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

Greetings, and welcome to the Amphastar Pharmaceuticals Inc. Third Quarter Earnings Call. [Operator Instructions] Please note that certain statements made during this call regarding matters that are not historical facts, including, but not limited to, management's outlook or predictions for future periods are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the section entitled Forward-Looking Statements in the press release issued today and the presentation on the company's website. Also, please refer to our SEC filings, which can be found on our website and the SEC's website for a discussion of numerous factors that may impact our future performance. We will also discuss certain non-GAAP measures. Important information on our use of these measures and reconciliations to U.S. GAAP may be found in our earnings release. Please note, this conference is being recorded. Our speakers today are Mr. Bill Peters, CFO; Mr. Dan Dischner, Senior Vice President of Corporate Communications; and Mr. Tony Marrs, Executive Vice President of Regulatory Affairs and Clinical Operations. I will now turn the conference over to your host, Mr. Dan Dischner, Senior Vice President of Corporate Communications. Dan, you may begin.

Thank you, Paul. Good afternoon, everyone, and thank you for joining Amphastar's third quarter 2026 earnings call. Earlier today, we reported our financial results for the third quarter ended September 30, 2026, which are available on the Investors page of our website. The third quarter was marked by record commercial performance, continued progress on our IMS remediation efforts and earlier advancement of our development pipeline. We achieved quarterly revenue of $207.6 million, up approximately 8% year-over-year and 13% sequentially. Growth was driven primarily by strong performance from BAQSIMI and Primatene MIST supplemented by contributions from recently launched products. Gross margin decreased during the quarter, primarily driven by the impact of lower net pricing on certain products and higher manufacturing expenses, including costs associated with the remediation efforts at our IMS manufacturing facility. Bill will provide additional detail on these factors as well as the year-over-year earnings comparison in the financial review. Our strategy remains focused on 3 complementary growth priorities: First, maximizing the growth of BAQSIMI and Primatene MIST while expanding our differentiated commercial portfolio; second, advancing our pipeline of complex generics and biosimilars; and third, progressing our proprietary development program. Our scientific manufacturing and commercial capabilities support each of these initiatives. I would like to provide an update on each, beginning with our commercial portfolio. BAQSIMI delivered record quarterly net sales of $58.8 million, representing growth of approximately 10% compared to the prior year's period. The increase was driven by higher unit volumes, partially offset by lower net pricing associated with commercial discounts and customer mix. During the quarter, the measures we implemented to address duplicate 340B discounts continue to produce results, further reducing their impact relative to the second quarter. We remain focused on driving prescription growth, expanding patient access and executing our commercial strategy to maximize the long-term value of the franchise. Primatene MIST delivered record quarterly net sales of $31.5 million, an increase of approximately 9% compared to the prior year's period. Growth was driven by both the price increase implemented in the second quarter and higher unit volume, with in-store unit sales increasing approximately 2.5% year-over-year. These results highlighted the strength of our commercial operation and our ability to successfully manage differentiated pharmaceutical products across multiple markets and distribution channels. More recent product launches also contribute meaningfully during the quarter. Specifically, ipratropium bromide, which launched in April, generated $6.6 million of sales, while teriparatide contributed $6.4 million. These launches supported overall portfolio growth and partially offset headwinds affecting certain established products, including Glucagon injections. Our commercial portfolio continues to provide the cash flow and operational foundation needed to invest in the development, manufacturing and commercial capabilities that support our pipeline of complex generics, biosimilars and proprietary medicines. During the quarter, we continued to invest in manufacturing initiatives that support both our existing portfolio and future growth opportunities and activities related to our insulin and proprietary development program. Our U.S.-based manufacturing footprint and vertically integrated operating model remain important competitive advantages as we prepare for future product launches. We also remain focused on addressing matters related to our IMS facility. Following the FDA's warning letter received earlier this year, we continue to implement corrective actions and advance our remediation efforts. These activities affected production schedules and the timing of certain product releases during the quarter, resulting in lower sales of certain IMS manufacturing products and higher manufacturing expenses. It is important to note, the impact to date has been primarily operational in nature rather than demand related. We continue to work closely with the FDA while maintaining the supply of essential medicines, including products that help address ongoing drug shortages. At the same time, we remain committed to fully addressing the agency's observations, maintaining the supply of important medicines and achieving sustainable improvements in our quality and manufacturing system. Bill will provide additional detail on the financial impact of these activities, our current expectations for remediation related spending and our broader business outlook. Turning to the second and third pillars of our growth strategy. We continue to make progress across our development pipeline during the quarter. For our Insulin Aspart biosimilar interchangeable program, we remain on track to support a potential commercial launch in 2027, subject to FDA approval. During the quarter, we advanced the clinical and manufacturing activities needed to support the program and continue preparing for commercialization. Development activities also remain ongoing across our broader biosimilar portfolio as well as additional complex inhalation and injectable product candidates. Our proprietary pipeline also remains an important part of our long-term growth strategy. For AMP-101, our intranasal epinephrine program, we continued clinical development activities following the initiation of our Phase I program in the second quarter. In the third quarter, we refined the study design and formulation based on regulatory feedback as we continue to advance the clinical development program. We believe AMP-101 has the potential to provide patients with an additional non-injectable treatment option specific to -- for severe allergic reactions, including anaphylaxis. For AMP-109, our peptide-coupled docetaxel oncology program, we continued nonclinical studies and manufacturing preparations during the quarter, building on the constructive FDA feedback received earlier this year regarding our proposed development approach. We also continued development of AMP-110, our synthetic human corticotropin program, including the evaluation of potential therapeutic indications and additional nonclinical studies to support a clinical development program. Development activities also continue for AMP-107, our proprietary ophthalmic program targeting wet-age-related macular degeneration and diabetic macular edema. Our goal is to develop a differentiated eye-drop treatment alternative for conditions currently treated primarily through intraocular injection, which we believe significant unmet needs remain. While these programs remain in early stages of development, we believe they represent meaningful long-term opportunities, and we are focused on disciplined investment as we advance them towards key development milestones. I will now turn the call over to Bill Peters, our CFO and Executive Vice President of Finance, for a more detailed third quarter financial review. Bill?

