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

Good morning, everyone. My name is Balaji Prasad. I'm the senior analyst for the specialty pharmaceuticals coverage for Barclays and continuing the spec pharma track for the day, pleasure of hosting Chirag Patel, the CEO of Amneal Pharmaceuticals with us. Chirag, thank you for taking the time to join us out in Barclays. And I also know that this is your first time you are at our conference. So...

Yes. Yes. First time and nice location, especially when you come from Northeast

Indeed. Chirag, 2023 has been a great year for the stock. And of course, that's largely due to the operational performance that you delivered -- the company delivered through the course of the year. So let's speak about how 2024 looks for you and some high-level thoughts around the outlook, what are your top priorities? I mean there's still work in progress for you has gone through multiple discussions. So what are your top priorities now?

Great. Well, '23 was a great year. We delivered the 8%, 9% top line growth and EBITDA growth. So we're very proud of execution all across the businesses. And '24 priorities, the execution will remain in focus and now expanding and delivering similar 8% to 9% top line growth, while we keep building our pipeline. So the top priorities would be obviously the launch of naloxone spray coming up. There are 39 products that we launched last year. We're annualizing that this year. About 30 new launches on generics and injectable side, expanding our biosimilar cells to a much higher level from last year because now we have almost 12 months into the market. Specialty will grow at a decent pace as well. And then distribution business is doing really well. And obviously, the IPX203 is a big goal at we have on August 7.

Indeed, I'll definitely dig into each of this. But just thinking about the guidance of 8% to 9% top line growth, the adjusted EBITDA guidance was something which was very well received by the market. I think it reassures that you're on the path of improving profitability. So maybe talk to us through some of the pushes and pulls to this guidance and then we can take dig deeper into IPX203 and biosimilars.

Yes. So we're very disciplined and conservative on our guidance, and that's the approach we have taken and we'll continue to have that approach. Pushes and pulls, we have multiple launches. So obviously, the timing of those launches, either earlier or later could impact the year. But we are not relying on one launch. So there are multiple launches to make up for any delays in any other launches. The R&D timing and the in-licensing is also push and pull if we have a really good year, we can in-license more products. Organic R&D is already set around $120 million. So the rest of the money we spend in in-licensing biosimilar products. And now we are looking at in-licensing specialty products. So that would add into the future success of R&D.

Got it. And as we went through your deck on Earnings Day, again, it's a pretty comprehensive pipeline across categories. So let me start first with the complex generic side of it. Again, you have spent the last couple of years rebuilding this pipeline around the -- not just complex generic side, but every aspect of it, but complex generics. I mean, you've spoken multiple times about generic naloxone and the opportunity in there. Maybe starting with that and then other key launches that you anticipate during the course of the year.

Yes. So look, just back to the industry, we're in an essential industry basically. This is in the essential industry for the country. There are so many -- and for the world, so many products coming off patents. Amneal has invested largely on complex products, which are difficult to make, harder to provide access throughout the United States and some parts of the world. So the complex Gx pipeline is even healthier now than before because of the work we've been doing over the last 10 years. So the platform like Microsphere, the peptide platform. On injectables, we have a liposomal platform as well. So all these key technologies coming and respiratory, we have ProAir, we're expecting approval this year. So it's probably one of the best pipeline with a complete control on our manufacturing, R&D, quality and as we lead the entire industry in the world in quality, this makes it even more appealing for us to have these complex products and successfully launch them, which we have done that over the years. And some of these complex products or most of them have good markets in the international side as well.

Great. And any specific -- maybe I think amongst these naloxones probably your most high-profile launch for the year. So excluding IPX203, we'll come to that, but last on, what are your expectations around the product for -- in terms of revenue contribution over the next 12 months.

I think we've been public about it. If we get the approval, which is a goal that is end of this month, we should be able to sell somewhere between 2 million to 3 million units. Our goal is to provide as much access as possible. Our automated lines would produce about 10 million units next year. We obviously have to work with states, counties, federal government to supply them. And we believe there is ample need out there to -- and we want to be there in such a good cause to help the patient reverse the opioid overdose. And the other key launches we also have is ProAir potentially. We have mesalamine who've been public Ciprodex. So some of the ophthalmic products are rolling as well. PEMRYDI, which is our ready-to-use. Pemetrexed is coming up as well. So a very exciting year, and there could be a couple of surprises towards the end of the year, which could contribute big in 2025.

