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

Hello, everybody. I'm Ekaterina Knyazkova at JPMorgan. I'm 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.

Thank you. Thank you to join this presentation of Amphastar. We also appreciate JPMorgan organized this conference. Now I will introduce company overview. So our company overview can be described in a few words, one stop, dual strategies growth model, 3H focus. Specifically, one stop means fully integrated business model, R&D, manufacturing and distribution. For dual strategies growth model, that means the pipeline development and strategic acquisition. Our 3H focus means high quality, high efficiency and high technology. With more details, the fully integrated business model one-stop means we have intensive in-house product development capability, including technical platform, state-of-the-art instruments, animal studies and the clinical research team. Also, we have fully integrated back-end manufacturing capability, including API and key components, device and key components. We also have complete front-end integration, including marketing and distribution. So our company can perform product development, API key components manufacturing, U.S.-based finished product manufacturing, marketing and distribution. This will control over the quality and the compliance throughout the production development and manufacturing cycle. For the dual strategies, we have two arms, primary organic growth pipeline development and the secondary arm that is inorganic growth, strategic acquisition. For the primary arm, we have several examples here. This is including Primatene MIST that is on NDA, MDI inhalation and distributing the OTC set. This is [indiscernible] on the marketing in 2018. Next example is glucagon injection. This is ANDA highly-purified peptide and launched on the market in 2020. And the third example is multiple the IN NDA development still in process. And the number four examples is insulin analog. This is the BLA, the DNA recombinant also ongoing for development. For secondary arm strategic acquisition, we have three examples, Armstrong acquisition, this is MDI facility and we acquired in 2003. Second example is AFP. This is DNA recombinant facility. We acquired from Merck in 2014. And the last one is the BAQSIMI. This is NDA powder intranasal delivery, and we acquired from Eli Lilly in 2023. So Amphastar's management team operate this company to insist on high quality, to emphasize high efficiency, and to rely on high technology to develop pipelines, the 3H focus results in high net income margin. So the plot show our net income margin in from 2018 to 2023 from the beginning only 3.5% to more than 20%. Leveraging strategic vision and core strengths. So our pipeline in 2021, majority pipeline is generic, so 63%. The other are proprietary and biosimilar products. So our plan in 2026, 50% of pipeline will be proprietary product and generic become only 15%. Our technical platforms, including particle engineering, novel formulation, characterization, immunogenicity evaluation, DNA recombinant, highly-purified peptide and protein and also the novel device. In this slide, we have five examples show the use of this platform. The first one is Primatene MIST. So this is on NDA and it's the only FDA-approved asthma inhaler available in the OTC market in the U.S. And next one is the multiple peptide protein products, including AMP-028, which is still at development. And the third example is the insulin analog, this is the BLA, biosimilar interchangeable. And number four example is Glucagon ANDA injection. The last one is BAQSIMI, and this is acquired from Eli Lilly, and this is the novel formulation and novel device. This slide shows our strategic shift toward proprietary and biosimilar drugs. So our effort is to expand our commercial capability through acquisition of BAQSIMI. And so our global footprint will be in 26 countries and more. We also invest on the CapEx investment, so increase the product capacity. So prepare the coming increase of manufacturing. We also explore our biosimilar portfolio and also develop the MDI product with new green propellant. So this is a portion of our strategy shift to the new direction. Next, I will forward to our CFO, Bill Peters for the last portion of this presentation. Thank you.