Thank you, Dan, and good afternoon, everyone. In my comments today, I will discuss the third quarter results and then update some of our assumptions for 2026. Revenues for the third quarter increased 8% to $207.6 million, which is the highest amount we have ever recorded in one quarter. This compares to $191.8 million of revenue in the previous year's period. Ipratropium bromide inhalation, which we launched in April, led the growth with strong sales of $6.6 million. BAQSIMI revenues increased 10% to $58.8 million compared to $53.6 million in the prior year period, primarily due to an increase in units sold, contributing $7.4 million of sales, driven by our continued marketing efforts. This increase was partially offset by lower average selling prices, which negatively impacted sales by approximately $2.2 million, primarily as a result of higher rebates and higher 340B pharmacy discounts, some of which may have been duplicated. Although rebates and 340B discounts remain a year-over-year pricing headwind, the impact was significantly smaller than in the previous 2 quarters, reflecting the positive impact of the measures we implemented to identify and resolve potential duplicate 340B discounts. Primatene MIST sales rose 9% to $31.5 million in the third quarter, up from $28.8 million in the third quarter of last year due to both a recent price increase and an increase in unit volumes as we continue to see strong in-store demand. Sales of lidocaine increased 29% to $16.6 million from $12.9 million in the prior year period, driven by higher demand due to a shortage from another supplier. Epinephrine sales decreased 19% to $15.3 million from $18.8 million in the prior year period, primarily due to lower product releases at our IMS facility as a result of the remediation efforts related to the FDA warning letter. Glucagon sales declined 37% to $8.6 million from $13.6 million due to increased competition. Other pharmaceutical product sales increased 9% to $70.2 million from $64.1 million, primarily due to sales of teriparatide contributing $6.4 million, which we launched in December 2025. API sales of $6.2 million from our ANP subsidiary also had a positive impact on sales. These increases were partially offset by a decrease in sales for several IMS products as a result of the remediation efforts at that facility. Cost of revenues increased 16% to $108 million from $93.2 million and gross margin decreased to 48% of revenue in the third quarter of 2026 compared to 51% from the previous year's period. The primary drivers of the change were lower average selling prices for BAQSIMI, glucagon and epinephrine multi-dose vial product. Additionally, we had increased manufacturing costs at our IMS facility related to the remediation efforts. These factors were partially offset by sales of recently launched products to higher margins such as Ipratropium bromide and teriparatide. Selling, distribution and marketing expenses increased 4% to $11.9 million from $11.5 million, primarily due to higher freight expense. General and administrative spending decreased 57% to $16.8 million from $39.5 million, primarily because the prior year period included a legal settlement. Research and development expenditures decreased 10% to $20.1 million from $22.3 million as the previous year period included a onetime payment for our licensing agreement. This decrease was partially offset by higher expenses for our insulin and proprietary product pipeline. Our nonoperating expenses of $1.7 million during the period compared to nonoperating expense of $3.8 million in the prior year period, primarily due to foreign currency fluctuations as well as mark-to-market adjustments related to our interest rate swap. Net income in the third quarter increased to $37.8 million, an increase on a per share basis to $0.87 from $17.4 million or $0.37 per share in the third quarter of 2025. Adjusted net income rose to $49.3 million or $1.14 per share in the third quarter compared to an adjusted net income of $44.7 million or $0.93 per share in the third quarter of last year. Adjusted earnings exclude amortization, equity compensation, impairment of long-lived assets and onetime events. In the third quarter, we had cash flow from operations of approximately $43.3 million. Separately, our Board of Directors authorized an additional $50 million for our share buyback program. Looking ahead to the fourth quarter, we expect sales to increase in the high single-digit range compared to the fourth quarter of last year. This guidance incorporates a modest slowdown in IMS sales as we prioritize corrective actions to strengthen our quality and manufacturing systems. I'll now turn the call back over to Dan.

