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

All right, everybody. We're going to get going here with our next company presenter at the BofA Annual Healthcare Conference. Pleased to be introducing Amphastar Pharmaceuticals and CFO, Bill Peters; and Dan Dischner, who heads HR and Corporate Communications. So gentlemen, thanks so much for joining us.

Thanks for having us.

Thanks for having us.

Yes. So coming off of 1Q and 1Qs are always a little sloppy in the pharmaceutical land, not to say that your results were sloppy by any means. But obviously, if you can kind of talk about as you turn the corner in 2025, kind of a transition year for you guys, right? You have absorbed some competition to sort of your legacy generic base business, and you've got sort of the growth opportunity in front of you, which is going to be driven by your more -- your pipeline, which is a mix of proprietary branded and generic and then BAQSIMI. So with that said, I don't know if you would add anything to investors on how to think about Amphastar as a company, as an investment opportunity and where you kind of want the company to be in the next 3 to 5 years.

Yes. You're exactly right about it being a transition year for us with -- we -- as we said on our first conference call in the year in February, we expect this year to have declining sales on several products, and that's unusual for us because most of our products historically have been more immune to competition. But this year, we are expecting to see or have seen competition on the epinephrine vial product, which had a couple of new competitors coming last year. Glucagon had a new competitor launch in the first quarter of this year. Phytonadione, another one where we see another competitor on. And at the same time, we've seen a little bit of a slowdown at the FDA, but we have 4 products there right now that we think we can get 2 to 3 launches later this year. So that's why you're right about the transition year but -- and why we've also said we expect to see sales relatively flat this year because at the beginning of the year, we're going to see these declines. But then at the end of the year, we expect to see increases because of these pickups of these new products.

Okay. A couple of high-level questions on the DC front. First, with a lot of dislocation in FDA and head count reduction, usually, when there's a lot of facility supplier inspections that tends to be what drives a lot of shortages, shortages have been things that you guys historically have been nimble in being able to respond to and drive value in certain products. And so what's your sense lay of the land in terms of FDA and that dynamic for you? I mean you feel FDA on 2 fronts, I imagine, right, your ANDA portfolio, your pipeline, turning approvals around and if you feel like you're getting the level of engagement that you've gotten historically. And then separately, do you feel like on the inspections and things like that, that that's happening with the same sort of frequency?

Yes. It's interesting because intuitively, with the cutbacks at FDA, you would expect to see maybe a slowdown in their time lines on inspections or action dates and such. But actually, we've seen sort of the opposite. We've had an inspection. They were there full 5 days. Everything went well. We've had 2 action dates that were met. One of them was actually a week early. So our experience has been that the agency is actually, in some ways, maybe a little more efficient now. I have the same feelings that with cutbacks, there's going to be some things that get lost in the shuffle and cause delays. But right now, we haven't seen it.

Okay. In terms of the administration's 232 investigation, it seems much broader than when I think about your business. It seems like it's more about oral solid dosage, anti-infectives, what are called critical medicines that -- where there's a heavy reliance on China. You guys play -- I think of you as more of a niche company, inhalation products, injectables, things like that. So when you see that and you try to conceptualize, what is like really the solution that the administration is after? And can Amphastar play a role in any way to address that? Are you at the table discussing with the government as this 232 investigations ongoing?

Yes. I think it puts us in a unique position, right? Because we manufacture all our finished product in the United States. So obviously, that looks like it's a good opportunity for us. However, depending on the details of this, what happens if you have components and API, and we do rely on some components and API outside the United States. And if they tariff the components in the API, then that puts us into kind of more of a disadvantage in some cases because if other of our competitors are manufacturing their finished product and getting their API and components outside the United States and then they don't tariff finished product and they come in, then they have an advantage over us because we still need to get certain API components outside the United States. However, if the tariffs target finished product, well, that's great for us because we manufacture our finished product in the United States. So I think the uncertainty, and we'll have to see how these things play out. And we are at the table. We do discuss these things with our trade groups and such. And we -- but the best we can do is just watch and see how they roll these things out.

Yes. Okay. So yes, pipeline is key for you guys. You had a few updates on the 1Q call. Maybe I think it feels like you guys offered more detail than you've historically offered on 2 programs in particular, which are the 2 products we kind of see as like your most near-term interesting value opportunities, which would be AMP-002 and AMP-007. So maybe just the high points on each of these and where you think you're at. And I know that you've mentioned that sort of, I think, to revenue guide -- sort of soft guide, if you look, I don't know if you have an official guide, but like your outlook for revenue for the full year assumes, I guess, 1 of 3 potential pipeline approvals?

