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

Going here with our next company presenter at the BofA Annual Healthcare Conference. I'm pleased to be introducing Amphastar and Bill Peters, Executive Vice President and CFO and Dan Dischner, SVP, Corporate Communications. My name is Jason Gerberry. I cover smid-cap biotech and specialty pharma. And gentlemen, thanks for joining us.

Thank you.

So I guess, coming off of the 1Q update, I guess, how do you feel like the business is performing kind of relative to expectations? I know you don't guide per se, but just kind of curious how you're seeing things come along with like the base business and maybe interactions with FDA is probably the best way to gauge how you're feeling about sort of pipeline developments.

Yes. So I mean, obviously, it's still early in the year, but we have quite a few opportunities we look at this year, 4 to 5 products that we think we could get across the finish line. And -- we launched our REXTOVY product, which is an intranasal naloxone. We launched that a few weeks ago. We have a goal date for our AMP-008, our first inhalation product. We have that in Q2 this year, our teriparatide product have Q3, and then our second inhalation, we have 1 in the fourth quarter. So we're just focused on executing on that pipeline and getting them across the finish line.

Yes. How are you thinking about the mix of internal R&D efforts versus BD when you think about complex generic business model. The one thing in my history is like the timing is very predictable. And a lot of times, you're dealing with areas of maybe novel regulatory science and there can be 1 or 2 kind of CRL type delays that's very common and sometimes the market opportunities can run away from you in these scenarios. This is a general statement, right? So I guess as you -- with the BAQSIMI acquisition have added a little more predictability to your P&L cadence and so I'm just kind of curious at a high level before we jump into nitty-gritty questions.

Yes. So it's a good question because it's 1 way to think about who Amphastar is. And the great thing about Amphastar is we've got great R&D capabilities the difficult thing is that you can't always judge exactly when those products will come through, given the complexity of the products that we're working on, whether it be the glucagon product where it took -- people were saying, look, you've had 4 CRLs or whatever it was. They're saying, are you still working on this. Of course, we're still working on this, we're going to get it to the finish line, and we did and not only did we do that, but now 3.5 years later, we're still the only generic company that was able to do that, and we were able to do that because of our great R&D capabilities. And so our main reliance is going to be in the future on those R&D capabilities. However, we are pushing some of those skill sets that we have into more proprietary products to get the more certainty that we see out of products such as BAQSIMI. So we'd really like to build on the success of BAQSIMI in that area. So we are going to be looking at acquisitions as well. However, the great thing is that we don't need an acquisition to grow like we plan to grow. So -- it's a nice to have rather than have to have.

I'd like to add that though it takes longer, sometimes with the different review cycles, there's the payoff is pretty good, too, because your life cycle of your product lasts a little bit longer. As Bill brought up the glucagon product, 3.5 years ago, we got it approved, then there's still no other generic. So we have a really nice longer life cycle with these type of complex products.

How would you -- I mean, I realize it's probably very idiosyncratic, but like how would you characterize a range of product life cycles and sort of the niches that you play with some of your base business products, maybe a kind of a tricky question to answer, but -- versus, say, the typical generic, right, where the oral small molecule Paragraph IV exclusives are dying breed, but there are some tough to manufacture type of products that maybe have a little bit longer tail.

I think the products that we've brought to market over the last decade show a good variety of those things, such as the glucagon, which we just mentioned, which has been off-patent for a long time, and we're the only generic for over 3 years. So I think that's on into the spectrum. Vasopressin is another one where it's we've got to market with 6 or 7 other players, so it's a much smaller market than we might have hoped for. We thought it was complex. And so we and I think some people were disappointed with the number of competitors there at market formation, but those things happen. And then there's products like enoxaparin where it was great for a few years and then it just sank pretty quickly with competition. So wide range of possibilities, and that does make our business more difficult to forecast than most, which is also why we're also leaning more toward the proprietary products as we go forward. And we have it in our presentation how we plan to make proprietary products and biosimilars, a majority of our pipeline by next year.

Yes. I think about a few products like the intranasal naloxone and teriparatide, right, where maybe the opportunities have shrunken somewhat. And thinking about the glucagon example, look, is there a benefit to just having and an ANDA that you could spring to life in a category, if something happens, disruption, maybe it's option value that maybe the value may be not be a parent today, or maybe there's going to be because there's such a few suppliers and if there's any dislocation, these become future opportunities? Or is that maybe too convoluted or a way to think about it?

Yes. The way I'd look at it is that's a really hard 1 because it takes time to get these things approved. And you got to keep on top of your ANDAs even if you get approved, you don't launch it, you still got to -- there's administrative work to it. I just -- I think you want to launch it, if you can.

