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

So good morning, everybody. I'm Chris Schott at JPMorgan, and it's my pleasure to be introducing Amneal today. From the company, we have Chirag Patel, who is the co-founder and co-CEO of the company. Chirag's going to do a presentation, and we're going to jump into Q&A from there. So with that, happy New Year, and thanks for joining us.

Great. Thank you, Chris. Good afternoon. I guess it's still good morning. We had almost good afternoon. Great to see all of you, and thank you for coming today. I'm going to start with a bit of history for whoever is new. Amneal was founded in 2002 by my brother and me, humble beginning in Paterson, New Jersey with our own whatever family savings we had. And today, we're proud to have built America's 3rd largest generics company, which we like to recoin the term and add the injectables and biosimilars and call it affordable medicines company. So -- and 7,000 employees, multiple plants. So very great American story. And in the last 20 years, we have built this and we look forward to building this even further. So thank you. So today, I'm going to walk you through macro trends first, which will give you an idea how large this market is, why the affordable medicines business is sustainable, substantial and essential for the nation. And in all areas, the markets are growing, and I'll show you that. We'll give you -- I'll give you a little bit of Amneal overview and then walk you through our growth strategy. We are very excited for all the growth areas and multiple growth vectors we have. So very excited to walk you through this brief presentation, and then we'll have Q&A. So here's the macro trends, and they're accelerating the growth, right? As we know that having the essential medicines is a right for all patients, not a privilege for a few. So who is going to deliver that? It's companies like us. And we're glad to lead this pack and this industry and continue to lead in America. America is the largest market. We are very proud to be American company and keep investing for United States. We're also expanding in other markets as well. But you can see how big the market is growing, number of prescriptions patients are taking, $141 billion of products coming off the patent. So next 5 years, there's plenty to do, even after that is plenty to do. And for companies like us, which can deliver, like our alignment is a competitive advantage. We can deliver all complex products. We have delivered injectables. We have delivered biosimilars. We have delivered unit dose nasal sprays, the liquid suspension, transdermal. So we stand here to win. And when we start R&D and investment from U.S. and FDA approvals, now it's even becoming easier to expand our markets in the international markets. So that's even larger incremental opportunities for us. And we have internal industry-leading R&D engine built over 20 years, 900 analytical chemists, scientists working on it. So we got the real meat to deliver the growth. And that is we have done that in the last 4 years, we have done it for 20 years. We had a competitive industry for a few years back in 2018, '19, '20, but we're -- successfully, we have moved to diversify the company. Here is the markets. Here are the markets that we're working on. So retail market, that is defined as the products we sell to CVS, Walgreens, Walmart, Express Scripts. So all the retail outlet. So it's prescriptions filled by retail outlet. And that market, we -- our estimate is [ $25 billion ] today, used to be larger. Due to pricing pressure, the buying groups consolidating, it has shrunk, which is dangerous for shortages. You see a lot of shortages coming, how do you source this plant -- plant in having a shortage because all the supply was concentrated 80% with 1 manufacturer, selling at a couple of dollars or more, which is, I mean, less than $2, which is you cannot produce chemotherapy products for that kind of price. So the markets, we believe it will expand, but not to the greater -- it should expand more. Pricing should improve, but we are estimating [ $29 billion ] by 2030. Injectables growing more because the hospitals are asking for more RTUs, more bags, you can convert certain bags in a ready to use, which the [ adders ] are, they can have less [ setters ] and efficiency can increase. So injectables will keep growing. Biosimilar is the biggest growth. This is IQVIA number, so it's not exactly the net number from manufacturers, but if you look at or if you saw Amgen's presentation yesterday, they're predicting their own 8 to 10 biosimilars doing $3.5 billion to $4 billion globally. So that's about a $400 million to $500 million per molecule, which I believe, my estimate, the United States would be half of it. On a value, United States obviously has the highest value. So this market is going to evolve. It is going through challenges. I've talked to many investors that are disappointed with the growth rate in biosimilars, but we have to be patient because the legislative efforts, which was successful and introduced the biosimilar bill. FDA is working with biosimilar manufacturers to develop the product more efficiently. So we can have lesser number of clinical patient, more analytical work. Can we cut down 7 years of development time to 5 years? Can we cut down $200 million, $300 million or $150 million development cost to $100 million, below $100 million. So we're going to do that. Our industry is going to do that. Brand companies and the payer community, they will eventually would have to come to the terms as they did for generics because the intent for the biosimilar is to bring tremendous savings. Any force working against that in the long term will not be successful. So we believe in biosimilars, it will become a big market, 70 molecules are candidate for biosimilar competition, 7-0 for next 7 to 8 years. So excellent market. And we have a niche specialty business, which is Parkinson's, leading Parkinson's drug as well as hypothyroidism