Amphastar Pharmaceuticals, Inc. (AMPH) Earnings Call Transcript & Summary

Good morning, everybody. I'm Ekaterina Knyazkova at JPMorgan, and pleased to be introducing Amphastar. And from Amphastar, we have Jack Zhang, CEO; and Bill Peters, CFO, who will be doing a presentation, and then we will jump into Q&A. And with that, I will turn it over to Jack and Bill.

Thanks, Ekaterina, and thanks to JPMorgan for inviting us to attend. This is our first presentation here at the JPMorgan Conference, so we're really happy to be here today. I just wanted to take a moment to mention the forward-looking statements, and all of the things that we might be saying today might have some forward-looking guidance and the forward-looking statements can be found both in our presentation, which is on our website and also in our SEC filings online. With that, I'll turn it back over to our CEO, Jack Zhang.

Good morning, everybody. My name is Jack Zhang, CEO, President and Chief Scientific Officer. I'll introduce the overview of our company. [indiscernible] our company is with one-stop model and a dual strategic growth model and a 3H focus. With a little bit details, the one-stop stands for fully integrated business model. It is including research and development, manufacturing as well as distribution. For dual strategic growth model that including pipeline development and strategic acquisition. Our 3H focus stands for high quality, high efficiency and high technology. The one-stop model is fully integrated business model. These including extensive in-house product development capabilities. We have very strong technical platforms, state-of-the-art instruments, animal studies, clinical research team. For our manufacturing, we have fully integrated back-end manufacturing capability, from API and key materials device and key components to the U.S.-based finished product manufacturing. We also have complete front-end integration, marketing and distribution. Our dual strategic growth model, primary organic growth and secondary inorganic growth. The organic growth in pipeline development internally. The examples for this product development, including Primatene Mist that is under NDA, that is MDI inhalation product also is OTC. In fact, this is the only asthma inhaler available in the U.S. OTC market. Second example is glucagon injection, that is the NDA and is only generic available now. This is a highly purified peptide and approved in 2020. The second example is insulin analogs. So this is BLA. It is used recombinant technology, and this is ongoing project. And the last example for the pipeline development is our recently approved REXTOVY that is also NDA. It is intranasal delivery. Our secondary inorganic growth through strategic acquisition. The first example is we acquired Armstrong in 2003 that is MDI facility. And then in 2014, we acquired another facility in France and that is recombinant DNA facility. And a recent example is BAQSIMI. We acquired it from Eli Lilly in the last year. This NDA is a powder intranasal delivery technology. Our 3H focus, Amphastar management team operates the company to invest on high quality, emphasize high efficiency and rely on high technology to develop our pipelines. The 3H focus results in high net income margin. This table and the plot show our increase of the net income margin in the first 9 months of this year, our net income margin is 27.6%. Leveraging strategic reason and the core strengths. So these two plots show our -- show the profile of our pipeline candidates. In 2021, majority of our pipeline candidates, 63%, is generic. A small portion, 21%, is branded candidates. We expect in 2025 that through priority, branded product will reach 50% and generic will reduce to about 15%. So this slide show our technical platforms, this including particle engineering, novel formulation. With combination of these two platforms, we developed Primatene Mist and get FDA approved and NDA. This is the only FDA-approved asthma inhaler in the -- available in the OTC market. Our next technical platform is characterization and immunogenicity evaluation. With this platform, we developed enoxaparin. And we also have platform -- technical platform recombinant DNA, highly purified peptide and protein. And with this technology, we developed insulin analog. This is BLA. And also we get approved of glucan injection. The last one is novel device. The company also have the capability to develop the novel device. We get FDA approved in 2023 for REXTOVY that is NDA intranasal delivery. This slide show our strategic shift toward to proprietary and biosimilar drugs. So from the left side, we developed [ proprietary ] device milestone. And we also work on the commercial capability and expand it. So this including BAQSIMI acquisition. We also developed insulin, Aspart. This will be our first insulin product and BLA regulatory route. And also, we make the CapEx investment and product support. So this will increase our capacity of production, prepare for the future pipeline approval. Meanwhile, we also work on the diabetes portfolio. Glucagon injection and BAQSIMI also the insulin analog is a portion of this program. Also, we work on the GLP-1 product candidate. And beside this, we also work on the inhalation pipeline. And also the new product, brand name product development, we have multiple that new pipeline candidate at the development stage. Now I'll pass the rest portion to our CFO, Mr. Bill Peters.