We'll look forward to surprises, but that kind of like leads in my next question. I mean you commented around $130 million of revenues from new product launches, looking at around 35 to 40 launches for the year. How conservative is this guidance or thoughts around $130 million of only of new revenues with 40 launches.

I think we have done a great job in forecasting. So it's a pretty good number what we have laid out. We feel very comfortable with pushes and pulls. We are very confident. Obviously, the 39 products that we launched in the second half, most of them last year is also annualizes this year on top of that 30 new launches. So we believe we will -- our goal always is to meet that number.

Great. Chirag, one more to specialty side of things and with I mean the IPX203 you guys clearly are confident of getting approval, like as you said, stated that you have met all of our FDA's requirements. So assuming an approval and the launch, help us understand the incremental contribution from the product. When I speak to neurologists and the market, there are 2 schools of thought. One is, of course, neurologists and expert calls that have done stated that clearly, they think that IPX-203 is a great asset, and it will be incremental to Rytary.And other school of thought, the bears in the stock think that with the generics for Rytary around, the market potential for IPX203 is likely to be diminished. So what are your thoughts on that?

So let's start with this. If -- Rytary is a great product, but it has a dose conversion issues. It has less good on time than IPX, these are 2 facts. If it was easier to do the dose conversion, right, the movement disorder specialists around the polling pharmacy basically, they would have done it in a greater number than just 5% of the patient. IPX solves the dose conversion issues, the longer good on time. And with our recently launched ONGENTYS, it increases, it prolongs the life of levodopa. So it's complementary product as well. We are going out for a broader market in IPX203. We've evaluated our Phase III data very carefully, and we'll continue to do further studies to prove that this product can be very beneficial if taken earlier in the onset of Parkinson's. So multiple ways and having it now 10 years experience in Parkinson's and being committed with the community and research. We believe we will get a better coverage than even Rytary, Rytary enjoys one of the finest coverage. We will expand the market from just 5% of prescriptions to go after 30%, 40%, 50% of potential patients. And as you know, there are 1.1 million patients then unfortunately, every year, about 90,000 new patients are added. So huge market. And you saw we licensed out in Europe. Canada, South America, working on with China. So this product is going to be global. India will be launching on our own. The global patient needs this. This is a much better technology. It extends the life of good on time, and it's daily management of their lives. The Parkinson's doesn't go away. They stay there for 20, 30, 40 years. So we're very excited about IPX203 launch, and we're very bullish, and we have publicly said we can do $300 million to $500 million. And I don't think ramp-up is going to take that long because of all the preactivities we have been doing it.

Got it. And just a couple of follow-ups there. With IPX203 launching, do you kind of see any cannibalization impact on Rytary or patients on Rytary going to stay on Rytary and you'll see newer patients only starting on IPX203?

We don't know. It's up to the provider, right? We're not -- we don't have any switching strategy. I think we don't need to do that. As we said, we're going after a much bigger market, tapping the general neuro other movement disorder specialists. Some of the KOLs we have heard or the doctors who are part of the trials, obviously, may choose to prescribe IPX-203 over Rytary. But our strategy is to go broad. So combination can happen. Some may move, and we have new patients.

Got it. Maybe last question on the Parkinson's side of things. ONGENTYS set prolongs levodopa and really how's the positioning of the strategy going to be? And how big of an opportunity should we think about ONGENTYS itself on its own being over the longer term?

Yes, it's a complementary product. So we did a good job getting the rights to it and work with our partner in Portugal BIAL, great partner. And now we are expanding the market. It's when Neurocrine marketed it, it was doing somewhere between $20 million to $25 million. We look to expand the market and make it more complementary with IPX203. That means I believe it will go $50 million plus.