Yes. So on AMP-002, we had a PDUFA date a little more than 2 years ago where the FDA missed that action date. And throughout this -- the last 2 years, we've been having routine normal communication with the FDA about what are their concerns, what are their issues. And honestly, it was a little frustrating on our end because we really never got an answer of what exactly was holding the application up. Recently and after we -- the award that Bill was referencing this award for the drug shortage award that we got from the FDA, it gave Bill and our CEO, Dr. Zhang, an opportunity to meet with the Director of CDER. And in that meeting, they had a great conversation about A-02. And she was very much aware of it and very much engaged with and understood our frustration with it. And then within 2 weeks, we actually got an IR, an information request, which was great from our perspective because at least now we're getting some sort of feedback from the agency. What are you looking for? And the great thing is that we were able to respond to that IR within 1 day. So it wasn't major. So now our level of confidence with this product becomes much higher than it was maybe prior just because we feel like now we understand what they were thinking about and we were able to address it in a very short time.

Can I stop you there for a second?

Yes.

When you get an IR, do they tend to be isolated, like they want to lay out all the issues in one IR? Or are there multiple IRs and ones they follow? Like how do we interpret what an IR really means?

Yes. I mean that's a great question, and it can mean all of the above. So it can be all inclusive or it can be...

And just to put in a word, we usually don't talk about IRs because we can't always read into them.

Right.

But we did this time because we felt it was such an important one because we hadn't heard anything really in 3 years because we had responded to a CRL, then they missed the action date, and it had been 2 years since they missed the action date. So because of this, we thought that we should communicate that we did have some official written communication as opposed to the oral communication that we've been having for the last year. And I'm sorry, you can...

No, no, absolutely. I mean Bill is 100% right. Sometimes the hardest thing is trying to explain to people what the issue is without really getting into the details. And I think in this particular case, because we've been talking about having interactions with the FDA, I think we had 16 of them prior to that meeting. And what did that really mean? You have so many meetings. But now that we actually got an action item, it made us feel so like, okay, now we're making some headway.

And going back to your question, IRs are all over the place. It could be anything that they want to tie up in the time frame between your submission or your last response and the action date. So it could be that they ask you 5 things, and some of those are complicated things like do another -- show some data on this -- the study. And other ones can be change this, the word on this label to a bold face. They run the gamut, but there are things that come in individually and are not a complete response. So the complete response letter is supposed to be everything that's open at that point in time. This is, hey, this is an open item now, please address it. So...

Does it make sense to you that you'd be sitting for 2 years with like a very negligible IR on the other side of that?

I'll say it's a difficult situation. That's unusual for us. It is really hard to put a...

We've never seen a situation where the FDA has missed an action date. And for 2 years, we never had something...

Yes. So certainly unusual, and I'm sure the FDA has their reasons for doing what they're doing and the time line that they're doing it. And just maybe not all be apparent to us.

Yes. And now this is an injectable product, IQVIA sales greater than $500 million. I'm not saying much more than that. There are no generics in the market.

Correct.

That's good for the -- if you are approved in theory, you could have some exclusivity to.

We do have CGT designation on this. So it's possible. Again, we don't know. We'd have to be the first and only approved in order to get that exclusivity and get that...

So what's CGT?

Competitive Generic Therapy. So it's something where the FDA has put on it that this is an important product to them. It's a big enough product that it should make a difference to the market out there and that they want to encourage people to work on it. So it's something that we've been given that. So we could -- it's similar in a lot of ways to the 180-day exclusivity for the first Paragraph IV filer, but this is for things that don't have that Paragraph IV challenge. So it's something that we're working on, and we have that. But -- and we could get an exclusive period. However, they could also approve 5 people and[ say may not ] that...

That also have CGT designation.

Yes.

And then it really becomes a race to who launches first.

So it's not specific to one company like a Paragraph IV. They could have multiple people doing it. So you're not necessarily alone.

