AMPH
#Thank you, operator.
Good afternoon and welcome to Amphastar Pharmaceuticals' fourth 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 fourth quarter financials.
Thank you, <UNK>.
Sales for the fourth quarter decreased 17% to $63.5 million from $76.9 million in the previous year's period.
Sales of enoxaparin declined to $8.3 million from $19.9 million as a result of the termination of the distribution agreement with Actavis.
Due to this agreement, we were unable to ship units for the retail market from August until the end of December.
Other finished pharmaceutical product sales increased 10% to $50.6 million, primarily due to increased sales of epinephrine, which offset pricing-related sales declines in our naloxone business.
Our insulin API business generated sales of $4.7 million, a decrease from the $10.8 million we reported in the fourth quarter of 2015, as we restructured the MannKind purchase agreement to delay their API purchase obligations.
Cost of revenues remained relatively unchanged in dollar terms at $43.6 million, but our margin as a percent of revenues declined to 31% from 43%.
In the quarter, we booked a net realizable value inventory reserve of $3.1 million for enoxaparin, as our forecasted average selling price dropped below our cost of goods.
Additionally, we had an inventory obsolescence reserve for epinephrine of $3.3 million, as the FDA has informed us that they no longer consider our vial product to be in drug shortage, and we will no longer be able to sell it as a grandfathered product.
At this time, we do not know when we will have to discontinue selling this product, but we have asked the FDA for additional time to sell our existing inventory.
Selling, distribution and marketing expenses increased slightly to $1.5 million from $1.3 million.
General and administrative spending increased to $10.7 million from $8.7 million, primarily due to increased legal expenses.
Research and development expenditures increased 40% to $12.3 million from $8.8 million due to a $1.1 million expense related to Primatene component inventory we purchased and finished goods inventory we manufactured ahead of our PDUFA date.
This change is also due to an increase in API and component material expenses related to our ANDA pipeline.
The company reported a net loss of $2.7 million or $0.06 per share compared to last year's fourth quarter net income of $7.5 million or $0.16 per share.
The company reported an adjusted net income of approximately $500,000 or $0.01 per share compared to an adjusted net income of approximately $9.1 million or $0.19 per share in the fourth quarter of last year.
Adjusted earnings excludes amortization, non-cash equity compensation, and impairments.
On December 31, 2016, the company had approximately $74.3 million of cash, restricted cash and short-term investments.
In the fourth quarter, cash flow from operations was approximately $14 million and was positive for the 11th quarter in a row.
Let me review a few of the financial assumptions we are using as we look to 2017.
As I mentioned earlier, the price of enoxaparin has dropped even further.
Additionally, we will have to discontinue selling our epinephrine in vial, since the FDA no longer considers this to be a drug shortage item, and we do not know how long we will be able to continue selling this product.
We expect shipments of RHI API to be flat this year, as we expect decreased demand from MannKind to be offset by other customers.
We expect one large ANDA approval, which will provide meaningful sales in the year.
We expect that our gross margins in the coming quarters will be relatively flat compared to the average 2016 gross margin until we are able to launch new products which we believe will be able to sell at higher average margins.
We expect incremental G&A spending increases related to legal expenses and compliance costs.
We expect research and development spending will increase in both dollar terms and as a percentage of sales, as we are planning to begin several expensive clinical trials, although a material portion of our planned increases for clinical trials won't occur until the second-half of the year.
Also, during the first quarter of 2017, we sold the ANDAs we had purchased from Hikma last year and realized a $2.6 million gain.
We sold these, so that we could focus on other priorities, including our planned reentry into the U.K. market in 2018 and our R&D pipeline.
I'll now turn the call back over to <UNK>.
Thanks, <UNK>.
Since our last earnings call, we filed three additional ANDAs and removed two ANDAs for market reasons.
That brings the total number of ANDAs on file with the agency to five, which represents a market size of over $1 billion.
With respect to our CRL for Primatene Mist, we have been in communication with the FDA regarding their request for an additional human factors study, and we have scheduled a meeting with the agency to discuss this issue.
With respect to our CRL for intranasal naloxone, the FDA identified four primary issues that need to be addressed prior to approval of our ANDA.
