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

Good afternoon, everybody. I'm Ekaterina Knyazkova at JPMorgan, and it is my pleasure to be introducing the Amneal team today. So from the company, we have co-CEO, Chirag Patel, who will be doing a presentation, and then we'll jump into Q&A. So Chirag, Happy New Year. Thank you for joining us and look forward to your remarks.

Thank you, Ekaterina. Very nice to be here. Is this yours? Good afternoon, everybody, and wishing you excellent 2023. We can all use that. And many good years to come by. I know it's a monsoon kind of season outside. I don't know if you saw it around 1:00, it was pouring down. So my name is Chirag Patel. I'm a co-founder and co-CEO of Amneal. It's been a fascinating journey. It started 20 years ago. So I'm going to walk you through the history a little bit before we jump into where we stand today. It was a very humble beginning. In 2002 in Paterson New Jersey, we started, my brother and I, along with our father's help, Amneal Pharmaceuticals. Not any big goals or big dreams at that time, but we always believed in making affordable medicine for American patients with the highest quality, and we continue to do that. We grew remarkably. From 2002 to 2007, we set the infrastructure. 2007, we launched our first generics product. So revenue starts from 2007, and we took it up to $1.1 billion in 2017. So that was Amneal 1.0. So we built the fourth largest generics company in volume. And value, we're third largest. We're one of the companies where very few can boast all capabilities in transdermal, injection, inhalation, ophthalmics, liquids, topicals, obviously, oral solids. So very much set the generics business really well. As you know, the generics industry is here to stay. And the LOEs, the patents are expiring in a big clips over the next 10 years almost $300 billion in small molecule and same number in biosimilars. We'll talk about biosimilars a whole lot. And where do we stand today? In one note, as I chair the industry in America is that we, our industry is the only industry probably can say this, saving $350 billion annually for American health care system, patient, providers, companies, everybody. So over 10 years, $3 trillion. It's a really remarkable, essential industry for America and for the globe in that matter. I'm very proud to be a part of that industry and leading the industry. And more savings, as you know, next 10 years, 15 years are coming from biosimilars. We do not know exactly how it will stack up in savings, but it could be as high as $100 billion a year biosimilar savings just in United States once industry has matured. So we'll cover all that exciting thing. So today, it's -- we got 12 manufacturing sites, and they're located in United States, 4 of them, 1 in Ireland and the rest are in India. So pretty, very nice, robust manufacturing network of what we need, so we do not have excess capacity. We do have capacity to add on our new product launches. So we do not need to waste our time in shutting down plants or reorganizing. We are focused on growth. Very -- the employee base has been superb. We -- 7,000-plus employees, about 2,300 are in the United States. A big chunk is in India, 4,500. And we -- because of our employees, Amneal has done what Amneal has done is we kept building great team after great teams and continue to do so as we advance into the more difficult-to-make products. So very proud of what we have built today, and I'll walk you through now where Amneal 2.0 is going. So these are the areas, the growth strategy that we have, and we've been implementing for the last 3 years. It's a 5-year journey. That's the first phase and then the next 5 years' journey. We are entrepreneurs. We're still a majority owner of the company. So we have a long-term vision. So we do not make any decisions which are just quarterly or annually driven. So let's walk through each of these. In Retail segment, which is our foundation business that Amneal 1.0, we built it, that is stabilized. That's a good news. And finally, after 5 years, we're seeing lesser price pressure, which is first time change after 5 years. It's moderating because there's nowhere to go for matured, old generics products. There's no further price reduction we can give. So we're still -- I'll show you the chart, we're still growing 2%, 3% every year, while our competitors are de-growing this category. And retail generics means the products we sell to CVS, Walmart, Walgreens, Rite Aid, and it's prescribed over the retail channels. Injectables, we started building this business 6 years ago. Now it's almost running around $200 million annually, and we expect that to go to $300 million plus. And just in the United States, we also have more opportunities outside of the United States market. Excellent growth area. Now we have 19 production lines and 4 plants, 3 of them are FDA-approved plant, 1 is being inspected in March. So we expect that to come online as well. So not only just the capacity, but capabilities. We have excellent R&D capabilities, peptides manufacturing, long-acting depot, large-volume parenteral bags, so long-acting injections. So all these capabilities we have built over the last 7 years and very proud to bring those to the market globally. Biosimilars, my favorite category, and the reason is very simple. Next 10 years, almost $560 billion LOE, half of them are biologics. Biologics where you have 10 to 12 active competitors; commodity generics, 150; complex generics, about 15 players. So we're moving up the value chain to complex Gx, injectables, biosimilars. And we have worked the last 7 years to build this. We have 3 approved products, 2 are launched, 1 we are launching. Excellent commercial capabilities are being built. They're mostly built. And just like on