Logically, if a whole bunch of different filings were held up for this amount of time, and it wasn't some complicated major thing that was overcome. Like if there were some complicated major hurdle on the regulatory science, that would suggest to me that like maybe the floodgates could open for multiple players. But if it's -- it sounds like if it's a trivial IR that was the swing factor, and they're finally maybe just getting around to it because administratively, they've got deprioritized?

I don't think that's what it is. I don't think that's what it is at all, but it's really hard to say what it is at this point in time. So it's not a trivial administrative thing. I think it's more of a something where they have a difficulty in either making a decision for one reason or another. And so it's like how do you make a decision. And I really can't say too much more about it.

Yes. I guess like we've just given everybody a tutorial as to why you don't tell the Street about these things because there's a lot of questions too, and you probably just want to avoid that entirely.

There's a lot of nuances to it. That's true. Sorry.

But in theory, this could, I mean, maybe be as large as some of your disclosed generic products if you have single-source exclusivity.

So here's the thing that we have also stated that we do have a limited manufacturing capacity for this product because the manufacturing process is very difficult. And it's more complicated than some of the other manufacturing processes. And therefore, what we have said is that even if we are the only generic, we can't get to a level of market share that you would normally expect and first and only generic to get to. And we haven't really quantified that much more other than to say that some of the -- at some point, some of the high ends of the ranges of potential sales were too high.

So is that something that over time, as you got through the regulatory hurdle, you may look to solve for with cash and investment or in the manufacturing side? Or do you think that...

This product is so specific that I don't see us potentially putting in the money that we would need to do for this product because it's not something that we could then replicate and use for a different product.

So best case is pricing remains healthy, but share is niche.

Yes. Yes.

How niche just in percentage terms are we talking in terms of market share?

We haven't said, but I'll say it's probably less than 25% market share.

Okay. It's still pretty meaningful threshold. Okay. And then 007?

Yes. So 007, we received a CRL in this -- earlier this year. We'll be responding to it within the next couple of weeks. I would classify it as a sort of a minor CRL. We do expect an action date to be in the third quarter of this year. This is a product that there is no other generic that we -- there was a Paragraph IV, but we were not -- we did not get sued on that filing. So there's a possibility as well for 180-day exclusivity once we get that approved.

And I think you said on the call, if it ends up being a minor issue, it could be like a 90-day turnaround on the regulatory review time.

Typically, that's the way it works, yes.

So in theory, it could be a 2025 contributor. And how should we think about like the supply dynamics with something like that? Like would you be -- you're clearly ready to spring to action in one of these products or maybe multiple.

Yes. So going back to your original question about the guidance for the year of getting to flat and what that contribution was, we had originally said that we would get contributions from 2 products. Our expectation was contribution from 2 products later in the year. And at the time, we had different probabilities. We had 4 products that had potential to be launched this year. Since then, 18 has gotten us CRL that's put us out of that launch. But with 002, our probability of launching that this year, we think, has gone up just because given the ease that we were able to respond to the single IR, it makes us more comfortable that the next step is more likely to be an approval. We thought previously, the most likely next step was a CRL. And now it still could be a CRL, but it could be an approval as well. And then what we've done with this guidance to get to flat is we've probability weighted the different products. And so if we have like a 70% chance of one product and a 60% chance of another and a 50% chance of another, none of those things could happen or all of them could happen, but we need to get contributions from 2 of those products to make our flat number.

Okay. And maybe getting to your -- back to your base business, right, you have 2, what I'd characterize as more higher visibility, stable growth drivers in Primatene MIST and BAQSIMI. What are the barriers to entry for any competition directly to Primatene MIST? Like if anyone try to develop a generic, what is the patent situation like there? Or is it just maybe not big enough given the cost of a development program to go after?

So with Primatene MIST, because it's an OTC product, it has a different market dynamic than it would from a normal prescription product. So while it's a $100 million product, the way we see it is that it's unlikely that someone would want to try to genericize it. And we know there's been no Paragraph IV filings to date because we have patent protection out until next year. But the way we see it is, all right, so if half of the market is likely to stay with the brand anyway, so let's say it's a $50 million total addressable market for the generic. And of that, they'd probably have to offer a 50% price reduction to get the market share, so say about $25 million, and we could -- we would then launch our own authorized generic for that. So you're talking maybe a $12.5 million sales market and now your margins are getting lower. And it just doesn't seem like the amount of money that you have to spend on a generic inhalation product to get to that market, it just doesn't seem like it would be worth it to us.

