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

Good morning, everybody. I'm Chris Schott at JPMorgan, and it is my pleasure to be introducing Amneal today at the 40th Annual JPMorgan Healthcare Conference. Now, from the company, we have the Founder and Co-CEO, Chirag Patel. [Operator Instructions] And with that, Chirag, Happy New Year. Thanks for joining us, and I look forward to your comments.

Thank you, Chris. Good to see you via Zoom and hopefully, we'll be back live next year. Thank you, everyone, for joining us today. A brief introduction, my brother and I humbly started the company in Paterson, New Jersey back in 2002, and have grown to be the fourth largest, I call it, affordable medicine company in the United States. We're very fortunate to have a great team of Amnealians, which has made this possible. And today, I'm going to discuss the strategy for the company's growth in upcoming years, from now to 5 years, or you could go as far as 10 years. Very excited about how we have set up the company for the next growth areas, and it is in the essential affordable medicine field, which is, as you know, is much needed for the United States as well as rest of the world. And new biologics drugs would be leading the way as we grow our industry as well as our company, and bring, most importantly, the affordable medicines for the patients who do not have access to these high-value or high-priced products. So we're looking forward to that mission as well. So moving on to the Slide 3. If you can see what Amneal was, 4, 5 years ago and where Amneal is going today. Significant growth opportunities in multiple areas, so let's look at the first 2. The Retail generics and distribution. At our scale, we are still growing Retail generics. We have a strongest pipeline in the industry. We are known for our execution, #1 quality record, and we continue to grow. Even though it's a modest growth, but it's a consistent growth in a highly competitive Retail generics. Distribution is also steady Eddie, really focused -- only focused on VA/DoD so federal health care market, and it's one of the top distributors which requires U.S. and other few selected countries manufacturing. So we use our U.S. manufacturing base to supply for VA/DoD and we're proud to do that as well. Now, on where we have the most exciting expanding, sustainability and growth is on our specialty and institutional injectable business. And I'll be walking you over each section and tell you and very excited to share, for the first time, on specialty, our peak sales as well. Institutional Injectables, great progress we've been making. This year, also we expect revenue to be over $150 million. And we will be growing that revenue base from recent acquisitions of newly acquired capabilities, big R&D scale, among the -- whether it's a large volume parenteral bags or long-acting depot injectables, PFS, so [indiscernible] products in the injectable space. And the new areas where we're launching our products, we have been modestly investing in Biosimilars and the year has come that we potentially could launch all 3 products this year. We're already building our commercial infrastructure and also looking at new opportunities within Biosimilars to bring it in-house as well as in-license it. In international market, we have great assets which are great products in the United States. For the first time, we'll be taking it internationally. We have filed products with our partner, Fosun in China. In India, with recent acquisition, we have started our commercial activity. Even though at a small scale, we expect that to grow in the hospital business, as well as into the specialty products, the high-value products or the most importantly, the excess is not available for the more complex products. Those, we'll be bringing in India as well. And certain select territories like Africa and South America, we will be partnering for our international growth. So moving on to the -- if you can look at the Slide 4, these are the market sizes. And really, important distinction here is specialty that applies to us. We are focused on movement disorders as well as endocrinology. The market is growing, as you can see. Retail generics, we have done our internal analysis of this market, which, this is -- the numbers of $20 billion today, it's from the manufacturer's perspective. So if you add up all manufacturers on Retail generics, which we sell products to CVS, Walgreens, Walmart, adds up to about $20 billion from the net sales perspective, modestly growing because of heavy competition in generics to 2025. Injectable, this is also a perspective from the manufacturing standpoint, and it's growing in a good growth rate to 2025. For us, it's more meaningful because we are at smaller size in injectables. So we have more growth opportunities there. Biosimilars, these are IQVIA data that today, almost $28 billion of [indiscernible] worth of products that biosimilar