Yes. And also we don't -- when we're getting to the R&D, we don't know what the market is going to look like in terms of number of generics of vasopressin, there was more than expected regadenoson, there was more than we expect it, glucagon, we've been happy with the way it's turned out and us being the only ones. Then you get a product like ganirelix, which we selling a little over a year ago. So that one is one where there's not that many players. It's not that big a market, but could fall into the type of thing you're talking about where, hey, if 1 supplier pulls out, then there's a much more meaningful market for us because going from suppliers to 2 suppliers is much different than going from 7 to 6.

But you do [indiscernible] up a good point about REXTOVY, for instance. Right now, the market is not too good on REXTOVY. But as part of our approval, we got our device approved, which is -- it's a unique device. Possibly that device could be used someplace else, some other way, and so as you brought that up, I got me thinking that might be part of your question.

Okay. It wasn't, but I appreciate that. Maybe look, the aggregate glucagon business, inclusive of BAQSIMI probably a good place to start because as a share of revenue and a share of future growth in most models. It's very important business for you guys. So how do you see the interplay of the generic part of your business and then the branded part evolving over time? And with respect to the generic part, I guess that's a 2-part question. Players have exited. And I think you're of the view that the non-diagnostic part is going to shrink. So it doesn't seem like a market that people are going to want to come into on the generic side in the future. But you can offer your own speculation at that point.

It's a big enough market that would attract other people, especially given the high margin for the product that we have right now. And you're right. So right now, of the glucagon market, we had over $100 million in glucagon sales last year. We're at the point now where about 2/3 of those are going towards the diagnostic and about 1/3 is going to the anti-hypoglycemic market, where we have a better market share in that segment. However, that anti-hyperglycemic market is moving toward the ready-to-use products such as BAQSIMI. We think it's a much better product for the person that needs to have an emergency rescue medicine to have something that's available right away rather than having to reconstitute the glucagon kit that we have. So we think it just makes sense to move in that direction. So we continue to see that moving that way. And BAQSIMI, we think, is the ideal product for that since it's the only nasal spray that's approved for that indication. So we think it's natural to have that BAQSIMI. The other thing that's great about BAQSIMI in that market is that now we're still only 11% penetrated into the people who are getting an insulin script getting a glucagon script. So when we purchased BAQSIMI, we were at about 10%. We've moved that to 11%. So that's moving along in that direction. So we see that penetration continuing over time.

Your current BAQSIMI revenues or how much of 100 right now?

So last year, the total BAQSIMI sales were about $153 million, including the Lilly sales and our sales at the factory level. Remember, we have the accounting issue where we only recognize the net economic benefit that we're getting from Lilly. But if we take the real net sales of the product, whether for Lilly and Amphastar together, it was about $153 million.

Okay. So to get to your peak aspirational numbers, you basically roughly double that market share of the insulin treated patients. And is that predominantly type 1 as you kind of like have a peak outlook as you envision kind of what it's going to take to get there? And who are the types of patients that -- where that share is going to come from? How much of it is like maybe patients stockpiling more versus just a more unique patients?

So there's 2 things there. The first thing is that while the younger type one have relatively well penetrated already, there is still room to penetrate that further and also to make sure that they continue their compliance as they move into adult. What we've seen happen is that sometimes people don't refill those glucagon scripts when they get older because they haven't needed in a few years or it's because it's a difficult product to carry around. Currently, the glucagon kit that we sell for that, it's a pretty big size -- the size of a large pencil case that you'd have to carry around with you. It's not convenient. It's not easy to use. So if you have a product that's easy to use, easy to transform. So we think that's going to drive some of the long-term compliance of it. Additionally, we think that the type 2 diabetic market is significantly underpenetrated and that we plan and get further penetration into that type 2 market.

So type 2 is kind of bigger -- the bigger share of growth, so to speak?

Yes. Yes.

And then competitive dynamics with Gvoke as you think about sort of the branded space, do you think we're at kind of a state of equilibrium. Do you feel like there's much fluctuation in out years.

I think back to what Bill said, the market is underserved, only about 10% or 11% of people are getting insulin are getting a script for glucagon. So I think it's still a big market for both of us. Obviously, we think our product is better because it's intranasal, it's not an injection. So obviously, we think ours is better. Our marketing efforts are going to be focused on educating and bringing awareness to the need of -- for glucagon.

So focused on growing the category less about share battles. Okay. And then this FTC patent issue, -- maybe if you can just frame next steps, relevance to the extent you think it is relevant at all the business?