Thank you, Jack. I want to focus on our R&D investment first, and that's because Amphastar is one of those few companies that's been in the generic space that spends an extraordinary amount of money and time and effort on its R&D investment. As you can see from the bar chart there, from 2018 to 2020, we were spending 19% to 20% -- over 20% of our revenues on R&D, which is an extraordinary investment for a company our size and in our industry. That's paid off now and -- as you can see from our sales growth that we'll be showing in a moment. But one of the great things about our R&D capabilities is that they're very broad-based and very fully integrated. So we can do R&D on APIs. We develop over 50% of the APIs right now that we have in our pipeline. We can do early-stage research. We can do our own clinical trials and then anything from laboratory to full scale of R&D. This emphasis is really going to help differentiate us -- has helped to differentiate us from our competitors and has helped drive our growth. So the pipeline that we have in our ANDA pipeline right now, we have 8 different products, 3 of those are injectables and 5 are inhalation. Of the injectables, 2 that you can see here in gray have been filed and the fourth in blue has not been filed. The first one, AMP-002, is an undisclosed product. We had a GDUFA date for this product in the second quarter of 2023. The FDA has not given us any action on that at this time. And so we're still waiting. We've been in constant communication with them on this. And this is, we think, going to be a very good product for us because it's a highly complex product, very difficult to do. It's been off patent for a very long time. There are no generics available. The FDA has not approved any generic for this product. And the IQVIA sales is over $500 million. So it's a very good opportunity for us. And we hope we'd be able to get this product approved this year. The second one we have there is teriparatide, which is another complex molecule. We did get a CRL for that product last year, and we now have a GDUFA date in the first quarter of this year. So we're looking forward to launching that later this year. AMP-018, the final injectable product that we're disclosing at this point, we're now disclosing is a GLP-1. We hadn't disclosed that previously, but given all the attention around the GLP one in that space right now, we thought it would make sense to make that disclosure at this time, especially since we plan to file that product this year. On the inhalation side, we have 5 candidates that we're working on, 2 were filed already. AMP-008 was previously filed and we got a CRL recently for that, responded to that and we have a GDUFA date in the second quarter of this year and hope to launch that product later this year. AMP-007, that's been filed now. That's our second filing for our inhalation ANDA pipeline. And we have a GDUFA date we expect to be in the fourth quarter of this year. Of the other 3 inhalation products that we're working on that are ANDAs, we have a planned filing for AMP-017 later this year, and we're also working on two others, 16 and AMP-022. Turning to our diabetes portfolio. It's a main focus of the company. We have commercialized products right now, including the glucagon injection kit, which is the first and only FDA-approved glucagon generic. We really worked hard with the FDA to get that product approved. And it's the instance where it's the only instance right now where we have a synthetic API approved that's equivalent and substitutable for recombinant. That was a real milestone for the company and for the FDA to get that product approved that way. In fact, the FDA put out a press release about that when that one was approved. We also have BAQSIMI nasal powder in our commercialized product portfolio in the diabetes portfolio, and I'll talk a little bit more about that in a couple of slides. On the ANDA side in the diabetes portfolio, we have a GLP-1 product, undisclosed what it is right now, AMP-018. We plan to file that later this year, and we see that as a nice opportunity that fits in well with the rest of our diabetes portfolio. Additionally, we have disclosed 3 different products that are interchangeable insulin. And so what we're trying to do here with these insulin biosimilars is we want to be the first company to get an interchangeable, substitutable biologic with -- straight off the bat without having to get it approved first and then do further studies to prove that it's actually interchangeable. So we're going right for interchangeable with our filing. And we have filed the first one right now. So we filed AMP-004. So we are looking to try to get that to the market in the future. Additionally, with AMP-004m, we hope to file that one later this year. Previously, we had disclosed that we had been working on insulin glargine, but because of the competitive nature in that product, we've kind of shifted aside, and now we're working on AMP-025. So it's a new disclosure now, insulin degludec. So that's a different one. For competitive reasons, We made that shift. In total, these insulin pipeline, we're targeting $8 billion in IQVIA sales. So it's a very large market, and a very large opportunity for us. There's over 70 million units of the pens and the vials and we plan to be selling both pens and vials with our filings. You can see from the sales trend, we've had great sales growth over the last several years, with 14% annual compound annual growth rate going to $499 million last year. And just to note that year-to-date this year through 3 quarters, we're already at $466 million, so that growth is even accelerating this year. And then with the adjusted EPS there, you see it going from $0.21 to $1.97 last year. So 2021 was the first year that we were able to achieve more than $1 of adjusted EPS. And then, with our great growth that we've had right now, our third quarter of this year was actually our first quarter to go over $1. So it's another milestone for the company's profitability, and it's something that we're very focused on increasing that profitability. On a quarterly basis, you can see the revenue trend, trend upward with that nice trend and then kicked in even further in the third quarter with the acquisition of BAQSIMI. And the same thing with the quarterly gross profit, a nice growth trend and then kicked up even more with the acquisition of BAQSIMI. So through last year, we have a great diversified portfolio of products that we're selling. So we show the pie chart on the left, because that's the year we went public and over half of our sales that year were for enoxaparin, just one product. But now we don't have any product that's more than 17% of sales. So we've really, I think, derisked the company by launching more products and getting more share of those other products that we have. Turning to our key proprietary products. BAQSIMI was one of the biggest acquisitions the company has ever made. And I think it's a great