Q1 2024 Amphastar Pharmaceuticals Inc Earnings Call

Participants

Dan Dischner; Vice President - Corporate Communications; Amphastar Pharmaceuticals Inc

Bill Peters; CFO, Treasurer, EVP of Finance, President of IMS, Ltd., & Director; Amphastar Pharmaceuticals Inc

Ekaterina Knyazkova; Analyst; JPMorgan

Tim Chiang; Analyst; Capital One Securities, Inc

Pavan Patel

Serge Belanger; Analyst; Needham & Company Inc.

Presentation

Operator

Greetings and welcome to the Amphastar Pharmaceuticals First 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, and these statements are based solely on information that is now available to us, and 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 US GAAP may be found in our earnings release.
Please note this conference call is being recorded, and our speakers today are Mr. Bill Peters, CFO. Mr. Dan Fisher, Senior Vice President of Corporate Communications, and Mr. Tony marks, Executive Vice President of Regulatory Affairs and Clinical Operations.
I will now turn the conference over to your host Mr. Mr. Dan Dinges, Senior Vice President of Corporate Communications. Then you may begin.

Dan Dischner

Thank you, Paul. Good day, everyone, and welcome to Amphastar Pharmaceuticals Q1 earnings call for the year 2024. We're thrilled to have you all join us today as we reflect on the company's performance over the past quarter amidst a dynamic landscape of the pharmaceutical industry, we are eager to share our progress, milestones and strategic insights with you. Thank you for your ongoing support and interest in Amphastar. Joining me on the call today are two key members of our leadership team, Bill Peters, our Chief Financial Officer and Executive Vice President of Finance, and Tony Myers, our Executive Vice President of Regulatory Affairs and Clinical Operations.
Let's get started Amphastar's performance remains robust as evidenced by our impressive financial results, we are pleased to report a notable year-over-year increase in net revenue soaring to $171.8 million, making a substantial increase of 23% over the same time last year. This achievement underscores our product portfolio's enduring strength and adaptability amidst an ever-changing environment. As expected, our products such as glucagon injection back Caemi, Primatene Mist and our hospital and clinical use offerings continue to experience steady growth. This reflects their ongoing importance and relevance in the market of particular note is the consistent demand trend for our hospital products, which we anticipate will remain robust throughout this year. Our glucagon injection saw changes in demand, specifically in the diagnostic sector due to another manufacturer's product availability. However, our recent entry into the Canadian market underscores our ability to adapt and mitigate market fluctuations effectively regarding Primatene Mist, although there have been fluctuating fluctuations in distribution orders from stores. The product has maintained a steadily positive growth trajectory with consistent weekly in-store sales. Furthermore, we remain committed to achieving the $100 million sales milestone for this product in 2024.
Shifting our focus, I'd like to highlight our proprietary prescription product vaccinating, our intranasal glucagon. The transition from Eli Lilly continues as expected, which is evident in the 22% year-over-year sales increase compared to the first quarter of 2023. This achievement underscores our proficiency in integrating acquired products into our portfolio and driving growth. At the same time, the sales also benefited from initial stockings as we started back Caemi distribution in the United States that CME has swiftly become a cornerstone of our diabetes portfolio offering patients a convenient and effective solution to severe hypoglycemia. We believe the glucagon market remains underserved with significant growth potential as vaccination continues to be underutilized among diabetic patients, similarly, our global transition of academia has continued to make progress. Our dedication to broadening our capabilities to provide vaccines accessibility for patients worldwide remains steadfast. Furthermore, we persist we persist in prioritizing investments in sales and marketing endeavors to bolster vaccines market standing seizing upon the existing underutilization of glucagon. Looking forward, that semi remains a primary focal point for Amphastar, and we are eagerly anticipate its significant impact on individuals navigating diabetes management.
Turning our focus to our pipeline products, our efforts are directed towards potentially launching four to five products this year. We are pleased to announce the recent launch of Rexulti, our intranasal naloxone products. In terms of teriparatide, we have received a minor complete response letter, and we anticipate responding to this in the second quarter. Additionally, we anticipate a good do per day in the third quarter for this five filing, noting that it is still in its second review cycle.
Moving on to AMP. zero zero eight, our first inhalation ANDA as a good due to goal date in the second quarter. While our other inhalation ANDA filing and P. zero zero seven has a good do for goal date. In the fourth quarter, FDA has designated this application as a competitive generic therapy. With regard to AMP. zero zero two, we are actively engaging in a positive routinely scheduled dialogue with the regulatory agency with the FDA affirming its commitment to prioritizing the review of this application in our diabetes portfolio. We are on track to refile insulin as part of AMP. zero zero four in the second quarter. Additionally, we plan to file a MP. zero one eight, a GLP one abbreviated new drug application in the coming months.
In conclusion, it's vital to highlight our remarks our remarkable performance during the first quarter, the transition and year-over-year growth of vaccine. We showcase our ability to foster expansion. This achievement underscores our deafness in integrating acquired products efficiently and reaffirms our commitment to growth. Beyond Maxime, our diverse portfolio and strategic initiatives position us well for sustained success amidst market fluctuations. With that, we mean meeting our expectations. And as we anticipate upcoming product launches and continued constructive dialogue with regulatory agencies, we are optimistic about our growth perspectives.
Now I'd like to hand the call over to our CFO and Executive Vice President of Finance, Bill Peters, to further discuss the financial results for the first quarter.