drug. We will grow that business over the next several years. We're very excited to introduce IPX203 potentially this year, and we'll talk more about it. So let me now go back to the overview of Amneal and how we stack, and our mission is to become America's #1 affordable medicines company. So when you combine injectables, biosimilars and retail Gx products, which are more than 270 products, we should lead the pack. Teva would be our closest competitor. Sandoz would be our closest competitor. And then we have Indian companies that are our competitors. So we like to lead, and we have capabilities, we have the management team that can deliver. It's one of the finest. We have #1 quality track record in the industry, 100-plus FT inspection, never had OAI or warning letters. We're the only one in the entire global industry to say that because we take quality completely seriously. I mean, our mother takes the same prescription drugs that we make. So it is a highly responsible business, and we invest in quality all the time. So we now like to call ourselves a global company as well as we have started marketing our products in India, and we partnered in Europe, partnered in Middle East, and we'll be partnering in Canada and South America very soon. So that would expand the market for us. This year looks great. Great growth, 7%, 8%. We affirmed the guidance this morning. And we're very excited for where we are going next. And the leverage, we will continue to delever our company from 4.6 to 4, and in long term, below 3x we like to operate. Here's -- if you look at what we did in 4 years, this was challenging times in '19, '20. When we went public, '18 was great, '19 came down, a lot of competition, and look what we have achieved in 4 years, very quietly This revenue -- every area has grown, right? Revenue growth is tremendous and sustainable. The diversification, we only have 26% of total revenue comes from OSD, oral solid dosage, which tends to have more competitors as barriers to entry are easier in small molecule oral solids. But we still work on certain oral solids because they are key ones like Asacol HD, there's [ Carvedilol XR ]. These products are -- very few players can come through. So we work on those. If we look at our pipeline, 90% of current pipeline has non-OSD. So it's a fantastic pipeline and it's an engine. We keep adding more product, keep getting 30 or so approval every year, keep launching those products successfully. We pretty much launch everything with approval that we get. So technically, it's a proven platform that we don't just get the approval and get stuck in the manufacturing issues and don't launch. We launch every product. And then biosimilars, existing strategy, we are in-licensing product. Oncology is our focus. We in-licensed 2 more products, and we will in-license more. The EBITDA, great growth, and now even it further accelerates going next 5 years. Cash flow, constant focus to keep improving cash flow and paying down debt so we can achieve our target of 4x leverage and then 3x in the long run. The debt situation is -- we manage the refinancing. So it's now May 28, we'll be paying down debt. We will improve our ratings and look to bring down the rates as well. And the corporate structure has been enhanced as well. Here's a track record just quickly. And one thing to notice here is if you look at the light blue, that is a base business. Everybody is worried about the base business for generics going to disappear. It doesn't. People need medicines. We are working with big 3 buyers. So they don't -- it just doesn't become 0. If you look at it, yes, it will decline. And now we are seeing lesser of a decline than the previous year. So $1.2 billion, it's still at $950 million over 5 years. But we added almost $600 million of new products. So there is always new products to be added. So it is sustainable on a generic side. Biosimilar is small, $60 million. It will grow in '24 and '25 and beyond. Our value-added distribution business is doing well, and I'll explain to you a little bit more. And our specialty business, very excited about IPX203. And currently, what we do with RYTARY and Unithroid, it's -- Unithroid is double-digit, RYTARY is about high single-digit growth. Next. So now let's -- each segment where the growth is coming from. So retail, we're probably the only company can say the retail Gx business grew over 4 years, even though modest, 2%, 3%, now we expect high single-digit growth. And the reason is we're introducing respiratory products. We have an ophthalmic portfolio. We have naloxone, which we make in Branchburg, New Jersey, and very purposeful products. So we are excited to build -- we have built the capacity to 3 million to 4 million units this year, which is opioid reversal products, so very public need and government is asking for more production, and we stepped up. And next year '25, we should be able to make 8 million to 10 million units. And we're constantly getting demand from states as well as CVS, Walgreens, product is now OTC and it will be available at multiple places, everywhere, ambulances, churches, schools, to save lives. So this is why retail will grow. On top of that, there's international growth. Injectable, we doubled our capacity. And when Amneal doubles the capacity, it's a real capacity, we can produce and deliver. So we almost have a $60 million, $70 million different dosage forms within injectable we can make, the bags, the peptide products, long-acting depots, the vials, prefilled syringes, cartridges. So we got it all now. There's a lot of hard work over last 8, 9 years, but we're very confident that we'll grow our injectable business and take the lead there as well as we have taken the lead on retail. And the last one, biosimilars. This is exciting. It's a $60 million, obviously, this year, '24, will grow to more than $140 million for the 3 marketed products. And then we look forward to launch additional products in coming years. We're keeping licensing as we are known for a