generic side, we led the marketing, we will lead this side as well. We're very good at customer service. We know what customer wants. We always look at the long-term view for our customers. And customers are many in biologics. They're not just 2, 3 buyers. So you have to take care of the, obviously, patient first, but then the providers. Then you have insurance companies. Within that, PBM, then you've got retail chains, you have wholesalers. It is a complicated situation, and interchangeability is coming shortly as well. So we'll talk more about biosimilars, very exciting growth area. It's not an overnight, lot of investment over 7 years now and FDA's learning is there, too. They're asking for less and less clinical trials, which makes the product development around the cost around $50 million compared to used to be $150 million. There's a huge difference. And this is why I believe biosimilar is a business for companies like us Teva, Sandoz. Obviously Amgen has an arm focused there. Celltrion is there. You need to be vertically integrated for biosimilars in the long run to be successful. You can't just keep in-licensing product and be successful. It will become competitive and declining revenue business over years. So you have to have a pipeline. You have to have proper cost of goods sold. Production, manufacturing is everything. Everything is made in the process. From the clone development all the way to the finished products, you have to control. And it's very complicated and high degree of difficulties in manufacturing. So very excited in biosimilar. AvKARE is growing excellently. We actually had a high single-digit growth this year, and we expect same next year. This is the business where we distribute products to federal government, unit dose to the hospitals and certain 340B clinics. The reason we acquired this business is we wanted to be one of the leading players since being a U.S. company for the federal government. And we are, and we are supplying more and more products working with U.S. government to even further secure the supply chain for essential medicines, which are antibiotics, antivirals. So hopefully, we can come up with that solution working with government in the United States and maybe partner country as well to not run out of amoxicillin and Tamiflu and other essential medicine, which is really a problem. And now we do not need to wait for the excuses, right? The pandemic happened, war happened, natural disaster happens, anything could happen, we must secure these [ 80 ] products production within United States at least at a certain capacity, maybe 50% capacity. Then we can have surge capacity. So we are actively working with U.S. Department of Commerce and other related parties to bring that. Specialty, we acquired this business from Impax when we bought the company in 2018. We have a leading Parkinson drug, very excited about this growth as well. We had about $400 million in sales in this business. We have an IPX-203 being launched very shortly, which I'll walk you through. In the international, we just started with a Europe partnership. We filed products in China with our partner Fosun. And we're looking at out-licensing products to certain companies in Middle East and North Africa, Southeast Asia. And pretty soon, we will enter into agreement in South America. So same assets. It's American manufacturing, some of them, but American R&D. And all U.S. FDA-approved products has great values overseas, and we are capitalizing on that now. So this is all incremental for us. This is just the innovation. We keep innovating ourselves. As you know, the first few years were commodity generics, which now has 150 players. So since 2010, we've been moving to the complex Gx where we see 10 to 15 key players; and to injectables, where also limited number of players. And now moving into the biosimilars and then Specialty 505(b)(2) technology-driven products, which is, again, $100 million to $500 million range branded products using technology to really change the molecule for delivering key clinically meaningful differentiator. And we have to do that. Otherwise, the me-too crowd will catch up. So our Amneal fame is being really good in R&D and keep moving upward in upstream, exciting, and we will not stop that, right? Within biologics, there's biosimilar, there's simple mAbs, but then there is bispecific, there's ADC, there's [indiscernible] cell and gene therapy. All of these technologies in biologics will need affordable solution. And who would provide that? The people who have invested in biologics manufacturing, understanding would provide that. Within generics is again, reiterating, we have shifted the oral solid mix to now 88% of our pipeline is nonoral solid. And I think we are the only company that shows growth in generics from 2019. Other companies have erosions. And that tells you the quality of our pipeline, quality of our execution, consistency, our customer service. You call any of our large customers, they would rank Amneal in top 2 in pipeline, service, quality and the innovation that we do. And we continue -- we will continue to grow this business because of that. And we are #1 in first-to-market products. This is -- I'm not going to walk you through all of them, but you see that it's very diverse into various therapeutic -- various categories on a dosage form, ophthalmics, injection, oral solids, liquids, nasal sprays. Big pipeline, 106 pending with FDA. Any given time, 100 products are being worked on. So we are set for this innovation engine. It's been set for a while now. So our focus is more on to more complex Gx as well as the biosimilar side. The injectable, I mentioned that we are focusing on more technology driven. So the cartridges, the LVP bags, liposomal, microspheres. So these are the technology