one for the company. It really fits well into the company's proprietary product strategy. And it's a glucagon product, and we were already making a glucagon so that fits in well and it fits in well with our diabetes focus. So it expands our diabetes portfolio. It builds on our intranasal portfolio as well. We already have an intranasal naloxone. We're working on intranasal epinephrine. This is an intranasal glucagon. So we think that intranasal delivery platform is a very good one and a very meaningful one and one that we will focus on more in the future as well. Additionally, it expands Amphastar's presence into 26 countries. So we're going to be selling finished product in more countries than we ever have in the past. We have, as you know, had a sales presence in Europe with our API business there, but that's -- this is going to be finished product selling to 26 countries, which is a big, big step for the company. So we're going to initiate or we have initiated a sales team right now. The commercial sales team is up and running, and we're operating that, starting on October 1 of this year. And then it's a branded product with great growing sales. So that was the other thing that we liked. It was a strong brand, strong growth. Lilly did a great job of launching it and getting it to where it is today, but we think we can take it to the next level with our concentration on this product. So why do we think it's such a good product? First of all, it's a good brand name, well known in the diabetes community, a great product. It's very convenient to use. It's much more convenient than the other products. It's an intranasal device. We think that, that's a much easier product for people who are not familiar with needles to be able to administer to someone who might be unconscious or not breathing. And also, we think that glucagon is significantly underutilized. Right now, the American Diabetes Association recommends that patients at an increased risk for Level 2 hypoglycemia be prescribed glucagon. So it's basically anyone who is taking insulin should be taking or getting a script for glucagon as well. We're going to focus on this because right now there's about 7 million people in the country that are being treated with insulin. And there's only about 10% of these people are actually getting the glucagon script filled. So we see this as a very big opportunity that we can take advantage of. So BAQSIMI is currently the leader in the branded ready-to-use glucagon space that has simple nasal administration, ready-to-use and it's more portable than the old kit that we also sell as well. BAQSIMI sales forecast. We've projected that to be $145 million to $155 million sales this year. Now remember, we didn't take over the product until July 1, so that only the second half sales are going to be reported to us. And then I can also say that we'll probably be at the -- probably at the $150 million to $155 million range for that in 2023. But the way we have to book this is because we are not distributing the product, we're paying Lilly right now to do all the distribution, is that we recognize on our financial statements the net economic benefit, which is the sales that Lilly records less all of the expenses that they bill to us. So we get the -- so we book as our revenue, the net economic benefit. So basically, what we're booking, and the way I like to look at it, is the check that Lilly cuts to us is what we're booking as our revenue at this point. Now that's going to change over time. As we begin distributing the product on a country-by-country basis, starting in the U.S. later in this first quarter, we will recognize the full sales of the product. And as we roll out that distribution country by country, we'll begin recognizing the revenues in those countries where we distribute the product. So that's going to be a rolling thing that happens country by country throughout 2024. So it's a little -- the sales will be a little bit complicated this year, but I think you'll be able to follow along with us as we release those. Right now, we project that BAQSIMI is going to be at -- have a peak sales of $250 million to $275 million. And we have a, we think, very strong plan to get it to that level. And right now, the product is performing as well, if not better, than we expected for the first 6 months of our ownership of it. On an adjusted EPS basis, we're looking at $0.12 to $0.18 in incremental EPS to the company in 2023, and we project that at the peak level, this will deliver $2 to $2.50 of incremental earnings per share to the company. And you can see the historical pattern here of the BAQSIMI worldwide sales, from $76 million, growing to $139 million last year. As I mentioned, we're probably in the $150 million, $155 million this year, and it's still growing in the double-digit unit basis for those -- for that product. Primatene Mist is our other branded product that we have. It's the only OTC FDA-approved product for treatment of asthma. It was launched in December 2018, and we've been saying for several years now that our goal was to hit $100 million in sales in 2024. And I believe that we're right on target to hit that sales level this year. So we're looking forward to making that goal. And last year, it was 17% of the sales of Amphastar. So just to wrap it up, the growth drivers and the upcoming milestones for the company. So the growth drivers for 2024 will include increased sales of BAQSIMI as we continue the sales effort there and begin the transition to our own distribution. The glucagon injection kit, it's been an increased market opportunity as a couple of players have dropped out of the market over the last year. So especially in the first half of the year, we'll see strong growth with that. And also as a reminder, we doubled the capacity that we have in our plant in Rancho Cucamonga, California. So that was approved by the FDA in -- late in the first quarter of last year. So we're now able to make enough to take as much of the market share that's available to us. Primatene Mist, as I mentioned in the last slide, we're targeting that $100 million in 2024. So we'll have some good growth to get to that level. And additionally, we have 3 expected approvals this year, including 002 that I mentioned earlier; 008, our -- which will be our first inhalation ANDA; and 015, the teriparatide product. So we've got GDUFA dates for all of those either in the past or coming up in the very near future. Additionally, as far as milestones are concerned, 2 recent filings. As I mentioned, the 007, the second inhalation product that we filed and AMP-004, which is our first insulin product. And then we have planned filings this year, including the intranasal naloxone Rx to OTC switch. We plan to file this year AMP-018, which is -- will be our first GLP-1 ANDA. And then AMP-004m, which will be our second insulin filing and AMP-017, which would be our third inhalation ANDA filing. With that, we'll turn it over to questions. Ekaterina?