Bill Peters

Breaking down revenues for the first quarter increased 23% to 171.8 million from 140 million in the previous year's period. Second injection sales increased 11% to $28.5 million from 25.7 million as we had our first full quarter of sales in Canada during the quarter, Primatene Mist sales grew to 24.2 million in the first quarter, which represents sales growth of 3% from 23.5 million in the first quarter of last year. Epinephrine and photodiode sales increased 30% and 29% respectively, due to other supplier shortages for part of the quarter, with epinephrine sales increasing to 26.1 million from 20.1 million and 500 die on sales increasing to 10 million from 7.7 million. Other finished pharmaceutical product sales decreased 1.4 million to 29.2 million to the API shortage for MPA, which caused us to temporarily stop selling the finished product. This was partially offset by increased sales of other products such as dextrose and sodium bicarbonate as well as newer launches such as rogue adenosine vaccine revenues now fall into two categories as we began shipping the product in the United States and a few European countries. First category relates to product. We ship directly to our customers for which we recorded net revenues of 13.8 million. These revenues are recorded in our product revenues net line on the income statement.
The second category relates to products sold by Lilly on our behalf under the TSA agreement totaling 24.6 million, which had a cost of sales and expenses of 10.4 million. This resulted in net revenues of 14.2 million and our other revenues category, which corresponds to emphasize net economic benefit from vaccines. Total worldwide vaccine sales were 38.4 million in the quarter, up 22% from 31.4 million in sales reported by Lilly in the first quarter of 2023. We will continue to book revenue on a net basis for those countries where Lilly continues to distribute the product on our behalf. Our own distribution and vaccines will increase throughout 2024 on a country by country basis points really has finished their inventory and we have Amphastar labeled inventory available.
This will result in an increase in product sales and the decline in the net economic benefit recognized in our net and our other revenues.
Our insulin API business had sales of 1.7 million down from 4 million last year of MannKind cut purchases while they qualified the API produced on our new production line, cost of revenues increased to 81.7 million from 66.4 million. Gross margins were essentially unchanged at 52.4% of revenues in the first quarter of 2024 and 52.7% of revenues. The previous year changes include increased amortization and depreciation of vaccine assets and an increase in labor and certain component costs. These changes were partially offset by vaccine sales as well as increased sales of glucagon, Primatene Mist and epinephrine, all of which are higher margin products.
Selling, distribution and marketing expenses increased 32% to $9.4 million from 7.1 million in the previous year's period due to sales force expansion and marketing expenses related to vaccines. General and administrative spending increased 16% to 15.7 million from 13.5 million due to increased expenses related to VaxImmune. Research and development expenditures decreased 14% to 17 million from 19.8 million due to the timing of clinical trials and lower material expenses related to our insulin and inhalation pipeline products. As a result of a ramp up in 2023, our nonoperating expenses of $100,000 compares to a nonoperating income last year of $100,000 as a $5.2 million gain on our interest rate swap associated with our term loan offer offset higher net interest expense.
Net income increased over 66% to 43.2 million or $0.81 per share in the first quarter from 26 million or $0.5 per share in the first quarter of 2023, adjusted net income increased to $55.3 million or $1.4 per share compared to an adjusted net income of 32.1 million or $0.62 per share in the first quarter of last year. Adjusted earnings exclude amortization, equity compensation, impairments of long-lived assets and onetime events. In the first quarter, we had cash flows from operations of approximately 55.3 million.
I will now turn the call back over to Dan Thank you, Bill for the updates.

