AMPH
#Thank you.
Good afternoon, and welcome to Amphastar Pharmaceuticals' First Quarter Earnings Call.
My name is <UNK> <UNK>, President of Amphastar.
I'm joined today with my colleague, Bill <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'll now turn the call over to our CFO, Bill <UNK>, to discuss the first quarter financials.
Thank you, <UNK>.
Sales for the first quarter decreased 5% to $56.7 million from $59.4 million in the previous year's period.
Sales of enoxaparin declined to $10.4 million from $18.4 million due to both lower volumes and lower average selling prices.
Naloxone, which, for the first time, is our biggest-selling product this quarter, saw sales increase to $10.9 million from $10.3 million on higher unit volume at lower average selling prices due to increased discounts and rebates.
Sales of our epinephrine vial totaled $8 million in the quarter and were the main reason why our total epinephrine sales increased to $9.6 million.
However, we will have to discontinue selling epinephrine vials by May 10, unless the FDA grants our request for an extension to sell our current inventory.
Our insulin API business generated sales of $700,000.
Backorders are not usually a material factor for the company.
However, we ended the first quarter with an $8 million backorder.
This resulted from our IMS plant shutdown in December and early January.
We shut down the finished products manufacturing area to install new equipment to increase capacity and improve our quality systems.
However, the project took longer than expected.
Compounding this situation, a competitor experienced a shortage of 3 products in the quarter, leading to a surge in order for these products.
We expect to relieve the backorder situation by the end of our second quarter, which should lead to an increase in sales for products from our IMS facility in this quarter.
Cost of revenues declined in dollar terms to $33.8 million from $34.5 million.
Gross margins declined slightly to 40% of revenues from 42% of revenues in the previous year's period, primarily due to lower margins for enoxaparin and because our reduced manufacturing at IMS facility led to a decrease in overhead absorption.
Selling, distribution and marketing expenses increased slightly to $1.5 million from $1.4 million in the previous year's period.
General and administrative spending increased to $11.3 million from $10.9 million, primarily because of increased legal expenses.
Research and development expenditures increased to $11.3 million from $8.6 million as we increased expenditures on APIs and other supplies ahead of several clinical trials planned for later this year.
Additionally, we recognized a gain of $2.6 million on the sale of ANDAs we had previously purchased.
The company reported a profitable quarter with net income of approximately $900,000 or $0.02 per share compared to last year's first quarter net income of $2.5 million or $0.05 per share.
The company reported an adjusted net income of $4.5 million or $0.09 per share compared to adjusted net income of $5.5 million or $0.12 per share in the first quarter of last year.
Adjusted earnings excludes amortization, noncash equity compensation and impairments.
On March 31, 2017, the company had approximately $79 million of cash, cash equivalents, short-term investments and short-term restricted investments.
In the first quarter, cash flow from operations was approximately $22.4 million and was positive for the 12th quarter in a row.
We used a significant amount of our cash to increase our share buyback program as our stock price declined over the quarter, with cash spent on buybacks totaling over $10 million from the quarter.
We reviewed our financial assumptions for the year on the last call and they have not changed, so I will now turn the call back over to <UNK>.
Thanks, Bill.
We continue to make good progress on our pipeline.
Since our last earnings call, we filed one additional AND<UNK>
That brings the total number of ANDAs on file with the agency to 6, which represents a market size of over $1.1 billion.
In March 2017, the FDA performed a preapproval inspection at Amphastar for 5 of the 6 ANDAs on file with the agency.
Four of these products have GDUFA dates in 2017, and one was filed pre-GDUF<UNK>
With respect to the pre-GDUFA ANDA, there are no outstanding questions from the FD<UNK>
And we hope to be able to launch the product in the second half of the year, which would provide meaningful revenues for the company in 2017.
With respect to our CRL for Primatene Mist, we had a meeting with the FDA in the first quarter, in which the agency provided a more detailed explanation of its request for an additional human factor study.
We are currently assessing this information.
With respect to our CRL for intranasal naloxone, we have a meeting scheduled with the FDA in the second quarter to discuss the issues that need to be resolved in order to receive approval.
We believe that the real-world data for this product demonstrates its safety and efficacy, and FDA approval is in the interest of the public health given the ongoing opioid epidemic that is plaguing our country.
As Bill discussed, we had an $8 million backorder at the end of the first quarter.
This backorder was the result of the IMS facility shutdown, increased demand due to supply interruptions of our competitor and several stability fills for one of our high-priority pipeline products.