good partnership. So we always have a partner's interest to make money for them. So together, we can bring more products with a strategic partnership with 3 to 4 players. We do not -- we want to partner only with the proven players. And with that, it's a high single-digit growth or even more going forward for multiple years. Specialty, we just in-licensed ONGENTYS, which is a complementary product from BIAL, company in Portugal, a 100 years old company. It's an enzyme, which improves the dopamine duration in the brain. So levodopa, which is IPX203, provides the long, good on time, longer, good on time. On top of that, this COMT inhibitor could, for certain patients, enhance you on that time further because that enzyme is helpful in increasing duration for dopamine. So regarding IPX203, we have completed the QT study. We are analyzing it, we'll be filing soon, and we expect the approval of IPX203, hopefully, late third quarter or second half of this year. And we're ready to launch that. Very excited. We're very close with Parkinson's community. We've been marketing these products for over 7 years. And we are -- we're really -- we live patients' lives, and we want to do whatever we can. It's a polypharmacy they operate. So with a COMT inhibitor, with the CD/LD, which can last now 6 to 8 hours. The IR, the 30 years old technology product, it fluctuates a whole lot. So patient every day suffers through. I mean, it's the -- Parkinson's will stay with you for 20, 30 years. So how do you live a good life every day? And then obviously, we're working on a further expanding and improving even our own formulations. So we like our focus in Parkinson's. And then we have a small add-ons, $50 million, $70 million each, but they can all add up, and they're a meaningful product. DHE auto injectors for cluster headaches. Today, if you have a cluster headache, you have to go to the clinic, you got a -- it's -- the 1 to 10 pain scale, cluster headache is rank 10, I think 9, is very high. They bang their head on the wall. And it takes 2, 3, 4 hours for the clinic is this auto-injector, they can inject it at home, boom. And then they can get relief from the cluster headache. So excited about the pipeline here. The current products are doing great. And we will look to in-license more products or add more on our specialty division, but very targeted. AvKARE is a distribution business, which is the government business and government of United States, VA/DoD requires products to be either made in United States, which fewer and fewer companies are making. And Amneal fortunately still holding the fort, and we have 3 large manufacturing complexes. So we're making more products for VA/DoD. This is why you see the growth. And we sell through our subsidiary, AvKARE, direct distribution to VA/DoD, long-term contracts, some are just on FSS contracts, some are 5 years contract. And we have 5 years pipeline. We had -- there also the population is aging, and they require more prescriptions. 340B is a small distribution business and unit dose is a good business as well. So we take many of our products and other companies' products, and we provide that in a unit dose to hospitals. So it's a very niche distribution. We do not compete with the big 3 wholesalers. These are separate, the kind of value add, I call it, higher-margin distribution business. And it's growing big time, like double digit for last -- since we acquired, it's been a great acquisition. Putting all that together, the affordable medicines, we expect high single-digit growth or even more. International, as I mentioned, India, we have 250 people now marketing products in various dosage form. We believe India will grow at a very high clip because the whole economy is going from a $3.5 trillion to $5 trillion to $7 trillion, $10 trillion is what China did in 2000 to 2020. It's happening in India, with 1.4 billion population. We feel home in India as well because we have 8 manufacturing facilities and born in India, but then we live in America over the last 37 years. So we are best of both worlds, and we'll take advantage of that situation. And China, we have a partner, Fosun. They're marketing our products. In Europe, we have Orion, which is a 100-year-old company in Finland, which we market the products together. Niche products only. We are not marketing all generics products. And then specialty, as I mentioned, growth area, AvKARE growth. Here are the near-term catalyst, our ALYMSYS, which is our leading biosimilar product, would do more than $100 million. Naloxone, once it's ramped up, should be a big opportunity. IPX203, big opportunity. We expect $300 million to $500 million over time. And the engine, which is retail and injectables new product launches happens every year, is about $100 million to $150 million. Every year, we launch new products. I mean last -- since 2019, we have launched $600 million of new products within that category. So it's already proven, it's engine, it's sustainable, it keeps happening. And every year, these catalysts would be added. This is just a bird's eye view. Anybody who wants to look at what more detail on what products, but it's exciting portfolio we have. And on that portfolio, most of the products are made by us, our own R&D, our own product production. These are the key areas we're zoomed in focus, increasing diversification. So our -- we're not just a generic company. We're proud to be a generics company, but we have now biosimilars, injectables, specialty product, value-added distribution, global markets. So we like to call ourselves a globally diversified company with ability to work on multiple things and deliver, and we have the track record to do that. Strong financial performance, very disciplined, very committed to get to below 3 and keep generating cash, pay down debt so we can increase our free cash flow to invest in company. And you can see where we can go from here, right, when you have this platform, and there's more to come. So I will end here. Sorry, I had to.