Yes. So just taking a step back, we were 1 of many companies that received a letter from the FTC questioning the inclusion of a patent in the Orange book. Subsequent to our earnings call when we mentioned we had not heard or gotten a letter from the FDA, we have gotten the letter from the FDA now. And so once we get that letter, they've asked us to respond in 30 days. So that clock is currently ticking. So the first thing that we did here was we contacted the Eli Lilly attorneys and asked them their opinion on it. And they were confident that the patent was submitted to the Orange Book and that it was correct and the appropriate -- and appropriate at the time, and they're confident in that decision. However, we've decided to contact our outside patent council as well and they're currently analyzing that for us so that we can see if that decision was correct. The good thing about this whole thing is that -- we have a different patent that goes to 2036, which is the formulation patent for BAQSIMI. And to us, that's a very important patent. The second patent, the one in question goes to 2038. However, we have a third patent that goes to 2039 that's in the Orange Book. So even if we were to remove this patent from the orange book, it wouldn't really matter because we have the 2039 patent, which is a combination drug and device patents as opposed to this 2038 patent, which is in question, which is purely a device patent. So we think that, that's -- it's -- I don't want to say it's irrelevant. It's just -- it's not really the most important thing to think about because the other patents are covering us.

Got it. Okay. Maybe last BAQSIMI question for me. Just like can you talk about how the gross margin on a product like BAQSIMI stacks up relative to the rest of your portfolio? And as we think about this as like a big mix shift towards BAQSIMI in the future, how accretive to margin that could be?

Yes. So this is -- the gross margin is significantly higher than our corporate average. However, we do have selling expense in the United States associated with that. So that brings it down to an operating margin that's not too different, maybe a little better than the corporate average. So the other way to think about it, though...

I guess, is the operating leverage as you grow that.

There is. So there are -- there are 2 things to do. One, the sales force while we're expecting to expand it, we think that there's going to be operating leverage as we go forward. I think the sales will grow faster than the sales force. The sales will grow faster than the G&A expenses that we have associated with this as well. And on the cost of goods side, remember, we have a fixed fee that we have to pay to the contract manufacturer every year as a suite fee to have the equipment and take the use of an entire suite the filling suite that they have. So as we sell more units of BAQSIMI, that suite fee is going to drop on a per unit basis. So that's fixed over the next several years that fee. So the cost of goods will come down as we increase the number of units that goes through there.

And as you grow as a company, I don't know if the increase in distributor fees are material from a gross to net perspective and as a big -- as you grow as a company, are there ways to maybe get some out of negotiating leverage to drive those down?

Yes, that's certainly a possibility, but I think that that's a longer-term scale issue because right now, when we've mentioned this year that we were going to have a decrease in average for BAQSIMI versus last year because of the increased gross to net challenges because we're going to have higher fees than Lilly had. So if you compare Amphastar to Lilly, that's a huge size difference with the wholesalers. So can we get narrow that gap? Yes, we can over time with continued scale. However, that's not a 2- or 3-year issue. That's a lot of growth to get to that -- to narrow that gap.

Okay. Maybe shifting gears to your kind of GLP-1 and insulin strategy. Is this a multiyear plan ultimately with sites and ambitions on the once-weekly GLP-1s, which are much bigger. What's sort of the end game here? I'm just wondering like how long will it take for this to be potentially like a material contributor to Amphastar as a company because it's obviously, it's massive, right? But I think executing in this space is the big question.

Yes. Our initial spot in the GLP space is to do a generic for an existing product right now. And so we do have that capability right now, and we plan to file our first ANDA for a GLP-1 later this year. So we're definitely -- we have those capabilities. We have both the scientific capabilities to the R&D and also we have the capacity to do that from a factory standpoint. We also have capabilities to make API in our China facility for GLP-1s. And so we plan to do that as part of our growth plan in the future.

Got it. And I guess when I was phrasing, maybe it was a little bit overly broad thinking about insulins. And so with insulins, I know you have the Humalog program, the goal is to have both short and long-acting insulin over time?

Yes. Yes.

Our first target is an insulin aspart. That's our first -- we plan to resubmit our application this year. And to your question about capacity, we've already penciled in the capacity for this. And it's a big unit, I think, 40 million units a year or something like that. So we've already -- we have the capacity for that.

Yes. And -- what do you feel like has been the biggest challenge with other entities that have tried to break into the fast-acting insulin space that's not named Novo Nordisk or Eli Lilly.

From a generic standpoint?

Yes, from a generic standpoint.

Interchangeability, I suppose that it would be the biggest the biggest hurdle...