IMS is currently manufacturing commercial products as fast as it can, and we expect to make up for the $8 million in sales in the second quarter.
With that update, I will now turn the call over to the operator to begin Q&<UNK>
Sure.
So your first question about Primatene, no, we're not looking to abandon the product.
We still believe it's approvable.
I think we had a good conversation with the FD<UNK>
We got into some details regarding the human factor study they requested and some of the specifics around the protocol.
At this time, we're discussing this with our third-party consultants to determine the next steps with this application.
With respect to the GDUFA, at this time, all 6 products that are on file, all the 6 ANDAs on file with the agency, they're all injectable.
So that includes the non-GDUFA as well.
And the non-GDUFA is the one we've talked about in previous calls, where it's been on file for quite some time, so we've got more transparency with respect to that product.
So we feel good.
There's no outstanding questions.
So we're still hopeful for approval of that product, although there is no GDUFA date.
Yes.
So first of all, we had requested for more time, and that was denied.
But we're kind of appealing that request and ---+ to some higher-level people there, so we're in that process right now.
So that's why we're down to just a couple days left.
And as far as ---+ we do want to get that product approved eventually.
We've been selling it for a very long time.
And we are working on that process.
As we've mentioned, we have 7 unapproved products that we sell.
This is one of the 7.
And of the 7, we filed for those products.
And then 3 ---+ the other 3, we're working on filings.
So with respect to naloxone, we do have a meeting with the FDA this quarter.
So that will give us ---+ probably by the next call, we'll have a better idea with respect to that application.
And then on Primatene, we did have our meeting.
It was helpful.
So right now, we are talking with our third-party consultants in terms of what we should do.
So I can't say we have an exact time line on refiling.
Once we have further discussions with the consultants, we'll figure out our next step.
Sure.
So right now, as you know, at the end of December, we began shipping into the retail channel as we took over for Actavis in that area.
We did lose some share on the retail side.
And unfortunately, because Actavis had lost some before they ---+ their agreement with us had ended, and we were not able to get that back.
The dynamics right now is that the pricing is very low, which is why we took that inventory write-down at the end of the year last year.
So it's difficult to gain any kind of market share from where we are right now.
So ---+ and that's why that combination of price decline and market share decline led to the decline in the sales that we had this quarter.
I will say that at the beginning of the quarter, the sales were even a little slower than we had thought, I think, because there were still some Actavis inventory kind of making its way through the inventory channel.
So that could tick up a little bit, but we're definitely significantly below our run rate from a year ago.
Yes.
So right now, there's still some legacy Actavis share out there.
But the reality is the customer that they did lose, they lost, I think, in November.
So I don't think that, that customer really has ---+ there shouldn't be any more of the inventory out there flowing from that customer.
So I think that as far as this quarter's sales, they might be a little light because January.
I think there were still some inventory flowing through the channel, but we are down significantly from a year ago.
Yes, that's right.
We actually ---+ the one that we just filed recently, we got a 2018 on that, but the 4 that we filed over the last 2 quarters have 2017 GDUFA dates.
Yes, exactly.
So the most recent PAI was for 5 products: and so the 4 that have GDUFA dates this year as well as the one pre-GDUF<UNK>
The one that we just filed recently that makes number 6, that has not received a preapproval inspection yet.
Sure.
So yes, we're still aiming for the end of the year to file 2 more ANDAs.
So we wanted to do 2 to 3 this year.
We just did one recently, an injectable AND<UNK>
We've got 2 more ANDAs, so 505(j).
One is in inhalation, and one is an injectable.
And we're hoping for the end of 2017, but it could slip to early '18.
Yes, it's a pretty good level until we get any new approvals.
Yes.
So the way it used to work for Actavis is that we sold them product at a transfer price and then split the profit.
Although for over the last year, the profit was pretty close to 0.
The transfer price ---+ our cost of goods that come down slightly by the end of that contract, so we were making a small margin on that.
So ---+ but right now, this is a product where, on average, we're not making any money on.
So our margins are 0 or below 0 and as ---+ we potentially have to reserve inventory for a lower cost to market situation there.
Sure, that\
Yes.
I'll say we've looked at a couple things this year so far, and I would say the valuations have not come down from what ---+ for the assets that we've been looking at.
Yes, thanks for the question.
So actually, in terms of consultants, we have added some consultants on regulatory that could be very helpful and have added some value already.
So I would say that we have engaged some very good consultants to help us with some of these products.
Thank you very much, operator.
This concludes our call for today.
Thanks again for participating.
Have a great day.