competition, which is facing. In 2025, it goes to $105 billion. So a huge opportunity for Biosimilars coming up in the next 5 years, but we see it for the next 10 years. International, as I mentioned, China, we have a partner Fosun, which is top 5 chinese company. We have filed about 10 products and about to file additional products, and we'll be marketing in 2023. India, also growing double digit and expect to go to almost $50 billion in 5 years, from current level of $25 billion total market. We're well positioned to start marketing, which we have done in the hospital segment with our recent acquisition, and we'll be adding more products to hospital segments as well as biologics and other specialty. Very niche play in India. And the rest of the world would be -- with partnering model with distributors in those countries. And distribution, as I mentioned, grows with new generics launches over the next 5 years. And it's a -- you have to manufacture those products in certain countries. VA/DoD does not buy products manufactured in India and China. So it leaves only certain countries where you can bring the product, making it a bit of a niche market in that perspective. If we could please move on to the next slide. Here is where we stand today. We have $2.1 billion diversified revenue, which comes from Specialties, $363 million, which is -- this is where we see the big expansion opportunity, and I'll walk you through how the specialty builds up from new launches of this year, next year, every year, at least 1 launch in the Specialty segment. Retail generics, as I mentioned, we are 4th in the country. We're at $1.24 billion. We're modestly growing 2% to 4%, but at least we are growing in a highly competitive market. And the reason we are growing is our product mix, our portfolio, more complex products. We are leaders in first-to-market products, and we continue to do so. And having all dosage forms within Retail generics. And what I mean by that is having transdermal capabilities, liquids, topicals, inhalation, ophthalmics, and including obviously, oral solids, all these allows us to introduce products with less competitive dynamics. Allows us to grow while we offset the price pressure and reduction in the business every year. The next one is Institutional Injectables, where we have 25 currently market products, we expect around $150 million in sales this year. It's growing double digit, and we expect that business to go over $300 million in coming years. And we're also excited about the opportunity to bring the injectable business in international markets. Biosimilars. Very excited to launch, potentially, all 3 products, and they're in oncology setting and our current acquisition brings 20 institutional sales rep and people with a high-touch selling into these markets. So we are already on our way and prepared to commercialize Biosimilar products. International, we have as I said approximately 10 products filed and we'll be filing more in China and India. We have introduced several products and we'll be adding as we go into next several years. Very excited about both opportunities. And distribution is a steady growth and we expect that to continue all the way to 2025. And again, as I said, we take advantage of our U.S. manufacturing to grow that business. If you could just move on to Slide 6. You can see the history, what Amneal has done. We are very good at organically developing science, technology, engineering, manufacturing capabilities, and as you could see, the 2002 humble start in New Jersey, expanding our oral solids in New York and India, more manufacturing in New Jersey, oral liquids, topicals in New Jersey, insert/implants, transdermal in New York, Ireland, we have a fantastic inhalation facility, which we expect to start commercializing product from this year. Injectable, 4 facilities in India and looking to expand in the United States. As you can see, the Biosimilars, also are manufacturing in Chicago and Spain, and we'll be launching our technology-based 505(b)(2) branded products in this year, next year, and every year after that. So very exciting with the innovation side. We continue to do so and we'll be bringing in more in-house capabilities for Biosimilar development and manufacturing as well. This has been our track record, and we have done this well, and we will continue to do so. If you could now let me walk you through the each segment, a little bit, in more detail. So if we start with Specialty, as you can see, currently, we have 2 marketed lead products, and they're both growing double-digit, Rytary, leading Parkinson product to manage the motor fluctuations for the Parkinson patients. And our Unithroid, which is a product for the hypothyroidism, is also doing well in the market. This year, 2022, we expect to launch 2 products. One is DHE Autoinjector, that is for the cluster headache, which is -- it's one of the most painful event for the patient, almost 1 million patients