AMPH
#Thank you, operator.
Good afternoon, and welcome to Amphastar Pharmaceuticals Second Quarter Earnings Call.
My name is <UNK> <UNK>, President of Amphastar.
I'm joined today with my colleague, <UNK> <UNK>, CFO of Amphastar.
We appreciate you joining us on the call today and look forward to speaking with you and answering any questions you may have.
I will now turn the call over to our CFO, <UNK> <UNK>, to discuss the second quarter financials.
Thank you, <UNK>.
Sales for the second quarter increased 26% to $68 million from $53.9 million in the previous year's period.
Sales of enoxaparin declined $17.3 million from $19.5 million due to lower average selling prices.
Unit sales of enoxaparin continued to hold up, as we maintained market share during the second quarter.
Other finished pharmaceutical product sales increased 52% to $46.2 million.
This increase was primarily due to increased sales of Lidocaine, naloxone, epinephrine and phytonadione.
Naloxone sales increased to $15.6 million from $10.7 million on strong unit volume but lower average pricing, as the company increased discounting and rebates.
Our insulin API business generated sales of $4.3 million, as MannKind purchased a portion of their unfulfilled 2015 commitment.
Cost of revenues declined in dollar terms to $36.3 million.
More importantly, we saw gross margin improvement to 47% of revenues from 25% of revenues in the previous year's period.
Improved pricing was the main driver for the increase in gross margin, but we have also lowered our cost of goods on enoxaparin, which partially offset the pricing declines there.
Also an increase in production levels at our French facility and at our IMS facility increased our overhead absorption.
Selling, distribution and marketing expenses decreased slightly to $1.3 million from $1.5 million in the previous year's period.
General and administrative spending decreased to $9.5 million from $11.3 million, primarily due to lower compensation expenses.
Research and development expenditures were down slightly to $10.5 million from $10.7 million in the previous year, as the PDUFA fee for the intranasal naloxone offset lower clinical trial spending.
We expect an increase in clinical trial spending in the third and fourth quarter of this year.
The company reported another profitable quarter with net income of $6.9 million or $0.15 per share compared to last year's second quarter net loss of $6.6 million or $0.15 per share.
The company reported an adjusted net income of $10.3 million or $0.23 per share compared to an adjusted net loss of $3.9 million or $0.09 per share in the second quarter of last year.
Adjusted earnings exclude amortization, noncash equity compensation and impairments.
On June 30, 2016, the company had approximately $66.7 million of cash, cash equivalents and restricted cash.
In the second quarter, cash flow from operations was approximately $9.3 million and was positive for the ninth quarter in a row.
Subsequent to the quarter end, we used $7.7 million of the cash on hand to purchase IMS U.K. from UCB, which <UNK> will discuss further in detail.
The cash expenditures for our CapEx project in France will ramp up significantly in the third and fourth quarter of this year.
We reviewed our financial assumptions on the ---+ for the model on the last call, and the only change is related to a potential timing issue with our retail revenues of enoxaparin.
With the termination of our contract with Actavis, we may not be able to ship retail units from September until January, unless we partner that product and have shipments to that partner.
Retail sales of this product have been running between $12 million and $13 million a quarter for the last few quarters.
I will now turn the call back over to <UNK>.
Thanks, <UNK>.
We made a lot of progress since our last earnings call in May and are happy to report another profitable quarter.
We had EBITDA of $13.6 million on $68 million of revenues.
In addition, cash flow from operations was $9.3 million, which, as <UNK> said, now marks nine quarters in a row of positive cash flow.
We continue to make good progress on our pipeline and remain on track to file an additional three ANDAs in 2016.
We resubmitted our NDA for Primatene on June 28, 2016.
On July 28, 2016, we received a letter from the FDA accepting our resubmission and stating that the agency considers the resubmission to be a complete Class II response to our May 22, 2014, action letter.
Therefore, the FDA provided us with a PDUFA date of December 28, 2016.
We consider this a big milestone for the company and are hopeful that we could receive approval by the end of the year, and launch the product back to the OTC market in the beginning of 2017.
We filed our NDA for intranasal naloxone on April 19, 2016.
On June 29, 2016, we received a letter from the FDA stating that the agency had completed its filing review and determined that our application is sufficiently complete to permit a substantive review.
The review classification for this application is considered standard.
Therefore, the FDA provided us with the PDUFA date of February 19, 2017.
As we have previously discussed, our naloxone injection product has been successfully used for years by first responders, who add a nasal adapter to administer the product to overdose victims.