Thank you, Jack. I'll be discussing the R&D pipeline, some financial information and our proprietary products. We're a company that's focused on R&D investment. We have a strategic focus to make substantial R&D investments to expand our product portfolio. And this can be seen on the graphs on the right there. You see the R&D expense that we have is pretty significant and especially on the bottom part, when you see the R&D as a percentage of revenue. At times, we've had R&D as a percentage of revenue over 21. Now that's dropped a bit over the last few years, but that's more because our sales have expanded as opposed to a decrease in R&D. We've continued to increase the R&D spend. You see 2021, that was a little bit of an anomaly, that down year because that was a year right after COVID, and we had a difficult time getting certain clinical trials underway and to get those fully staffed up. So that was difficult for us at that time. But other than that, we've had a very strong focus on R&D, and that differentiates us from our competitors because we're able -- because of that focus, we're able to do the things that other people can't do, especially for companies our size. The other thing that we have is that our R&D is not only on finished products, but also on API and early-stage things as well. So we've developed many APIs for our own products, and we also are in the process of developing APIs for use in several of our pipeline products. Our pipeline right now includes a certain number of injectable products and inhalation products that are ANDAs. So this slide lists the ANDAs and BLAs. And this presentation is available on our website. So AMP-002 is a product that we haven't disclosed what it is, but we have disclosed that it's a product with over $500 million of IQVIA sales. It had a GDUFA date, which means the FDA is supposed to respond in the second quarter of 2023. However, we haven't had an action from them yet. We are in discussions with them, and those discussions are on a regular basis with our CEO and our Head of Regulatory and some senior officials with the FDA. So we're -- we hope to make progress with that product this year. The next 2 AMP-015 and AMP-018 are teriparatide and our first GLP-1 product. We have -- for the 015 product, we did receive a CRL last year. We're in the process of responding to that. We hope to have that responded to this in the first quarter. The GLP-1, we have a GDUFA date in the second quarter. AMP-007, the first -- the inhalation products that we listed that we have a GDUFA date that the FDA extended to the second quarter of this year. That's a product that we're really excited about because it's a product where there's currently no generics on the market. It was a Paragraph IV product. However, the innovator did not sue us. So hopefully, that should clear the way for us to be able to launch upon approval. Additionally, we have 3 other inhalation ANDAs that we have in development. One of those we plan to file by the end of this year. The final product we have listed here is our first biosimilar that's not an insulin. So this is a product that we're designating as AMP-028. It's in development right now. It has sales of over $2 billion for the brand. It's in an area that we don't think there'll be significant competition, and we believe that we have a strategic advantage to manufacture the API for this product. So this is one where we think we can do something that other people probably can't do. So we hope that, that might be one where we're one of only one or maybe only a couple of people that could make that product. Our diabetes portfolio is one of our -- the highlights of our program. We've already developed and commercialized the glucagon injection kit. We purchased BAQSIMI. For the GLP-1, we filed our first GLP. But we're also working on interchangeable insulins, 3 of those BLAs. For AMP-004, that's our first one. We have filed that one in the fourth quarter of last year. So we're excited to get that going. We've had many meetings with the FDA about that. And it's an exciting product with a large sales profile, insulin aspart. NovoLog is the brand for that one. The second one we have is the recombinant human insulin. That's a product where we make the API in our French facility. So we're excited to work on that one. And also the final one is AMP-025 or insulin degludec. That one we make the API in our facility in China. So we really cover with those 3 BLAs, we cover the full spectrum of insulin, and it covers a significant amount of sales. So the sales potential for these products are very large. The brands cover over $6 billion in sales and over $70 million -- 70 million units. So not only does it offer to us a large target market, but the fact that we could significantly ramp up our production would make our efficiencies of our facility at Amphastar be much more efficient than they are today. Our sales have trended nicely over the last several years. You can see on average, our compound annual growth rate is 19% for our revenues from '19 to '23, a nice increase there. And our EPS is up even more with 74% compound annual growth rate going from $0.36 to $3.32 last year. So very strong growth for the company, both the top and the bottom line. Additionally, our quarterly growth is also strong. You can see growing from $120 million in the third quarter of 2022 to $191.2 million in the third quarter of 2024 or 6% annual -- or quarterly growth rate there. And the gross profit is also growing strong at over 7% compound quarterly growth rate over that time period. New launches, one of the things that we've focused on over the time is that we've really diversified our portfolio primarily through new approvals, but also with the acquisition of BAQSIMI. You can see on the left there, the first pie chart is the sales that we had in the year we went public, so 2014. Now 9 years later, we have a completely different mix of products. So when we went public, we were highly dependent on enoxaparin. It was over half of our sales. But now we have a very diversified portfolio of products. So it really diversifies the company and lowers the risk that we have of any one product having generic competition. Turning to our proprietary products. The first one we'd like to talk about today is BAQSIMI. This was one of our largest acquisitions ever. We closed that in June of 2023. And this -- we wanted to talk about why we did this, and it's a novel intranasal glucagon product. It really fits well into Amphastar's proprietary and our total product portfolio. It expands our diabetes portfolio. It builds on our commercial intranasal product portfolio and expands our international footprint into 26 countries. We