suffer through cluster headache, which is ranked highest in the pain and the fourth highest for the emergency room visit. This product allows the patient to self-administer the autoinjector pen when their cluster headache episodes at home, avoiding the need to go to the clinics and hospitals. So it's much unmet need that we are bringing, and we're very excited to launch that product this year. The second one is LYVISPAH, which came with our recent acquisition. It's a baclofenic granules, will be marketed in -- by our neurology sales force as well this year. The next one, the big one, the IPX-203. It's excellent improvement over IRCR, as well as Rytary will be launching in early next year. We're filing it in June. We have successfully completed Phase III. And we're very excited about IPX-203 because it -- the dosing frequency is less. We have seen almost 1.55 hours improvement per dose, which is very significant in the life of Parkinson patients. so we believe this would be adopted by general neurologist as well, along with the movement disorder specialist. And therefore, now, we are forecasting much higher peak sales than Rytary for IPX-203. The next product is K-127, which is applying over GRS, gastric retention technology, which we acquired from Kashiv Specialty and the product is targeted for myasthenia gravis disease, which is also the management of the disease every day and avoiding certain side effects that current older product provides. so we're very excited to potentially file by end of the year and launch by end of next year. And following that, we have 2 additional products coming up. And with our internal analysis, as you can see on Slide 8, we have now given peak sales for each product. We believe that DHE Autoinjector gets to $50 million to $100 million. The IPX-203, which will be our biggest launch, would be $300 million to $500 million in peak sales. Myasthenia gravis product, K-127, $50 million to $150 million. We're looking at adding one more indication that could take that $100 million to $200 million range. And then, we have the hypothyroidism product, T3 base, which we expect to be around $100 million to $200 million. And we're also adding 2 more new products into our pipeline. And these are 505(b)(2) products, so this is a low risk in R&D. It takes around $50 million to $70 million to develop each one of them, and we get the patent protection after launch, almost 10 years on average, which allows us to build the market and grow the market as well. So it provides durability, sustainability and these are higher margin contribution product than, obviously, generics products. So excellent portfolio on branded side. Moving on to Slide 9, just reminding you that the 2 technology platform that company led, we acquired Kashiv Specialty had built over 10 years. Excellent, much needed, the GRANDE platform, which is the advanced gastric retention system. Many drugs have issues in absorption in upper GI tract. This technology allows it to slowly absorb and properly provide bioavailability for drugs that have the upper GI absorption issues, and there are -- almost 10% of the oral solid drugs have those issues. We're very excited to use this technology. It's been, now, in clinics for -- successfully been in clinics for over 5 years. So we expect more products to be introduced using this technology. And the KRONOTEC also mimics the physiological patent and targets the chronological release as when patient needs it. So both are exciting technology, and we have products based on this technology already in the pipeline. And this allows us to keep growing your Specialty business even in coming years. Moving on to, now, Generics. The word people get scared, but I don't know why you would have to be scared. This is much needed essential part of our business, where we do have to keep providing affordable medicines and more to be provided. Yes, market is extremely competitive, but look what we have done. We used to have -- If you look at the left side of the chart on Slide 10, 65% of our products, I would call it, a more commoditized heavy competition, oral solids mainly. Now, they're 50%. And this is why our margin is improving, and we are able to grow the business as well. Going forward, we expect that to shift to 70-30, 70% all complex generics, 30% commodity, oral solids. And pipeline is 85% now are all complex and only 15% in oral solids. You can see our net revenue grew modestly, but at least we had growth. And also where gross margin improved because of operating efficiencies as well as product mix. And we -- as we continue to launch new products, we expect both of these charts to go up, revenue as well as margins for our generics products. And it's an excellent portfolio. It's been ranked as the best in the industry. And we get -- we're very proud to bring the first-to-market products, which creates excess for patients, which otherwise may not have been able to afford those