We believe that FDA approval of this life-saving product is an important step in fighting the opioid epidemic that is affecting our country.
We are encouraged by the state and federal laws that are being enacted to allow greater access to naloxone.
As <UNK> discussed, pricing for our naloxone injection product has decreased, as we continue to offer discounts to customers and rebates to numerous states.
However, unit growth remains strong, partly due to the fact that our naloxone syringes are now being sold by retailers in many states.
We look forward to being able to market an intranasal version of the product, which can be more easily used by the general public.
On June 30, 2016, we entered into a termination agreement with our partner Actavis, regarding distribution of our enoxaparin to the retail market.
We believe this presents us with several positive opportunities, including entering into a new partnership agreement or directly distributing our enoxaparin to the retail market.
If we decide to sell directly to the retailers, as <UNK> said, there will likely be a reduction of sales in the fourth quarter, but thereafter, we would receive 100% of the retail profits.
Finally, in terms of business development.
On August 1, 2016, we acquired International Medication Systems (UK) Limited from UCB Pharma for $7.7 million, which included the marketing authorizations for 33 products in the U.K., Ireland, Australia and New Zealand, representing 11 different injectable chemical entities.
The products are generic injectables, including adrenaline, atropine, calcium chloride, Lidocaine, morphine, naloxone and sodium bicarbonate.
This acquisition allows us to further expand into the international market and provides for great synergies, given that we already make these products for the U.S. market.
We plan to transfer the products to our facilities in California, which will require U.K. regulatory agency approval before the products can be relaunched.
We anticipate that such regulatory approval and launch will take approximately 12 to 18 months and expect peak sales of $4 million to $5 million from these products in two to three years.
With that update, I will now turn the call over to the operator to begin Q&A.
Yes, sure.
On the naloxone, we've seeing steady market share and steady unit volume in the hospital.
In the first responder, some of that data we get, we know clearly that it's a first responder, but others we don't.
So we have to kind of guesstimate a portion of it that that's going to areas that we're ---+ where we don't know where it's going, so we're guessing that a significant portion of that's going to first responder.
And we've seen that market continue to grow in double-digit rates over the course of the past couple of years.
And what's new this quarter is that we've actually begun some relationships with some actual retailers, who are stocking it for the retail portion and are actually distributing the drug in local drugstores.
So that's new for us.
This is the first time we've ever sold to these people directly.
That's not to say some of the retailers could have been purchasing our product through a wholesaler at the high price before, but now we actually have contracts with a couple of different large retailers to stock the product.
And they are stocking the injectable product with the Luer-Lock tip.
Sure.
So let's start out with the short-term pipeline.
So with respect to the four injectable ANDAs that are currently on file with the FDA, we anticipate approval and launch of one of our pre-GDUFA filings by 2017.
We've had good communications with the FDA to give us that opinion.
And that ---+ there is no generic with respect to this injectable product, although, for competitive reasons, we have not stated what the therapeutic area or what the product is, but it is a significant product.
As we've talked about, the four ANDAs on file represent over $500 million in market opportunity based on IMS data, and this is by far the largest of those four products and makes up a significant portion of that $500 million.
And so that's, in the short term, we believe that we could get approval and launch in 2017.
And that's a generic injectable with no generic competition.
As I stated in my prepared remarks on the new drug side, we are expecting or hoping with the PDUFA date of December 28 for Primatene and then the PDUFA date of February 19 for intranasal naloxone, to get those done in the short term.
With respect to your second question regarding ADVAIR, you're correct, we've never confirmed or denied whether we're working on that.
You have actually done a good job at looking at our DMF filings and ---+ so we did read an analyst report that surmised that, that may be a product in our pipeline.
And we have talked about the guidance before.
We do believe that the guidance, as currently drafted, is not as tight or as stringent as we believe it ultimately will be.
Recently, we did see a study that was conducted, which indicates that bioequivalence could be difficult and ---+ we don't typically talk about competition, but we do realize that there is one company that has confirmed that they actually have an ANDA on file.
But the others, we believe at least with respect to one, would be a 505(b)(2).
So we think regardless of the timing, if we were to work on such a product and it's such a large product that there would be great opportunity.
And products like those are the type of products that Amphastar likes to focus on because of the technical barriers to entry.
So first, we would launch ourself.
We do have the relationships with the retailers.
And although it's been off the market for quite a bit of time, we still get inquiries from these retailers on a periodic basis.