Dan Dischner

With that, we will now take your questions. Operator, please open the line for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Ekaterina Knyazkova, JPMorgan.

Ekaterina Knyazkova

Thank you so much. Just two from me, if I may. So first on the Qsymia, can you talk about any of the feedback and discussions you've had with payers, both the live transmission and any implications as we think about price over the next few quarters and any changes in that market from a competitive standpoint, anything different you're seeing from G. book?
And then second question is just on AMPO. two. Can you just elaborate a bit on the interactions you've had with the FDA? I think you mentioned in your prepared remarks just or have they asked for any additional data or anything else? And kind of what's your latest confidence in getting that product approved later this year? Thank you so much.

Bill Peters

So for the first question on the pricing for vaccine, we have had conversations with payers.
And in general, most of those contracts are lining up with exactly the same price that Lilly had for those. So we've been able to do that. What we did mention on the last conference call there was and when we're paying fees to the wholesalers out there, we're paying a higher fee than Lilly paid because they have much better bargaining power. So that's why we said this year for vaccine, we were guiding towards some high single digit unit growth, but low single digit pricing declines. And so those pricing declines are based on the stat on that net difference in pricing that we have to pay to the wholesalers.

And for your second question regarding AMPZ. Reserva two, we have scheduled routinely scheduled meetings with the agency. They have not asked us for anything new regarding this application and we remain cautiously optimistic as we typically have for it. But I think just routinely having these meetings with the agencies is giving us and they're sharing with us, they're there desire for moving this application forward.

Operator

David Amsellem, Piper Sandler.

Hi, this is Skyler on for David. On. First, could you give us the latest update on the vaccine, the sales force in terms of sizing and whether you plan to only use a contract sales organization going forward and just how the overall transition is going from Lilly? And also any thoughts on eventually bringing manufacturing of vaccines in-house?
And then second, on injectable glucagon, could you talk about the mix between diagnostic usage and hypoglycemia usage and how much room there is for more penetration in both of those settings? Thanks.

Dan Dischner

So I would say we haven't really disclosed that, Sami, the size of our back semi sales force. We are continuing to use an outside sales force on that. We will continually monitor if there's a need for us to bring it in-house. We will continually monitor to do that. But right now, I think we're satisfied with the progress they're making at this time on.

Bill Peters

And as far as the manufacturing guys, because of the complexity in the machinery and the setup and bringing that in house would take several years that best case scenario. So I don't I don't see that happening or being very likely. And then the other question was related to the split on the glucagon injection. And right now it's about one-third Antik hypoglycemic and about two thirds for diagnostics. And we know what we've seen, though, is that on the Antik hypoglycemic, the change that we've seen there is more towards the ready to use products such as back Sami. So that's what we've seen the growth in and why we said this year that we did expect see our Louisiana injection Palm product decline in units overall this year, while we did have growth in the first quarter, we're still saying that our total units in the United States will decline and that decline will be offset by revenue growth in ag Canada.

Got it. Thank you. And if I could just sneak in one more. Could you just talk to the extent to which you think you're going to benefit from shortages in 2024 compared to 2023?