Got it. So let's shift towards the biosimilar side. Clearly, you've done from being almost nowhere in the biosimilar landscape in 2020 and speaking about it for the first time around that time frame, launched 3 products by the end of 2021. And today, you have a fairly substantial revenue position in it and guiding towards $200 million. So what's resonating commercially on the biosimilar side with the products that you launched currently?

See, we're an American company, and we have stated that for the U.S. market, we will be the leading affordable medicines company and the way we define affordable medicines, generics products, institutional generic products, injectables, the bags and biosimilars. So when you group these 3, which company would be leading over 5 to 10 years, we believe we will be leading it. And we've been focused on biosimilars quietly before 2020, understanding the science and regulatory requirement, manufacturing, partnering. And we have established such a great name on a commercial side with Amneal's record over 20 years genuine relationship with big wholesalers, Cencora, McKesson, Cardinal, relationship with CVS, Walgreens and similar way, we have now established a relationship with oncology groups, hospitals, same approach we care, and we deliver as well as we are #1 quality. The 3 things keeps happening, and it's not a new formula, and that is why we are winning. So we're not afraid to go against Pfizers and Amgens and compete. We will -- we do compete and we will keep competing. It is a competitive market. It will be, but we're very excited about biosimilars future.

Got it. So Chirag, on that note, how are you thinking about in-licensing more biosimilars into your product category -- into this category and then your key focus areas for in-licensing within the space?

Yes. So we are right now front-end only. As Amneal, we've been clear about it. Over time, integration could happen because you have to be integrated players control your development, manufacturing, which is very crucial, tap into global markets and we're champion in the United States market. So we are right now focusing on buy-and-bill strategy. So more on an oncology product, the products which are dispensed through clinics or administered through clinics or a combination with PBMs and buy and bill, but not 100% PBM like Humira or other products that could just be controlled by the PBMs because we believe that, that area would be very competitive compared to the buy and bill. And we have multiple opportunity to in-license, we've 2 to 3, we expect to be in licensing this year. And it doesn't stop this year. Every year, we'll be licensing with our key partners.

Got it. And over the longer term, how big do you think the biosimilar category should be or could be for Amneal, what would be a target that you've be happy with.

So as the global market is going to be somewhere around $85 billion from the manufacturer's perspective by 2030. U.S. would be almost half and we would like to get a good piece of that in a very strategic manner over the time. So it's a large market being created. And all the noise you hear will quiet down because you cannot -- the PBMs, the payers and the brand companies can only play games for 1 year, 2 years, but then what? They should be focused on innovations. At the right time, the biosimilars have to come and the markets have to be receptive to that. And it happens. It just takes a few years that you're seeing in Humira the biosimilar is not getting market share, but they will.

Got it, Chirag. That's a good lens to look at this. I want to shift gear maybe kind of boiling on to a couple of questions on the generic side. Clearly, this is a sector which has gone through a significant ups and down, you've seen it's highs. You've seen its lows. And what we are seeing from the last couple of quarters, it seems to be a clear stabilization across the industry, looking at commentary from the likes of few, European generic companies and even generic companies. Have we reached a equilibrium in terms of pricing dynamics. So where are we in this strength?

Yes. So on the most part, on mature products we have. So the products that already has 7, 8 competitors been out there since last 5-plus years. We don't see any room to go down. It has to go up actually because of the inflation and the quality system requirements from FDA and companies should proactively invest in quality and new machineries and new plants. Therefore, it needs to have proper pricing. And again, as I said, this is a essential industry. 90% of prescriptions are filled by generics products. So it's going nowhere. And I think buyers are now more in a line with us as long-term contracts and more -- be more strategic rather than a transactional all the time. Now all of them haven't switched to the long term and care about supply and quality, but majority are. And we think the rest of the market will move there as well. The government is very clear about this. They are worried about sustainability of generics industry, and they are backing the industry, because it's just an unfair game. They allowed the buyers to consolidate, 3 buyers controlling 92%. It's just unfair with 50 or 100 companies selling the products, and they cannot consolidate. So we see the win behind ourself. And it is the right thing to do. So we -- it's a lot of products coming off patent as well. So there's plenty to do. And it will be always 2 segments in the industry. One is more commoditized and one is more on the complex side. We're more on a complex side.

