 340B hospitals, and it's not right away set up. And they're realizing it. So CMS and hopefully, the new legislation for the drug pricing includes the clear adoptability of biosimilars. For example, CMS can say, all biosimilars are covered for the CMS plans. And that could be a major win for the biosimilars industry. So we're very careful how we are moving, investing very methodologically and very small amount in biosimilars at this point until we are certain. But we will apply the first to market strategy, the niche strategy to come in. And eventually, it becomes a bigger business, but it may take a few years.

Understood. That's helpful. I'd like to transition to your Specialty business. And the way I'd like to think about the next few questions are around your current platform as it relates to your commercial infrastructure and your portfolio, some of the pipeline opportunities in which you released data or discuss data over the last few days and weeks, namely IPX-203 and K127. And then end with a discussion of what type of technology platform you utilized to identify new product opportunities and then develop those as well, so a bit of a 3-part question. And so maybe breaking that up, starting with the first part, let's talk about your branded portfolio as it stands today, $400 million business. Really want to hear about Rytary and Unithroid and any other drivers of growth on the commercial side.

So thank you, Arek. We're very excited. This is one of the best things happened from Impax acquisition is we got Rytary and pipeline asset, IPX-203. We doubled the sales of Rytary earning around $160 million, $170 million annualized and 5% only penetration so far into the whole CD/LD market, which is for the Parkinson patient, this is a gold standard of therapy. 600,000 to 700,000 Parkinson patient use CD/LD therapy every day. So we're very excited to be determined and focus on Parkinson's patient and bringing more innovation and science. What we have disclosed so far is IPX-203 data, which is -- Rytary is doing well in a commercial side, and we're growing every year, the script growth is growing. Penetration is growing. The second focus is endocrinology where we have hypothyroidism product, Unithroid, which is also growing. So the current portfolio is growing. The new pipeline is IPX-203, which is we expect to file by mid next year, approval in mid-2023. And our goal is to penetrate more into that 95% market, which is typically is seen by the general neurologists. So far, we have broken into with the movement disorder specialists, now go to general neuro because the IPX-203, the dose conversion is much easier. It's a longer lasting. Most of the patients would have to take it 2 to 3x a day, providing less fluctuation compared to IR and a better quality of life all day long. So we're very excited that this new absorption technology that we have utilized with IPX-203 really makes a huge difference how levodopa is absorbed and at right timing, so reducing even dyskinesia. So with that, if we go to bigger audience and all the learnings we apply from a commercial side from Rytary, we believe IPX would become a significant asset for Amneal. Other pipeline assets are also doing great. Myasthenia Gravis product, K127, that's based on the technology platform we acquired from Kashiv Specialty is progressing really well as well as we have hypothyroidism unmet need of improved T3 formulation, which is in development using the GRANDE technology. I'll pass on to Chintu that how excited we are about these technologies and the progress they're making, the 2 platforms that we have and why there are more molecules, which we haven't disclosed, would use this specific technology to make a significant difference and improvements to the current well-known good products, good therapy, but they're not being absorbed and absorbed properly in the body creating fluctuations or side effects or inconveniency or other side effects, cardiac side effects or other side effects and how can we use solve that. So Chintu, on the technology?

So Arek, we are very excited on our specialty pipeline and the current state of business. As we stated, we are very optimistic of launching one new product starting from next year, starting with DHE, and then it continues with IPX-203 and K127 and we are heavily focused on the CNS and endocrinology space. And the Kashiv acquisition has now given us the organic platform and a fantastic 70, 80 scientists and the 2 technology platform, [indiscernible] and KRONOTEC. And Amneal has always excelled when we have the organic team and the infrastructure. So now the technology is proven. We feel very comfortable. So we are able to now capitalize. And there are many products which has a site-specific absorption, has a heavy metabolism issues and our KRONOTEC is more of a physiologically mimicking the human body clot so we can have a very too many -- I mean, multiple pulsative releases which gives great benefit. So we are looking at many molecules, try to repurpose them with our technology platform and provide real benefits to the patient. So we are looking to add at least 2 to 3 molecules by end of the year. But what happens is because it's a proven proprietary technology. We have a solid IP. Our time to development is now less than what it used to be before, plus our cost of development also because these are 505(b)(2) would be much more or less compared to other. So we are excited on our pipeline, and we continue to look for outside assets also if we can bring to accelerate even that further growth.