Bill Peters

Yes. So the shortages here, what we've said in the past is we've really said we've given the number of 20 million plus of benefit on those products as of right now, there are a few products that have continued to be on shortage such as dextrose, sodium bicarbonate and epinephrine. And those are still unsure have been on shortage since July of last year. And then there's a couple of other products like 500 down that had a short-lived shortage during the quarter this quarter. So some of those other products they come and go quickly. But what we have said though, is that every quarter since I've been here and I've been here for 10 years now, we've had as we've benefited from other companies, inability to buy product and move from one product to another. So we've been able to have that benefit every quarter for the last 40 plus quarters.

Got it. Thank you.

Operator

[Kim Chang, Capital One].

Tim Chiang

It takes some maybe you could talk a little bit about the vaccine rollout in the U.S. What sort of feedback has your contract sales force given you in terms of just demand for the products, one and two, is there really any change of with your customers?
So obviously, this is a market where you're only getting a small sliver of the potential market. Now, can you talk a little bit about how you can penetrate more of the market in 2024?

Bill Peters

Yes. So on the feedback's been very good and sales have been growing very nicely, particularly in the United States. And we've seen that that transition happening and we do we have seen growth of the ready-to-use products in the United States. We think that those are definitely the better better solution for for for glucagon.

Tim Chiang

Yes, it is again I mean, the US market, it's about 80%. This is going back to back semi. So on the other 20% is going to basically flip to your responsibility this year is that right?

Bill Peters

Yes. So the plan so right now of the other 25 countries where we distribute back Caemi, three of them, we've picked up in Europe on the other 21 countries around the world, we plan to pick up, and that's once Lilly has completed all of their labeled inventory, and we have Amphastar labeled inventory ready to go. So we're working on that. I think a lot of those countries will happen and we think a majority of that kind of mix will probably convert in the third quarter, but we're looking for most of those in the June to August timeframe. And then there's probably a couple of lingering countries that don't convert until the end of the fourth quarter.

Tim Chiang

Okay. And just one last question, if I may. Epinephrine. I mean, this product, I think you've had your best quarter to date with epinephrine sales in the first quarter. Do you expect these type of continued year-over-year growth figures for the next couple of quarters going forward?

Bill Peters

It's hard to keep that kind of growth up because I think we're maxed out on what we've been able to produce this quarter. So it's a combination of us right now for the prefilled syringe presentation of that product. We are the only company in the country making that for the hospital market. So yes, so we're making as much as we can and are we're at our capacity for that product. So I really don't see it going any higher than it is.

Tim Chiang

Right. Okay, great. Thanks for that.

Bill Peters

Probably continue at this low for at least another quarter, if not longer.

Operator

Jason Gerberry, Bank of America.

Pavan Patel

Again, this is Pavan Patel on for Jason. Two questions from us. The first is to what extent is mix driving growth in terms of the market moving from single use generic kids, two brands offering to two units and like what's the product shelf life and does that create a risk and that patients might take longer than expected to work down their inventory.
And then my second question is, as you know, insulin-using type two diabetes has declined and we generally hear from physicians that these glucagon rescue use, make more sense for type one diabetics versus type two and who can manage their blood sugar. Do you see Type two diabetes as a meaningful area to expand vaccinating? And is that embedded in your peak sales outlook for vaccines?

Bill Peters

Thank you. Yes, as far as the exploration goes on, most of these products have a two year shelf life from the date of manufacturing done. So it usually takes a little while to get release and then into the wholesale channel into the retail them to the customer. So generally, the customer depending on when they get it has 12 to 20 months of shelf life from one when they buy the product.

Pavan Patel

And at what point?

Yes, I think as far as type two diabetic patients. I think that's true. And I would agree that the bulk of the percentage of people with Type one that are needing needing these glucagon products is higher for type one as compared to type two. Just partially it's a compliance issue type one diabetics because they're dependent on the insulins. We are more compliant than type two. And so with type two diabetes, less utilization as a percentage of those of that population for the use of these glucagon products. But I think with that population getting more educated and getting more into the health care system with some other GLP type products. I think that it should increase as they get more into the health care system.