All good. Good overview of the business. So maybe just to kick off on the Q&A.

2023 is a very strong year for the company. And just to reflect back of what drove the operating performance. What were the real outliers in your view? And as I think forward to 2024, what are you most focused on in terms of sustaining that momentum?

So we've been working on it since 2019, we came back. We had a couple of years of transition. So when we came back, we, again, Mojo came back, all the R&D. So all those products are getting approved. So NPL is driving the growth. The government business, VA/DoD because we have more products Amneal can produce for VA/DoD, and we thank somebody cares about made in United States. So that business increase. We had a biosimilar launch, successful launch. So launching against Amgen and Pfizer. We were able to take 6% market share in first 6 months. So we beat Pfizer in market share. So in their first 6 months versus our 6 months. And then we had a bit of a contribution from better generics market than previous year. But it's quite a bit, it improved by 2 points on it, it's a large improvement. So -- and that -- we see all these carrying forward in '24.

The dynamics around, I guess, the U.S. market and pricing, it's been a long process, I think, of kind of bottoming out. It certainly seems like the trends are starting to improve. How do you get comfort in the durability of what seems like kind of this more maybe reasonable dynamic or your portfolio kind of repositioning is going to protect you from other cycles like this in the future?

Yes. So for us, speak specifically about Amneal and then I'll give you my view on the industry. So specifically for Amneal, because we diversified the portfolio. We have a deep relationship with these buying groups over 20 years, #1 in supply, right? We have a 98% customer service. So hardly we cause shortages. Quality is #1, portfolio is probably the best in the entire industry. So we're working to make longer-term contracts, that's enter into a strategic contracts for certain category of products. We were able to convince them that look at these prices. When companies don't make money, they don't stay in business for a long time. So either we adjust the price and make margins or we get out of these products. And then you are left with unreliable, unproven companies from low-cost countries. So would you want to take that chances? And when Bloomberg and Wall Street calls us who caused the shortage, we're going to give them the details because you're not -- we cannot invest in inventory. We cannot invest in capacity and upgrade over. So you have to look at these pricing. And I think now, and it's not completely done, but the most of the buying groups are now saying mature products do not have anywhere to go. They cannot go any further. They have to go up because the inflation is going up. So -- and for us, it's just new product launches. We are first to market. We just launched FML this morning. So just so many of varieties of products, respiratory unit dose, nasal sprays, naloxone. So we're fine. I mean we have so much to keep adding. And we have so much to negotiate with the buying groups. And they're being responsible, last year they were, and we believe it will keep improving for the sake of patients. Otherwise, we'll have many shortages.