Got it, Chirag. Great. So when you think about this dynamic, clearly, looking positive for the generic sector after a fair a long time, do you see this resolving partially the shortage issue? I think that's a bigger...

Yes, we are...

Could it help resolve the shortage issue on...

Definitely 100%. 90% of shortages are caused by unsustainable pricing in the market. Only 10% has other causes. So if it becomes healthier, even the GPO is allowing a longer contract hospitals entering into the longer contract, proper pricing, then the companies like us would be there or Teva would be there. Then you have genuine competition, genuine suppliers, 4, 5, it's not concentrated with one supplier with 90% market because that supplier is selling at a $1 a while, which is nobody can do that and should not do that. It's a lot that goes in making sterile products and nobody should be selling or buying at $1, then that has to change, and it is changing. And FDA is very vocal about it, that penny a pill and dollar a vial are unsustainable. They just do not know how companies can invest in quality system when you sell that cheaply.

Got it. I want to move to the balance sheet side of things in the last 3, 4 minutes that we have left. Clearly, this was a concern last year, especially as a rate environment move counter to what you would have liked with leverage being a concern. And I know that you have been tackling it head on in terms of the multiple moves that the company did. I want to think about your -- get your latest thoughts around leverage, your thoughts around where you would like to -- what you're comfortable with in terms of leverage ratio that you want to get Amneal to?

Yes. So we are very determined to bring the leverage below 3 over time. So we have said by '25, we should be below. We're paying off about $150 million to $200 million debt every year, which we'll continue to do that from our cash flow. And whenever the interest rate goes down, the cash flow will even improve better. But besides that, we are paying down the debt. EBITDA is keep going up. So we would generate more cash year-over-year. And we don't have any legal liabilities left. We only had one, which is for the IP patent settlement done by Impax, which is all paid off. So we're going to be laser focused in reducing the leverage.

Sure. And so I think EBITDA is going to play a key role in it. And last year, I remember when you started guidance, it was think around Q1 or Q2, you're at $520 million for the year, but eventually ended up at $550-plus million...

$558 million.

So this year, you have instituted guidance of $580 million to $605 million of EBITDA. So what are the upside risks to the sales guidance?

Well, $580 million to $620 million is a range. The upside would be if we do the more naloxone sales, a couple of our GX products come earlier. These injectable products, if we are able to solve the shortages, it creates more revenue. And biosimilar, if we penetrate more than what we expect. So there are upsides there.

That's great. And maybe last question from me is just think about this, with all these products coming through, both on the -- maybe staying a step above the EBITDA itself, the gross margin progression, how should we factor in through the course of the year?

The gross margin will continue to improve as we utilize our injectable plants. More and more, we have 4 injectable plants capacity of 50 million, 60 million vials bags, and they just come on. 2 of them were approved last year by FDA. So it's online now. So it would improve new complex products. We launch it improves biosimilar products, improves the gross margin. Obviously, distribution is a lower margin, but great cash flow business. So with that balance, we expect the improvements to continue over time, and it has to have a healthy gross margin to keep investing in the business and we're keen to have a top line growth as well as bottom line growth. And one thing I think you mentioned earlier that where do you see the company over 5 to 10 years is in affordable medicine segment, we should be leading in the United States and international business should be meaningful as well. Today is just $15 million. We expect the international to go well above $500 million, including India being a direct in the market. The Specialty segment were around $400 million to $450 million should grow with our niche play in CNS and endocrinology continue to grow. Our goal is to be over $1 billion, which we think we can do that. And on the distribution business is as we have said, it's a great business, doing great, and we'll continue to do great. But if you have strategic options, we would, at the right time, divest that business as well to pay off a good amount of debt.

Got it. I think that's probably something which could potentially be very well received when you announced that. I think we're out of time, but I'd love to get -- follow more updates on this as we go along. Chirag, thank you again for your time...

Thank you, Balaji. Have a great day.