we have been developing for the last 7 years. It's a very exciting area. We are already on our way in a growth. We grew 30% last year. We publicly have stated that we will be over $300 million in this category in 2025. So excellent growth and diversification for us. The exciting biosimilars. So we have a team already buzzing out there, setting an entire commercial infrastructure and already getting the Q codes, getting the payer coverages, talking to customers, using all our relationship and trust that we have built with the large wholesalers, with large oncology practices, we are utilizing all of it. And we are very determined to take our fair share. I know we are late in these ones. But our future products, hopefully, will be in a first wave and some of them in a second wave. We believe that biosimilar would remain a limited competition market. Yes, some of the molecule, you will see 7, 8 players, but it's still much better markets than the even complex generics and injectables. And over time, we have to be vertically integrated. This is our Specialty business, almost around $375 million. Both branded products are growing. Unithroid is growing at double-digit, more than 13%. And Rytary is growing around 7%. The pipeline, IPX-203, we have a PDUFA date, June 30. That will be very exciting to launch in July, 2 years before the Rytary expiry -- patent expiry. And we are ready to launch, because Rytary, we focused on only movement disorder specialists and have gained 5% market share. There are about 700,000 Parkinson patients in the United States, and we have 35,000 on Rytary. Our goal would be to go much higher. And this is a much needed therapy because 30 years old technology on CD-LD, which is a gold standard, and I'll go to next page here, that has a lot of fluctuation. And for Parkinson patient and the caretaker to every 2, 3 hours, have fluctuations and then off time and then on time, then off time. They -- first is the health issues. Second is you have the regular chores of the day-to-day activities you are unable to do. So this is -- if you -- we speak with KOLs and SABs, it should be used as first-line. And that is where we will be trying to focus there. We have a Medicare with a new -- 50% patients are in Medicare, and new law is much lower in the co-pay compared to what it used to be. And on commercial side, we have an excellent coverage on Rytary. We expect the coverage to continue or get better for IPX-203. Very exciting. And we have a road map to get to $300 million to $500 million peak sales as soon as we can. This is not a new molecule. It shouldn't take that long to get there. And our experience over the last 7 years is very helpful. International market, very exciting news. We just announced partnership with Orion. It's a Finland company. Why we chose Orion? Because, first of all, there is very minimum overlap. Excellent culturally fit. They're a 100-year-old company. We're only 20 years old company. They -- $1.3 billion in sales, about 750 salespeople throughout Europe. So they can pretty much cover entire Europe. And they've selected key complex Gx. We have no interest in commercializing the me-too commodity generics. This is all about complex Gx, complex injectables and biosimilars to come. And we expect this partnership to grow to more and more products and [ all cells ] are incremental for Amneal. China, we have filed 10 products, keep filing a few products every year. And we expect approval this year and commercialization this year. India, we see that as one of the fastest growing market. The entire economy is growing in double digit. The pharma industry is growing double digit. So we launched our label. We set our commercial infrastructure in Mumbai. We started with hospital sales, emergency meds and now going into different therapeutic categories. Very excited about growth in India. It's, again, incremental market for us. We grew up in India. We have 5,000 employees and still have a lot of connections with India. So we feel comfortable operating as a direct market in India. So from -- U.S. is obviously top market for us. India is a second direct market. The rest of the world, we will be partnering at this point. Growth has been remarkable. It hasn't been noticed, but we grew 11% even in difficult times in revenue and 15% bottom line. And we expect our growth to be robust over '23, '24, '25, '26 as injectable growth comes in, Specialty growth comes in, distribution is -- keep growing, complex generics, international brings tremendous growth. Highly diversified company. So we are not reliant on 1 products, 2 products, huge concentration. So very excited what we have built in the last few years and even more excited for next 3 to 5 years. Capital allocation, very keen to reduce debt, increase EBITDA, get the leverage down to 4x and get the refinancing completed as soon as possible this year. Debt maturity is 2.5 years away. Here are some of the catalysts you can watch for this year. There are a lot in each area. And you can tell we are so busy, and we work 24/7. It's a nimble company. The changes what are happening in the market is actually favorable to us, such as Sandoz going public by itself and Teva having a new leadership. Viatris focusing on other areas. Leaves a very wide for a midsized company like us to grow, and that's what we're going to capitalize over the next 5 years in the areas I mentioned. And this is the takeaways from today that we keep. Execution, execution is key to watch. We are good at it, keep doing it, keep working on those and the key catalysts that I shared. It sets up very well for us, the growth acceleration this year, more next year and more in '25. And then '26, '27 is built with biosimilars and more Specialty products as well. So thank you very much. We have a Q&A session now?