Yes, excellent. On the shortage front, do you see this resolving itself any time? Or does it get worse before it gets better? Like how are you thinking about that? And I guess, how is Amneal positioned to take advantage of that or solve the problem?

So we are diligently working on oncology portfolio because of shortages and working with groups to provide longer-term contracts so that we can give them 15, 20 oncology products. Shortages will not get better because it takes time. There could be some kind of intervention, which -- it's a government, I cannot tell you when they could do certain things, but something would be needed to do that, especially for these essential medicine. And as I've been saying, and we've been advocating as a company that America, United States, we need 100 essential or 80 essential products to be made in America from API to finished products for 35% to 40% of market share, which is Medicare and Medicaid. So in emergencies, we can ramp up. We have that ability to do that because our friendly countries will have issue if there are unfortunate events, like wars or climates or pandemics. And for our country, we shouldn't do that. And it's not that costly to do that. The government can easily fund that. So we are trying to advocate and say, "Hey, let's not wait until the last minute."

Yes. Yes, a little proactive on that.

Yes.

On the biosimilar business, a very good start to the portfolio and the ramp this year. What does this business look like for you in 5 or 10 years? Is it more products? Is it more vertically integrated? Like how do you think about evolving it over time?

It will be more products for sure. And we -- right now, we are going more deeper in oncology. We may look at other segments because it should be agnostic. And we would, over time, vertically integrate. So because over time, you have to control your destiny and also take advantage of global markets. But next few years, we want to pay down debt. We want to -- and we've got enough good partners who like to partner with us.

Okay. When I think about the $200 million target on this business by 2025, how much of it is coming from biosimilar Avastin versus the other opportunities?

I think 60%, 65% would be ALYMSYS and then FYLNETRA and then RELEUKO, with -- I mean [ GCS, applied GCS ].

Okay, perfect. I'll pause here for a second to see if anyone has questions from the audience. Otherwise, I'll keep going here. But anyone with any questions? Going once, going twice. Okay. We'll keep going here. On 203, just remind us timelines for the study the FDA wants you to run here. And just how do we think about path-through approval from where we sit today?

So only one question was asked, once we submitted the answers to CRL, we basically explain all the data we had already, safety data. And put it in the different formats, which the FDA wanted. They check mark that. That's okay. We're fine with safety, but we like to -- you to do one more thing is to do a routine QT study in 36 patients, which we completed only on carbidopa. And we will be analyzing this month and next month, we'll file it, and that should give a -- start the 6 months call.

And once you get approval, how quickly can you turn this around I think on the commercial side in terms of securing access and formulary positions and really starting to go out to launch the product?

Yes, that's an exciting thing. So we -- 7 years with the Parkinson's community, we end payers community, we have built deep relationship, and we want to broaden this market. RYTARY only penetrated with movement disorder specialists. So only 5% patient take RYTARY, 95% patient take 30 years old IR. And we believe most of them should be taking long-acting IPX203, which is even better than obviously [ 1 hour, 55 minutes ] good on time per dose compared to IR. So it's significantly higher, and it's higher than RYTARY. So we are ready. Marketing is ready. The sales team is already there with RYTARY. So we would be all over and expanding the market. And also, we are about to, first time, the RYTARY never went outside of United States. So we're licensing in Europe, licensing in Brazil, Canada, every country because they all have Parkinson's patient. And our goal is to create access, do good for Parkinson's patient.

Great. On your recent acquisition ONGENTYS...