Thank you, Bill. The third quarter reflects continued execution across our business, led by record sales of BAQSIMI and Primatene MIST, along with contributions from recently launched products. These results reinforce the value of our commercial platform we have built to provide an important foundation for our long-term strategy. We also continued to make progress on several important operational and strategic initiatives during the quarter. At IMS, we advanced our remediation efforts and continue working closely with the FDA while maintaining supply of essential medicines. Across our development portfolio, we continue to advance our complex generics, biosimilars and proprietary programs while maintaining a disciplined approach to capital allocation and investment. We believe Amphastar is well positioned as a diversified pharmaceutical company with established commercial products, a U.S.-based manufacturing footprint, vertically integrated capabilities and a growing pipeline of differentiated opportunities. Our priorities remain clear: sustaining commercial performance, strengthening our operations, advancing our pipeline and creating long-term value for our shareholders. With that, we will take your questions. Paul?

[Operator Instructions] Our first question is from Ekaterina Knyazkova with JPMorgan.

So firstly, just on BAQSIMI, and I think you've mentioned this, but just in terms of the double dipping, how much of it has been addressed at this point? I remember you were targeting 80%. Just how close are we to that 80%? And is that still the target? Or do you think you can kind of even go beyond that? And then second question is just -- I know it's early, but just as you kind of start thinking about 2027, just any early thoughts on your pushes and pulls, both on the revenue side and EPS side as we think about next year?

Sure. On the first question, we're not at that 80% yet, but we're getting closer. We don't think we'll get past that because that's where the other companies that are using the same resources have gotten to. So we think there's a little bit more room to go, but not a lot. As I mentioned, we still had a $2.2 million headwind this quarter from pricing. That was primarily, I think, these duplicate discounts. But as you can see from the numbers, it was a lot better than it has been for the last 2 quarters. So we're really happy with the progress we've made there. Looking forward to 2027, we're not prepared to give guidance at this point. But I will say that we are still expecting strong growth from BAQSIMI, growth from Primatene MIST, annualized sales of Ipratropium bromide. So we have a lot of positive things for next year.

And then if I can squeeze in one more. Just on the IMS facility and the remediation. Can you just quantify the impact in Q3 a bit more? Is it $5 million, $10 million? And just how should we think about impact in the fourth quarter? And any impact that we should potentially think in 2027?

Sure. So it's probably between $2 million and $3 million of the extra expense in this quarter, and it will probably be a little bit higher than that in each of the next 2 or 3 quarters.

Our next question is from David Amsellem with Piper Sandler.

This is Naoki on for David. The first one on BAQSIMI. As you work through the duplicate discounting issue, is it reasonable to expect some net pricing recovery towards historical levels in 2027, so that's number one. And next also on BAQSIMI. Scripts have continued to look strong here. So can you give us some color on what's driving the growth? Are these new patients in the category switches? Any color would be helpful here.

Sure. So we don't think we'll get back to pricing that we had previously because of this double dipping. And even the 3% price increase that we took this year doesn't fully offset that. So we still have that pricing headwind going into next year. But remember, we had a bigger pricing problem in the first quarter of last year because that's when the peak double discounting. So we'll have some easier comps as we run into the year. And then...

What's driving the growth?

Oh yes. Primarily, it is our marketing and commercialization efforts. And it's sort of how we've expected since we acquired the product to be at around these levels, maybe it's a little higher than we expected, but it's right around where we expected. It's bringing awareness to BAQSIMI and our team has been working on those efforts throughout. So I think that's really what's driving the growth.

Our next question is from Dennis Ding with Jefferies.

I have two. So in regards to the IMS facility, it sounds like it'll be mid-2027 before it gets back to full capacity. How involved is the FDA in doing some of these quality control checks or how involved are they in the process? And is there a risk of them having to shut down that specific prefilled syringe line? And then question #2, on Ipratropium. It's annualizing at around $25 million. So I believe historically, you'd characterize this as a $50 million opportunity. Given that we haven't seen a major yet, do you expect this to keep growing and we eventually get to $50 million? Or what's gating that from happening?

Yes, Dennis, for your first question about the IMS facility, we send routine updates to the agency. We gave them an overall plan. And this is in conjunction with working with our third party partner. And essentially, we just provide routine updates to them on the progress of each of the different work streams that we're working through. So the progress of that is going very well. We're progressing through it. I mean we'll continue those updates into the year.

And also to add on that, the FDA was looking for several things, specifically, and what we've done is a more comprehensive plan, but we're working on things that weren't even asked for by them as well. So multiple things that we're working on at once. We will continue to work on that. And as far as getting back to capacity, I think we're pretty close to actually being there because part of what we had to do was add some additional resources to the quality group to help because we've added some controls there. And because we've added these controls, we needed some more resources. Now we're adding those resources. And we think that the -- we should be able to pick up relatively soon back to where we were before. And as far as ipratropium goes, yes, we think that sales should continue to increase from where we were this quarter because what we've seen is that we had a little bit of loading in the second quarter. So that was partially why the third quarter was a little lower than the second quarter. But what we're seeing is continued share growth for our market share. So as those prescriptions continue to grow, we expect that our sales will continue to grow. And we don't know when there will be another generic, but as of right now, we are the only generic in that market.