medicines. Now, they can afford it, as we brought the first generics. Then, this engine has been set for over 15 years now and have done a fabulous job and will continue to do so. If you go to Page 11, this is how we keep it up as competition comes every year. We have 133 products in pipeline, almost 100 products pending at FDA and total 250 commercial products in the market. And every year, we launch 20 to 30 products. Last year, we launched 28. This year, same thing, 20-30, new launches. And this allows us to capture new, more complex products revenue and margins, while that offsets the competition that comes in more commodity business, and overall genetics business. And this is why we are able to grow our generics business. And we see this consistent growth for many years to come even in Retail generics at the scale we are at today. Slide 12. Let's talk about Injectables now. We are just more -- probably, the finest, the best facility that was built in India we acquired and that allows -- this is our fourth facility now. It allows us the much greater capacity for R&D batches as well as manufacturings, new technologies, the large volume parental bags, multi-dose vials and allows us to, in the future, do fill and finish for the biologics products as well. So very exciting acquisition and very excited about the growth in this segment. We are ranked #15 today in injectables. Our goal is to be in top 5 over time, and we're very confident that we'll get there. Moving on to the Biosimilars. This is, as I talked about, it's very exciting, 3 potential launches, big markets. It's a quasi-branded market, and we are uniquely positioned to do well there because of our specialty team here in Amneal as well as newly acquired 20 people team from SOL and also building the biologics leadership on the commercial side as well as R&D, as well as on manufacturing and engineering side. We will be a major player in Biosimilars, and we are very confident, over time, we'll be in top 5 in the United States and meaningfully contributing in the global markets to bring access to these highly valuable products for a patient that makes a huge difference in their lives. And today, they do not have any access. We'll be bringing that and very excited. It's -- we're a purpose-driven company, and we continue to do so. Moving on to the Slide 14. Quickly touching up on -- I already touched on the recent acquisitions, so I won't spend more time on it. On Slide 15, as you can see, again, international markets, big markets, China is #2 now after United States and India is getting up in the top 5 markets in 5 years as well. And rest of the world, certain markets are very exciting and certain markets are very purpose-driven to bring these essential medicines to patients. On Slide 16, as you can see, our financial performance. It's stellar. If I, historically, tell you that 2007 to '17, when we were a private company, we are 40% compounded annual growth rate. We're not 40% here, but it's nothing to shy about. 14% CAGR on net revenue growth and 23% compounded annual growth rate in adjusted EBITDA. So that is a remarkable performance in 2 years, and we expect this to continue for multiple years to come. On Slide 17, we are strengthening our balance sheet. This is what was the biggest issue for us. We were at 7x net debt to EBITDA on a leverage standpoint, we have brought that down to 4.6x. Our goal is to bring it below 4x in 2 years and run the company around between 3x to 4x ongoing or bringing even below 3x. So we're highly disciplined. We're funding our own growth. So we're not borrowing and we have done 4 tuck-in acquisitions using our cash flow and we will keep doing the tuck-in acquisitions. We don't need anything big, we have enough organic bandwidth and pipeline to keep growing without doing any major debt driven deal. So we expect the balance sheet to strengthen and leverage to go down. Quickly, on Slide 18. We've always been a purpose-driven company. We provide almost $10 billion in savings for American patients every year. We have the commitment and demonstrated the highest quality. And we -- most of those products will make it in-house that allows us to be on top of quality all the time. And we have a great U.S. team, global team, I'm very excited. We work as one family. As we see, one world, one family, and it's -- the people have been in the company for many, many years and great culture that we have created. And environmentally, we've been very, very smart about it and responsible about it. We -- the entire -- our New York state plant, which is one of the largest in the country, is based on geothermal. All our API plants or any plants has zero discharge. We take this very seriously, and we'll continue to do so. And we're also introducing certain green chemistry for our API manufacturing and continuous manufacturing. So with that, I will conclude and allow to get into the Q&A with my friend, Chris. I hope we have enough time.