Great. Yes. So I think I wanted to first start with the BAQSIMI transaction. I think you've had the asset for 2 quarters now. Just how is that trending relative to expectations both the integration and just kind of what the sales are doing?

BAQSIMI is an important project in 2023. Acquisition of this product completely matched our strategy. The product itself, we believe, is a strong product. It is protected by a patent effective until 2036. It also is matched our diabetes portfolio. Also matched with our technical platform of international delivery. From the strategic of marketing, as we reported, we'll shift to the branded products. And with acquisition of BAQSIMI, that will establish our team to distribute a brand name product. We have brand name product like Primatene for distribution, but that is an OTC product. So this BAQSIMI is another direction for marketing operation of the brand name product. Meanwhile, all the increase actually we have the capability for international marketing. So therefore, from these consideration product itself, strategy, pipeline and also strategic marketing and this all matched our company strategy. In fact, after acquisition for 6 months, the actual practice shows that our model is a correct model.

Yes. And I think the second half of your question had to be the integration right now. And I think that process is going really well. As I mentioned, we've taken over the selling in the United States. We're about to take over distribution in the United States later this quarter, and we've planned taking it over in the rest of the world throughout the rest of the year. And we've worked really well with Lilly and they've been a very good partner in this transition. So we're very happy with the way things are going.

And how are you thinking about, I guess, the marketing spend for the asset over time?

Yes. So right now, we've hired -- we've engaged a contract sales force. And the great thing about that is the flexibility that it offers. So we started off small and we think -- what we thought the minimum amount that we would need to get the growth rate that we expected. And we're in -- we anticipate that over time, we can add more reps to that effort as the sales continue to grow and we continue to cover more of the areas that are untapped. So one of the things that we're looking at is that we plan to make this a very profitable product. So we're not going to go all out and spend a lot of money. They've had strong growth without that profitability. We're managing this for strong profitability. And we think as the profit grows, the sales force grows, the spend can grow and that can compound on itself.

And then I think you've said $250 million, $275 million peak for the asset. How quickly do you think it will take to get there, if you can say.

Yes. So that's something we haven't said yet, and I know we're in a public forum, but we're still not ready to say when that will be. But I will say that it is after the 5-year period that we have to pay milestones. So it's -- the great thing is that we have a very good plan to do that. We had developed, as Jack had mentioned, our business models prior to the acquisition. And right now, the product is performing at or better than we anticipated. So I think that getting to this level is very achievable.

And then you had a very good year for glucagon partly because of the capacity expansion, some of the competitors kind of exiting the market. Just talk about how you're thinking about that market over time now that you have BAQSIMI over your belt -- under your belt as well.

Yes. Our generic glucagon is approved in 2 indications. First of all is a severe hypoglycemia and also second one is diagnostic. And the marketing information show we're doing very well on both indications. We believe the current marketing [ strat ] will make the glucagon injection still take significant portion of marketing. With the BAQSIMI acquired by Amphastar, so both become a portion of our diabetes portfolio.

And then I guess, obesity drugs and Mounjaro has been -- like all these have become very hot topics. What do you think these drugs kind of do to the glucagon category over time?