Yes. That would be like a generic store brand, right?

Yes. Exactly, exactly. So we just don't see that as being -- it's a possible scenario, but we don't see it as being a likely scenario.

Yes. Okay. And BAQSIMI, a pretty straightforward situation with the IP that you have.

Yes. So we've gotten multiple patents there. And beyond the patents, though, because we've got a formulation patent, we got a device patent and a combination, the formulation with the device patent, so we've got 3 different patents that go out there more than 10 years. So -- but more importantly, when we took a look at BAQSIMI, we thought that this would be an extremely difficult product to genericize. And that's coming from the company that was the first company to genericize the glucagon kit. And not only that, that was off-patent for 20 years before we could get it, and then it took 4 years for another company to get a generic of that approved. So we think this is so much harder to do than that would be that there would be a limited number of people that could do it, and it would probably take them a very long time. And we also have signed an exclusivity agreement with the device manufacturer where we are the only company that can put glucagon into that device for a long period of time. So then the company who's going to try to genericize this would have to come up with a device that was similar but didn't violate their patents. And that would be extremely difficult as well. So we think that this is something that has a very long life to it. And that's one of the things that we really liked about it because we think this is not only a good cash flow now, but we see this as something that's going to have a very long life to it.

Okay. And now maybe the MannKind partnership. How did that come about? Did you feel like you were sort of maybe didn't have enough sales push on your own end internally after you had the product within your portfolio?

So we have a really good relationship with MannKind because we sell them the insulin for their Afrezza product. So we've been dealing with them for a very long time. And we've talked to them -- since we got -- bought BAQSIMI, we've had conversations about -- with them about how we could work together on it. And in the end, we decided for ourselves that what made the most sense was just a co-promote arrangement where we're paying them to promote BAQSIMI in the second position. And I think it's a real win-win because we get -- we more than double our sales force, and we do so in a very economic basis. And then MannKind wins because they've got another product to talk about and they're getting paid to do that. So it's a real win-win. We've seen the results starting to pay off already with some of the anecdotal data we're getting and some of the script data we're getting in the areas that they're covering where we didn't have that footprint. So we're very happy with the way that this has started off.

And so where specifically are you seeing that benefit from MannKind?

So we're seeing it in the script data in areas where we didn't have people because we have a limited number of reps. So they have more reps and they have reps in places where we didn't. And we also have anecdotally seen some targets of some high writing -- high glucagon-writing doctors that they've been able to move to our product that they've had a good relationship with.

This is doctor types you weren't reaching or geographies that you weren't reaching?

No. They're both really because their coverage is in certain -- has certain geographic coverage where we didn't have. And then also, they were able to get into certain doctors' offices in geographies where we were and we hadn't been able to get into those offices, and they were able to do that.

Is this really like a key in your mind to unlocking the type 2 diabetic patient and higher treatment rates there?

I don't know if I'd call it key, but I think it's -- like I said before, it's a real win-win for us because we expand our sales force, and we're doing so, I think, in a way that's -- we're spending money on it, but we're not breaking the bank either to get this done. So I think it's a very economical way to significantly increase our footprint.

Yes. And you've got peak product sales guidance out there, but have you specified when you think you might get to that level?

The only thing we've said about the timing of that was that it would be after the 5-year period where we owe Lilly payments for this because we have 4 potential milestones that we would pay to Lilly. So we just wanted to be clear when people took a look at that sales guidance of $250 million to $275 million, that they didn't think that it was happening during the first 5 years that we own the product.

So after the first 5 years, then those Lilly payments sunset and then some point of time after that.

So yes, we haven't said how much longer after that.

Yes. Okay. And then overall, like just thinking about the puts and takes in your margin profile. As you said, this is a bit of a reset year for the company then. Are product opportunities like 002, 007, is that enough, coupled with maybe the incremental growth you get in BAQSIMI to drive back to kind of some of the historical peak operating margins?

So going back to those, last year was we had some onetime events really because of the structure of the deal that we had with Lilly. So when we booked revenues that when Lilly was selling BAQSIMI, all of the revenues that we booked were net of all of Lilly's expenses. So we had 100% gross margin on those sales. So we won't get back to a product that has 100% gross margins again. And so to do that, we need multiple products that are above the corporate average. And now while we think that the next 4 launches will be above the corporate average, I don't think that gets us to where we were last year, but it gets us above where we were in the first quarter of this year.