Interesting. And I guess last question and Tasos I want to spend a couple of minutes on capital structure as well. How do you think about your international opportunity? We've heard a lot about the U.S. Are there any aspirations for global expansion?

As I mentioned, Arek, China is our first stop, and we have multiple products already filed with our partner Fosun Pharma, which is the third largest Chinese pharmaceutical company, and we'll be filing more products throughout the year. And next year, we have identified more than 20 products jointly. And we see that portfolio growing, and it's a substantial market. It's a growing double-digit every year. So we're very excited in a Chinese market and having the right partner, who happens to be also a shareholder of Amneal, which allows us to have a very strategic relationship, long-term relationship in multiple dosage form together. So that's the next market and some tuck-in markets like MENA or other lucrative markets, we'll look for it. But it's very strategic expansion. If we go to China, we want to be -- if you count the external generics player, we want to be in top there. So we would focus more and more in a single market that rather than going into multiple small markets.

Interesting. Tasos, I haven't forgotten about you.

That's okay. I didn't take any offense, Arek.

Tasos, why don't we spend the last couple of minutes here talking about the financial side of the business. I'd like to spend some time in 3 areas. One is, as you think about some of the operating efficiencies to which Chintu referred, how do you think about margins for the business going forward? Let's stop there and then we'll talk about balance sheet and capital allocation strategy.

So we have seen a tremendous amount of margin improvement over the last few years, and that has really been fueled by the increased profitability of the generics. So 2 drivers of that. Number one is the reestablishment of a very strong R&D engine. So we have a tremendous amount over 100 ANDAs waiting for FDA approval, another 100 have been filed. So we launched 30, 40 new products every year. That's going to continue. And because they are on more complex generics, they're going to have a longer life span Arek, at a higher margin. So a combination of that and the operating efficiencies, which is continue to in-source products that were third-party manufactured, continue leveraging our extensive operations in India, right? So those are going to -- both of those items will be sustainable and should be continued -- it gives us confidence of having, over the course of time, generic gross margins in excess of 40% in a sustainable way. And because we're already as a company at scale, so as we bring new products, we're not adding infrastructure. So as a result this proportionate amount of that is falling to EBITDA and cash generation, which has been the main driver that has helped us delever over the last couple of years. So when you look at our net debt-to-EBITDA a couple of years ago, Arek, we were over 7x. So last quarter, we were 5x and we have a view over the next 2, 3 years to be 4x to 3x. So I think as a shareholder, you keep feeling better about that profile.

Great. You hit the nail on the head on my next question. I guess the last question is, how do you think about capital allocation more generally, any kind of final?

Sure. So the good thing is our business is not capitally intense, right? So we spent $70 million on CapEx, less than 4% of revenue, and we don't expect this to change materially. So we're not a capital-intense business, number one. Number 2 is the excess cash flow generation is going to go to drive organic revenue growth. Number one, we want to build, we want to allocate more capital on our Specialty business because you have more of a patent exclusivity, right, 10 years or so. And we're leveraging our experience in neurology and endocrinology. So it will be some type of an M&A transaction. We will never bet the company. We will be thoughtful. It will be something we can tuck-in and execute, and that's going to be at a good price, add EBITDA. And then over time, every year, we continue to pay down $40 million, $50 million worth of debt. So we expect that to continue. And just in one second, when you look at our debt, nothing -- it start for renewal in 2025, there's plenty of time. The interest rate is at about 4%. So it's not very expensive. And 50% of that is fixed. So if interest rates go up a little bit, it doesn't hurt us. So I think we have a pretty good profile.

Excellent. Appreciate that overview. I think we've run out of time here, gentlemen, but I would like to thank you for joining us again this year. It was a productive conversation, and appreciate everyone joining to listen in as well.

Thank you Arek. You're doing a great job as a moderator.

Thanks.

Thank you.

Thank you. Take care. Bye-bye.