initiated a commercial sales team with BAQSIMI, and we -- it's one of our -- it's our biggest branded product with growing sales. So on the patient side of this, glucagon is an underutilized product. So right now, when we purchased it, only about 10% of patients who were getting insulin were getting a glucagon script. Now it's recommended by the American Diabetes Association that everyone who gets an insulin script should get a glucagon script. So we see there's a significant market penetration opportunity for the company with this. We're starting to take advantage of that, and we've seen that percentage grow up since that time. So we're very happy about that. And BAQSIMI is currently the leader in use for this, the ready-to-use products. It's a very simple nasal administration. It's the only non-injectable glucagon approved by the FDA. It's absorbed through the nose and has a low barrier to administration versus the injection. So it's one that's friendly to people. So people with hypoglycemia, frequently, if they're not able to act themselves to counteract that. So they have to have someone else administer the product to them. Now someone else might be -- have a difficult time administering an injectable product. So therefore, we think that the intranasal route is one that's much better for people that are friends, teachers, relatives of the potential patient. It's ready to use with no reconstitution. And it's also a smaller product size. So it fits nicely into someone's pocket or purse. So it's been a strong grower since it was launched by Lilly and we took over in 2023. The previous year -- 2 years when we were selling it with -- partially from us, partially from Lilly, we were receiving what we call a net economic benefit from them, just getting into some of the accounting for this. So that was basically -- we were only recognizing the revenues as the -- basically the net check that we would get from Lilly. So in the countries where they were selling it, they would take their sales, deduct the cost of sales, deduct their cost of selling and distribution and then give us a check for what was left, and that was what we were recognizing as revenue. In the countries where we distributed it, we would recognize all of the revenue just like you would any other product. Now as of January 1, we distribute BAQSIMI in all countries. So in 2025, all of the revenues will be booked through Amphastar on the top sales line. And now 2024 was a little bit complicated because on a country-by-country basis, we had to switch over. So it dependent on the month in which we switched for the distribution. So we have and still continue to say that our projection for this product is to reach peak sales of $250 million to $275 million, which is what we've been saying for about a year now. When we originally purchased the product, we had said $225 million to $250 million, but we realized shortly after getting the product that it was trending higher than we expected. So we raised that about a year ago. One of the things that we're doing going into 2025 is that we're announcing a collaboration with MannKind to increase BAQSIMI's sales footprint with their endocrinology-focused sales -- we think this is a win-win for both companies. They get a new product to detail, and we're paying them to do that. And we get a distribution sales force that's significantly larger than the external one that we have right now. Now we plan to continue with our current outsourced sales footprint that we have across the country, but this new footprint will more than double the number of people that are detailing BAQSIMI. So we think that the sales growth of BAQSIMI will be significantly higher this year. So we're expecting this year unit sales to increase to the high single-digit range. And we also expect -- or we also took a 3% sales price increase on January 1. So we have that as well. So we're looking at -- with that sales plus the units plus the price increase, we're looking at a low double-digit sales increase for this year. We're still reiterating the projected EPS at peak being between $2 and $2.50 on an adjusted basis. Primatene MIST, we're happy to announce that we did hit our $100 million sales target in 2024. We surpassed it. Preliminary unaudited numbers are at about $101 million of sales. So we're very happy to say that we not only hit it, but we exceeded our sales target. So Primatene MIST, just a reminder, is the proprietary patent-protected over-the-counter epinephrine inhalation product. It's the only OTC product for asthma that's approved by the FDA. We launched it in 2018, and it's had a nice sales growth profile over that time period. There's 20 million adults that have asthma in the United States for the CDC. So it's a very large market for us that we believe we can continue to penetrate. Starting this year, we've decided to increase our physician sampling program to primary care physicians to make sure that they're aware that there's an option for patients that they don't have to get a prescription. So about 60% of people with asthma have mild asthma. And that's what the target market for Primatene MIST is. That's what it's indicated for. So we think that there's a nice market that is still unpenetrated for this product. So we do continue to see growth in there, and we're expecting units to grow in the high single digits this year. We also are announcing that we're developing a proprietary green propellant formulation for the product. We filed -- we've developed the new formulation with a new propellant, and we've filed a patent for that as well. So we have a patent pending for this product. We plan to launch that at some point in the future, but we're excited about that product that will have better low global warming propellant. And then just to discuss some of the growth drivers and upcoming milestones. So as we turn to 2025, what's going to happen? Well, BAQSIMI, we're going to see the growth that I mentioned from that in the probably low double-digit range. Primatene MIST, we have the advertising campaign and the increased physician sampling. So we're seeing unit growth in the high single digits. Albuterol, we've launched that in August, and we're starting to see some traction there. So we do expect that to be a growth driver this year. Additionally, we have the potential expected approvals of AMP-002, 015, 007 and 018, all are potentially approval and could contribute later on in the year. Our recent filings include 007, 018, and then also resubmitting the BLA for our first insulin product. We plan to file this year our naloxone Rx to OTC switch and our AMP-017 ANDA. And so that wraps up our presentation. So we'll take some questions now.