Okay. So let's see, going down the list, a couple of products that you've seen a little bit of competitive headwinds too would be epinephrine and the glucagon kit. So with glucagon kit, is that primarily Viatris is like a single new competitive entrant that's weighing on that business for you specifically?

Yes. So they launched in the first quarter. And what we've said about that is that because their launch wasn't at the beginning of the first quarter, that their impact is not fully baked into the first quarter in terms of units or in terms of pricing decline. So we have further erosion in both of those as we move forward into the second quarter.

And so 2Q, 3Q will be like a better kind of approximation of like the new reset runway, right?

Yes.

And then what about with epinephrine, right, I mean, because the impact was on a subsegment of that business, right, which makes up, call it, directionally half of the volume?

So last year, half of our sales were in the multi-dose vial form of -- half of our epinephrine sales were in the multi-dose vial form, and that's where we had a few new competitors last year. So we've seen both the units and the margin come down on that with the pricing coming down. So we haven't broken out the first quarter. We haven't said what that breakout is, but it is now to the point where the prefilled syringe is larger than the multi-dose vial.

Okay. And you do get a fair amount of questions about when Pfizer had its issues at Rocky Mount and exited or temporarily exited some markets, but then I think you mentioned maybe they came back in dextrose over the quarter. And kind of where is normalization, if you will, on competitive supply dynamics across the portfolio?

Yes. So with those shortage products, and we won the shortage award from the FDA for the epinephrine prefilled syringe because we were able to supply 100% of the market for that product over the last more than a year. So we have the ability to supply all these things. We have the capacity to supply all of them. If -- but many of these things are dual-source products. And so if there are 2 players in the market, the hospital chains will want to buy from both. They don't want anything where there's just a single source for this. So they will give sales to both companies when they're available.

Yes. Okay. So in terms of capital allocation priorities for you guys, you guys have shown a willingness to go out and do meaningful-sized BD for your company. Where do you stand with respect to that? And is there an appetite to maybe want to bring in an additional complementary product to BAQSIMI? As you think about kind of the, I guess, the rollout of new product opportunities, you do have some biosimilars, insulin and stated strategy around GLP-1. So do you see kind of like the footprint migrating to endocrinology and diabetologists?

Yes. So we really do like the endocrinology space. So our first choice would probably be to expand in that space, and we've looked at multiple assets in that space over the last year. And -- but the other thing is that we really would like to move toward the proprietary product space. So that's where we're looking the most right now. And so if we find the right endocrinology product, then we'd be very happy about that. But we're also interested in some of the spaces outside of endocrinology where we think we might either have a manufacturing expertise or have some other kind of expertise that would help us with the development of those products. So we are looking at multiple things on the proprietary side outside of that space.

Yes. Okay. And then I asked this question a lot, but like -- so for insulin, right, we've seen a lot of companies try it and not have much success. How do you view success? And is there a certain amount of supply share you need to be producing at capacity? I guess there's a notion that like the investment -- the CapEx investment to get in there and be able to make product at a competitive volume maybe isn't worth it given how prices have deteriorated. And what would be the pushback on those points?

Yes. So I think the most important part for us anyway is the pathway that we're going is an interchangeable pathway, meaning that at the pharmacy level, they could prescribe our product just as long as they would. They would be a generic form of insulin. They wouldn't have to be a separate script. So that convert to the patient is key that the interchangeable is very key. It's why that's the pathway we said. We believe our past kind of gives us the tools to get there. As far as capacity levels, I'm going to let Bill take that one.

Yes. So in the investment levels, we've already made significant investments into insulin production. I mean we bought the API facility from Merck in France that started it. And then we built the API manufacturing for insulin in China as well. So we can do the recombinant human insulin in France and we do the analogs in China. So we've built that API capacity. We've also built the high-speed finished product lines in the United States as well now. So we have that capacity, and that's underutilized right now. So for us, we've made most of the investments. Everything right now is more R&D related and incremental investment. So there's not a significant amount of CapEx that we would need to go to the next point. And yes, we started making these investments when the price was higher. But even with the price where it is now, we believe we can sell insulin at a rate and at a margin that's above our current 50% margin rate.

Okay. Well, we're out of time, gentlemen. So thanks so much for joining us in the discussion.

All right. Thanks, Jason.

Thanks, Jason.