Great. Well, I appreciate all those comments. And very helpful, seeing the peak sales expectations for some of the branded products. Maybe, we'll start on that. Can we first talk about the DHE Autoinjector? It seems like your nearest launch opportunity here. Talk a little bit about how you think about reimbursement for this product and the launch trajectory. So how quickly can we get to that $50 million or $100 million peak sales estimate that you have?

Yes. So our teams are working on it on a payer landscape, we'll be very responsible on how we price the product, the limit on quantities that patients can have. And it is, as you know, we are targeting more for cluster headache patients first and some breakthrough migraines. It would obviously require prior authorization and step edit before it gets covered. But we're working with payers to get there. We -- when we do launch, which will be sometime this year, we'll have a good coverage to start with. We expect the peak sales to be there in 2 to 3 years.

Okay. Great. And the other one I look at it is, with 203, I know this is an asset you're very excited about. I'm still trying to get my hands around a peak sales number that's 2x to 3x the size of what we saw with Rytary. So can you just talk a little bit about the differentiation you see that's going to enable that step up, I guess, in revenue versus the current franchise?

Yes. It's a real life, for example, of the products on the clinical setting. Phase II, you have to pay real attention that was the study, which was not closely titered and controlled. Then that's real life examples. You can see 1.5 hours improvement per dose. 3 -- on average, 3x dosing versus 5x, 7x dosing on IRCR and average Rytary is 4x, the dose conversion is not required. It's pretty straightforward for IPX-203. So we believe that general neurologists, the market opens up. Right now, we've been marketing only on movement disorder and we have captured 5% of market of the Rytary patients, which is almost 750,000 patients requiring CD/LD treatment. We expect that to double at least, because of general neuro reach, using the product at the early stage of Parkinson's disease rather than later stage, and we may be conducting a trial which we are evaluating, that if you start using IPX-203 early on, what does it do to the patient? Does it push out the progression further out? And if we are able to prove that, then obviously, we are creating a bigger market for ourselves. So -- and we learned all the issues with the launch in Rytary...

Sure. Yes.

And we have the teams now ready to go with full experience and Rytary is reaching $175 million this year. So it could peak out to $200 million. So we expect this to go to $300 million to $500 million peak sales.

Great. And just want to follow up on that. Do you expect that a sizable portion of Rytary patients would move over to 203, given that convenience? Or are these more incremental, kind of, either earlier stage patients or different patients than you have currently?

Both will happen. So patients will move over and a new patients will be added. We're more excited adding new patients as well.

Great. And then maybe, last one on the specialty side is just these launches, do you need more commercial infrastructure to launch these? Or do you think you can just leverage the existing sales force in neurology to commercialize most of these products?

In near term, we are good. Up to 3 products in neurology basket, we're good. So with [indiscernible] DHE Autoinjector, Rytary would be always leading product. IPX-203 will become a leading product. In 2 to 3 years, when we have more than now 3, like 4 or 5, we will reshuffle. We'll add on more. But for now, for the next 2 years, we're good.

Okay. Great. On the Biosimilars, when I think about Neupogen and Neulasta both launching in '22, just talk a little bit about your expectations there. These are obviously more established Biosimilar markets. What type of share do you think is reasonable to think about for Amneal as you enter this?

Well, can you say -- you missed the big one, Avastin. So that's the biggest...

Great. Yes. I'm sorry. Okay.

Yes. So Avastin, Neulasta and Neupogen. Let's look at Avastin landscape today, 3 players, including brand. Hopefully, it will be 4th or maybe 5th based on the timing. Good news is, FDA is inspecting the site live, both of them. So we will be, hopefully, be done with inspections. All other areas of reviews are completed. So very excited potential all 3 launches. So Avastin, all are in oncology practices. So we have studied the market. We had certain relationships already since we have oncology injectables and with the SOL team coming onboard. We would be -- for Avastin, we will be targeting a 20% market share, if we are 4th. For Neulasta, already 5 players, including brand. And then on body, which we'll be adding later on as well, would make a difference. So that franchise we'll build over time. It will be more difficult to penetrate Neulasta market than Avastin, but we do expect to get to 10%, 15% market share in Neulasta as well. And Neupogen is just like injectable on the 3 players, mostly selling at the hospitals, not a big market, but it will be meaningful for us.

Okay. Very helpful. And then, I think you mentioned SOL with the institutional sales team. Can you give my hands on how big that organization is and how much incremental kind of resource you need to put to build this channel out, I guess?

So we just brought in-house, we have the excellent leader joined us for lead the Biosimilar commercial effort just recently. And we -- the SOL team is 20 people. And that is, on average, they have 20 years each experience. So excellent high touch point, institutional sales team. That was one of the reasons why we acquired SOL as well, to quickly start commercializing your Biosimilar products. Because they're currently marketing only 1 product.

Yes. Yes.

20 strong.

And then -- yes. So it's now a 20-strong and very experienced team. And then, do you think 20 is the right number for these 3 initial launches? Or is...

We may add 5 to 10 as we...

But nothing...

I won't expect to have 100, it will be 30 people, probably.