Looking back to 2024, what do you think went better than expected? And what do you think went worse than expected for the company?

In 2024, what are we and is better than our expected is we filed the 004, the BLA. So this is first interchangeable insulin for FDA under this program. We have multiple meetings with the FDA. And so we filed this one confirm, and we have mutual agreed with submission requirement with the FDA. This is number one. Number two, company smoothly transferred BAQSIMI distribution to Amphastar, this is also important for our company because we expanded our distribution capacity to additional 25 countries. Number three, our distribution of Primatene MIST reached our goal and $100 million in 2024. What is worse than our expectation is for the AMP-002, and this further delayed and actually this delayed from the action date almost 2 years. And this is a special case. And for FDA, we never saw FDA have this long time delay and because this is -- structure of the product is very complicated. So FDA have more than carefully think about the requirement for regulatory. So we have a regular meeting with FDA. So exchanging and now consideration on both FDA and applicant. So we are confident and FDA have a very clear strategy and move on it. We believe in the near future, FDA will have a final determination for this product.

And then on BAQSIMI, I think you've had the asset for more than a year now. Just how has the product, I guess, performed relative to your initial expectations? And also just any changes in how you're thinking about the size of the opportunity, the peak sales potential and how quickly you can get there?

Yes. BAQSIMI has performed very close to our initial expectations. So we're very happy about that. We've made a lot of progress over the last year with the infrastructure that we had to put in place to get distribution around the globe. And it's our first product that we're selling in 26 countries. Previous to that, really we were only selling finished product primarily in the U.S. and for a couple of products into Canada. So it was a big change and a lot of work for us to get that done. We're very proud of the work that we had to do to get that done. And we still continue to see the strong growth in BAQSIMI. As I mentioned in the presentation, we've reiterated our forecast for the peak sales of $250 million to $275 EPS for $2.50 to $2.75. So we're really happy to be in that range.

And then just maybe elaborate a little bit on what happened in 2024. I think Q3, I think, came in a bit lighter than expected. Have those issues been largely resolved? And I guess, how should we think about the growth for BAQSIMI over the next few quarters?

Yes. So those were primarily -- some limited events that happened. So there were two things that happened in the third quarter. First, in the U.S., there was some hurricane delays of products that were shipped from our facility should have been received, but were not received. So that was just a timing, a small shift from the third quarter to the fourth quarter. The other issue was that there were some supply chain issues and so that we ran out of product for BAQSIMI in 14 countries in Europe. So that was disappointing, and that's not a timing issue. So we're not sure whether those sales get -- come back or not. But -- but we've worked through those logistical issues. We've fixed them. And now we've taken over the distribution and the logistics for Europe. So I think we're -- I think we can keep that under control on a going-forward basis.

And then on the decision, I guess, to expand the commercial support for the product, just how in general do you approach setting the appropriate level of spend? And where do you think spend can go over time to kind of maximize the?

Yes. Good question. So when we launched BAQSIMI ourselves and took it over from Lilly, we had mentioned that our sales would be strong and that our spend on it would be about for -- the SG&A side would be about 17%, which was about what Lilly had spent the year before we purchased it. So that was our target. We actually underspent a little bit last year. But this year, we do plan to spend about 2% on G&A type of items and about 15% on selling expense. And the big driver of growth from last year for that selling expense is the MannKind agreement that we have, which we think is a great agreement that will really get to more than double the number of people that are out there detailing the product. And we're really excited about what they can do for us to help increase the footprint and the share of voice out there to make sure that people realize and patients and physicians realize that BAQSIMI is really the best choice for people that are looking for an anti-hypoglycemic product.

And then turning to Primatene MIST. You're going to be hitting $100 million for the product this year -- well, I guess now it's last year -- but what do you think, I guess, growth can look like from here? And do you think there's an opportunity to do kind of DTC as well to maximize the asset?

Yes. So we have announced we did hit that $100 million. So we're really proud of that. We were probably closer to $101 million, maybe even slightly above that. So based on our preliminary unaudited numbers. So we'll have our final numbers when we release earnings at the end of February. But we're really happy with the expansion there, and that's why we are expanding the DTC effort that we have. So we are going to be sampling physicians to make sure that they realize there's a good over-the-counter option for patients that have mild asthma. And we think it's -- so what we've said for this year is that we're going to grow in the high single-digit range, which we feel very comfortable with. I know some people have taken our $100 million goal as a peak sales number, but it's not a peak sales number. So we continue to see -- we still see significant growth from here. So we're really happy with it and think the product has a lot of opportunity for growth.

And then on epinephrine, another strong year last year. Just talk about the competitive dynamics you're seeing for both the prefilled syringe and the vials and just what you're seeing from a competitive standpoint and what revenues could look like this year?

Yes. First, let me start with the prefilled syringe, where we are the only company selling it in the United States right now. And we've also been able to increase our capacity at our international medications facility so that we can not only sell that in the United States, but we're also selling it on an emergency basis into Canada. So we've really expanded the sales of that product to take advantage of the opportunities out there. Unfortunately, on the vial side, we've had two competitors -- two recent launches of competitors. So that's going to bring down the sales for that SKU.