It's always sold well, don't have to pay for shelf space.
With the PDUFA date of December 28, we're hopeful to get that approval by the end of the year, and we would be prepared to launch at the beginning of 2017.
We do think it will take some sales ---+ some marketing and some advertising to let people know that it's back.
And it could take a while to get back to those peak sales of $65 million, but we're confident that we can get back to that and even higher.
Sure.
So to start out with Primatene, we discontinued it due to the environmental reason of the CFC in 2011.
So I pulled that out of the dataset.
But for 2000 ---+ 2009 and 2010, we did $65 million in revenue.
So those are the peak revenues that I was referring to.
And we believe that we can get back to the $65 million, and ultimately, exceed the $65 million, just based on the fact that this has been off the market for five years.
We think we can take some inflationary pricing, not to mention that we do believe it's an improved product.
The old product was in a glass container.
This one is aluminum.
And this one now also has a dose indicator.
So that $65 million is what we're looking at and hoping to ultimately go beyond that with some marketing.
With respect to the ANDAs, we are on track to file another three in the second half of this year.
And then for 2017, we're looking to keep a steady pace, but probably, realistically, four in 2017.
And this is with respect to ANDAs.
Sure.
Couple of things were really driving it this quarter and some of those were the product mix that we had in the quarter led ---+ lending itself to some higher margin sales there.
And also, because of our factory utilization in France and then IMS, we manufactured more units than we have on average over the past few quarters, which led to higher overhead absorption in the quarter.
Some of those trends may or may not continue, especially, I'll say, in France, there is a good chance that, that manufacturing ramps down a little bit depending on the sales that we're going to do for the next 6 to 12 months there.
So that might not continue.
No.
It was just timing of certain activities that we had in the plant.
Earlier this year, we had an FDA inspection, and were kind of concentrating on that and ---+ kind of ramps back up this quarter, to make up for some lost time last quarter.
Yes.
So a couple of things there.
On naloxone, there was ---+ we did have higher ---+ as I mentioned, this is the first time we began shipping into the retail sector of that market.
So I don't know if that's sustainable or not because we've had some initial shipments there, but have not seen the reorders coming out of there yet.
So that may not be a repeatable number.
And then, as I mentioned in my comments, in the fourth quarter, we might have a timing issue with the enoxaparin sales on the retail market, which has been running $12 million to $13 million.
If we do not partner with another company on that, then we would not have those sales in the fourth quarter.
Yes, so both of those are trending down, both naloxone and enoxaparin and ---+ so I would continue to expect to see pricing decreases on those products.
Although they're fairly ---+ we're talking about single-digit declines, not big declines and ---+ but then partially offsetting that is that we are bringing down the cost of enoxaparin, as we have brought down the raw material cost.
And then there is also the possibility that we could get approval ourselves on the heparin, which goes into enoxaparin.
So if we can potentially bring that cost down a little bit more with that as well.
So there is some opportunities on the cost side as well.
I just like to add on naloxone.
The pricing is coming down.
A lot of that has to do with the discounts that we have been offering to the various states around the country.
And one, we want to offer those discounts so that's affordable for the government.
Two, we think that helps us keep our market share with the first responders, ever since Adapt got their approval of intranasal naloxone.
The good thing is we continue to offer rebates to the states, and they're trained on our product and like our product.
So I think that's a good opportunity to keep that business and even grow it.
Yes.
Good question.
So we have two plants here, one is our IMS plant in South El Monte and that ---+ in the last quarter, that ran pretty much at capacity as far as manufacturing went and really can't get any more units out of there.
However, we are in the middle of $11 million CapEx improvement at that plant, where we will be able to increase the capacity for our prefilled injectors out of that plant, hopefully, by the end of next year.
And we are bringing certain products essentially from the Hikma products and also all of the IMS product ---+ IMS U.K. products to that facility.
However, on the IMS U.K., we have to be inspected first by the U.K. authority there, and we will not be able to sell until we get that approval.
So we will not be making those products until we get that authorization approved.
And then our at Amphastar plant, we ---+ 95% of our production is enoxaparin.
So there is potential that we will ramp that down a little bit in the coming quarter.
However, right now, this plant is running at about 50% capacity.
However, a significant portion of our pipeline will be manufactured at this plant, and we are making ---+ we do have multiple R&D batches of different products set to be made in the second half of the year here.
Thank you very much, operator.
This concludes our call for today.
Thanks, again, for participating, and have a great rest of the day.