Okay. Perfect. That's what I was trying to get at. Yes. And just, when you think about, maybe on the BDE front, just building off the comments on SOL. Are there more assets out there like this, where you've got a product or 2 and capabilities that help the organization? I'm just trying to get a sense of the landscape of these deals. It seems like you've done kind of a series of these smaller acquisitions to pivot the company. And I'm just trying to get a sense of -- are we done at this point? Or is there a lot more of this we should expect from Amneal over the next few years?

We -- you should expect more tuck-in deals. We like these opportunities. We always want to do, obviously, deal at the right price, right time. We do not like to overpay for any assets or really go out there. So we stay away from a highly competitive arena because we do have a great organic pipeline. So we'll do tuck-ins and you expect tuck-ins in building our biologics capability, especially on Biosimilars and could be in one more area that we're very excited at Amneal building.

Okay. Great.

In long-term, I believe it needs vertical integration for biosimilars. You have to develop your Biosimilars globally. You have to manufacture them and you have market them. Because it becomes competitive and spend with an R&D if you follow the new regulations, we believe we could develop each product between $40 million to $50 million globally.

So more -- maybe, more efficient than in the past in terms of...

Correct.

Yes.

But the market size of each product could do $100 million to $200 million. So having expectations of $300 million, $500 million, $700 million is not correct because it will be competitive. And this is why it fits more with the companies like us who are great in manufacturing, quality, engineering. We invest our time, money. And then, efficiencies we're great, and we're here to stay in the game. And it makes a dent to our revenue as well as profitability, to adding $50 million, $100 million, $150 million products and helps us grow our international markets.

Yes. Yes. That makes sense. A couple of -- just on the generic front. I guess, just the market is clearly evolving. I think, you laid out in the presentation, looking -- your focus is really pivoted to these more complex products. I guess, just when you think about companies like the Sandoz, kind of Novartis exiting its Sandoz business or divesting that. How do you see the industry as a whole evolving? I know Amneal has pivoted its portfolio, but how does the industry -- just talk a little bit about that environment and how you see that playing out in the next few years?

Yes. Excellent, Chris. It is evolving, and we are leading that evolution. So we believe the more durability, sustainability, more excitement in the growth. And unfortunately, we have it because the biologics will lead the way. And you have the 505(b)(2) specialties, which are reformulation of older molecule, with using technologies which are much needed for the patient currently on a bigger population health. And that will continue, and that's very smart investment and return on investment with the low-risk R&D. These are not biotech bets or NCE bets. So along with the biologics, the speciality and complex generics, injectables and other device-based products, the futuristic products, the combination products, that is the new industry. And whoever leads, I believe Sandoz will be there or it's already there, Teva is there, Viatris is there. We are there. Some of the Indian companies may pivot to there or may -- some of them may just stay in the commodity volume gain. So that's how industry will shape out. And it's, I think, about time to let go the 5, 10 years old GX industry. We're already into a new phase of growth, and we are essential for the affordability as well as the excess for these medicines. Globally, we are needed as an industry. And especially on this complex where the barriers to entries are much higher.

Yes. That makes sense. Maybe one last one, last minute or so here. Can you just walk through the pushes and pulls to think about for 2022? I know you're not giving guidance formula yet, but I'm sure that as we're thinking about this, this year, what should we be keeping in mind?

Yes. It's a building year. We still -- we'll be growing our revenue. And on a profitability standpoint, we may be investing more into sales marketing for IPX-203, DHE, Biosimilars, so we'll have additional expenses this year and a bit more expenses on the R&D side. So those are -- again, we're funding our own growth by internally investing in these areas as well as acquire doing a tuck-in acquisition. So it will be modest, '22, '23 it builds up nicely, '24, '25, and we'll be giving guidance and the long-range outlook when we have earnings call coming up for the fourth quarter in February this year.

Great. We think we're just out of time, Chirag. I really appreciate the comments and good to see the, kind of, updated story in terms of laying out the growth drivers, et cetera. So I look forward to continuing the conversation for '22, and thanks for joining us.

And hope to see you live next year.

That sounds great. Talk soon.

Thank you.

Bye.