So I guess, to start, 10 years from now, what does Amneal look like?

Big.

And what do you kind of need to do to kind of get there besides getting big?

We would like to be -- is it on? Hello, can you hear me? Great. Biologics, excellent infrastructure and set business. Complex Gx and injectable will continue. They're not going anywhere. And key Specialty products. Commodity Gx is hard to compete. It's almost 150 players. That place requires consolidation. So hopefully, someday, consolidations are allowed there because as you know the buying side has become so powerful. There are 3 buyers and 150 suppliers, guess what happens. And the government has weakened the manufacturing base so much that sustainability is at stake, which fills 90% of prescription, commodity generics. So we hope consolidation happens at that time on commodity Gx.

And then so as you think about 2023, you're obviously not giving official guidance, but what are some of the kind of pushes and pulls that you're thinking about or some of the swing factors that you would highlight to us?

I'll pass it to Tasos. The swing factors like IPX-203, uptake on biosimilars, how well we do on commercialization, getting the refinancing done, putting the opioids behind us, which is not a big issue for us, fortunately, and keep succeeding in R&D. We work on many projects. So hopefully, we have a 70%-or-so success in R&D.

And then so on biosimilars, just as you think about the U.S. market, so on one hand, obviously, we've seen some great launches, good uptake. On the other hand, I feel like price erosion has been quite steep in some of the markets. So I guess, just in general, what are your thoughts on biosimilars? And has it evolved kind of as you expected?

So it's still evolving. Somebody called it, it's in early innings, maybe inning #2, but it's a high scoring game. It will keep evolving from, obviously, the regulatory side, the advancement in manufacturing, continuous manufacturing. And on the market uptake, it's almost 70% now is biosimilars' evolution. So not as 95% or 97% like Gx, but it's already 70%. Interchangeability will play a key role. More launches coming up in the next 5 years. So the market will be well set within the next 5 years.

And then as you think about your portfolio, you obviously have Avastin, Neupogen, Neulasta. Out of those 3, which is the most exciting for you?

Alymsys, bevacizumab; and Neulasta. Big market. We are third to enter in bevacizumab. So it's still a place for us, and we are penetrating already. We got our Q codes in place, products in the market. And insurance coverage is getting there. So very exciting. And it's always nice to go against Pfizer and Amgen. Then you're proving yourself from the beginning. And Neulasta, we're fifth, but there is a dynamic that we could get our, let's say, 10% market share.

And then just as you think about the company's strategy in biosimilars longer term, is the plan to kind of build upon the 3 assets that you have kind of like in the hospital kind of oncology setting or do you think kind of a broader prescription, et cetera, kind of broader portfolio?

Yes. So oncology, we are in already. So we'll keep building onco on a commercial side. And then we are working on in-licensing product and also looking at, hopefully by year-end or early next year, vertically integrate to have pipeline as well as manufacturing capabilities in the United States, R&D capabilities on our own. So we are -- at that time, it could be autoimmune product, it could be in other categories. Once the basic, which we have set up the biosimilar infrastructure for us to add ophthalmology marketing or the allergist, it's not going to take a long time. Plus remember, we have the already branded business. So a team of 180 in the branded sales and marketing. And it -- those are the, I think, easier part. The harder part is to get the product through IP and launch. And fortunately, we can do well on that side as well as -- and we truly believe it has to be vertically integrated, because as you said, the prices are going to be declining when you have 2 partners to share margin. It then may not be attractive. And plus you do not control all your destiny from quality, manufacturing, consistency. And if you are vertically integrated, you can also market it globally. Right now when we go for in-licensing, we only get U.S. rights. And internationally would have at least 30% if U.S. is 70%. So quite a bit market out there.

And then switching gears, I guess, a little bit to just like regular generics, I guess. So the industry has obviously seen a lot of challenges. Some companies have pivoted away from the U.S. generics market. So what are your thoughts on this? And I think more importantly, do you think that where we are right now when it comes to kind of oral sales, traditional 'generics', do you think like that's a stable situation or you think eventually consolidation is going to have to happen or like something is going to have to give, kind of? Yes.