Bill Peters

And then as far as you know, our forecasting goes we knew about the GLT. twos when we when we bought the product and we ran multiple scenarios on this and our base case scenario I think is relatively conservatism, one that we've forecast and we keep in our presentation. So I think we're very comfortable in getting to that. Even with that marketing, the market changes that people have seen over the last over the last year.

Pavan Patel

Thank you.

Operator

Serge Belanger, Needham & Company.

Serge Belanger

Yes, good afternoon, everyone. This is John on for Serge. Just a couple of quick questions. First, regarding the insulin biosimilar AMPO. four, you mentioned you're going to be refiling it in the second quarter? And do you guys have any contacts or any feedback that you've gotten from the FDA thus far regarding how many rounds of of review you might expect for this product? And then on generally speaking, can you give a little color on the overall market opportunity that oh four might enter into? And then just on the side regarding the patent listing challenges from the FTC reported in about a week ago now, and I believe you have, if I'm correct, you have now inside 30 days to are there some dispute the deal out there or amend your patents? And can you give a little color on the process that you guys are going through and what maybe what you might expect over the coming weeks?

Bill Peters

Yes.

For your first question regarding the insulin product on PC, we don't yet the agency hasn't shared with us how many rounds they would expect on, but this is our first and biosimilar biologic product that we filed an application for on. What I can say is that the dialogues that we've had with the agency and the document that they gave us where they asked us to resubmit our application. The amount of comments that we received on that far exceeded what our hopes would be in the sense that it wasn't as simple as this is the minimum that you could do. They actually gave what I would characterize as a very solid attack and to give us some very positive feedback about items that they'd also like to see in the application. That, in my mind, is almost as though this would prevent us from having a cycle of an additional cycle. So I think that from the FDA's desire based upon that, I would expect them to be very forthcoming in this and to kind of help on to when they do give if there are additional cycles of feedback that they would give would be very clear to really help us. It seems like this is a product based upon years of dialogue that we've had with them. It seems like this is this is a product that they realize the capabilities that we have and the technologies that we have on that they are very invested in helping us with this application.

Bill Peters

And as far as the sales opportunity for oh four is over $4 billion, product serves over 41 million units of the products for the year.
So we see it as a really big opportunity for us on the long run, definitely, no, it is a lot we have will be at a lower price point than what they're saying now, but where we are already have our equipment in place right now to manufacture the product. So I think we're pretty confident in our ability to get a reasonable market share there as well.
And then turning to your last question about the letter from the FCC, yes, we did receive that. We are one of many companies that received a second round of letters from the STC. about Palm Orange Book-listed patents. And so we've done two things for CME and one we've been have had some discussions with the Lilly attorneys who are the ones that and submitted it to the Orange Book and they were confident that it was appropriate from what they did. And that they were following the law and they did that. Then the second thing we're doing is that we're engaging an outside counsel also look at that. So we'll get into that and my understanding of the time line that you mentioned, the 30 days is we have 30 days once the FDA sent us a letter and we have not gotten that letter as of today. So once we get that letter will have 30 days to respond from that time and if our outside counsel is able to analyze in that time them then we'll do so on.
But I'd also like to add that there's we have three Orange Book patents for this product.
There's one that expires in 2036, which is formulation patent the patent in question, it expires in 2038.
And then we also have another patent that expires in 2039.
So this isn't the last patents and that's not the most important patent, neither So no matter what happens if I don't think it really changes our view, our trajectory or our implication or our forecast for this product.

Serge Belanger

Okay. Thanks for the clarification on that.

Operator

If there are no further questions at this time, I'd like to hand the floor back over to management for any closing comments.

Dan Dischner

I want to extend a heartfelt appreciation to everyone who joined us today for Amphastar's Q1 earnings call and for your continued support. We look forward to sharing our progress with you in the quarters.
Ahead, have a great day.