The four issues are comprised of, one, improving on our human factors validation study; two, modifying the delivery accuracy verification method; three, improving the standards of device reliability; and four, adjusting the volume per actuation to account for pediatric use down to birth.
We continue to assess the CRL and intend to work with the agency to address their concerns.
As <UNK> stated, the FDA recently requested that the company discontinue the manufacturing and distribution of our epinephrine injection USP vial product, which has been marketed under the grandfather exception to the FDA's Prescription Drug Wrap-Up program.
The company is currently in discussions with the FDA regarding the timing of this discontinuation.
We're also in discussions with the agency regarding our application for this product.
We have a planned shutdown of a portion of our IMS facility in the month of December 2016, in order to perform construction to increase capacity and modernize the facility.
We believe that this will be very helpful to our efforts to launch some of our future pipeline products, as well as our IMS U.K. products that we acquired last year.
On February 9, 2017, the First Circuit Court of Appeals heard oral arguments regarding the District Court's dismissal of our antitrust lawsuit against Momenta and Sandoz, which alleges that the defendants deceived the U.S. Pharmacopeia regarding the setting of a standardized test method for enoxaparin.
On March 6, 2017, less than one month after oral arguments, the First Circuit Court of Appeals issued its decision, in which it held three to zero that the District Court of Massachusetts erred in dismissing the company's antitrust case, and sent the case back to the District Court to consider additional arguments.
We are very pleased with the decision by the U.S. Court of Appeals, and look forward to progressing with our antitrust case.
We also intend to raise the issue of deception in the USP in the upcoming jury trial in the patent infringement case, which is scheduled for July 10, 2017.
With that update, I will now turn the call over to the operator to begin Q&A.
We haven't focused on the ampule, since we don't sell the ampule, so I probably can't answer that question.
And all of the opportunities are $100 million-plus in terms of IMS sales.
Yes.
Yes.
So we, yes, I'll stand by where I said before is that, we're expecting that the average 2016 margin across the year will be what we start the year with the first couple of quarters, and until we can get some new products launched.
Then, the reality is that on the enoxaparin product now that that price has come down.
And at some point during the year, we'll also have to stop selling epinephrine, most likely during the year, and that's a very high margin product.
Yes.
So we're looking to do two to three more filings this year, and so hopefully, we'll get some approvals.
But without knowing what the FDA will do, internally, we're targeting two to three filings additionally this year.
Right now, most of our volumes have kind of flattened off from the increase that we had previously.
And the pricing decreases are year-over-year, I think, we characterized it as like $1 million-plus.
So they're material, but they're not that major.
All of the Hikma ANDAs were sold.
Our plan is to launch those in the first quarter of 2018.
As far as the customers go, we've pretty much stayed flat.
As I kind of alluded to in my last question, we did lose some minor enoxaparin retail side customers, but some smaller ones.
But we held on to a majority of the customers including the largest one there.
So there will be that change.
But there were really, no other products had any significant changes.
And then in terms of our filings, so we removed two that were older.
But the one that remains that's the most mature is the pre-GDUFA product.
That's the one we've been sort of signaling that we expect approval this year and it could be meaningful to our earnings.
And then the additional three that we filed, they all have GDUFA dates for this year.
Yes.
Obviously, with the PDUFA, you've got a set series of meetings and communications, and we received information requests on both products throughout the process, and felt positive.
So we were and more recently on the naloxone very surprised by the CRLs, and we do believe there may be some misunderstanding with some of the data that we've submitted, and that's the reason why we're seeking meetings with the agency for clarification.
Yes, we are committed to both products and believe that they both are approvable.
Oh, yes, sorry.
So we have - we are aware of some potential competition in terms of the injectable naloxone.
Of course, we don't know any specifics, but we have heard some rumblings that, but just like any drug, there's always that potential.
Good question.
This is the second CRL, and they have acknowledged that we've made good headway since the last one.
But it was frustrating to hear that they think an additional study is needed.
It sort of comes down to the data that was submitted, and they think that some further improvements to the label could be made to even further increase the ability of potential consumers to understand this.
We have a meeting scheduled with them to clarify some of the data that we've submitted.
We believe that we could do another study relatively easy in a short period of time.
But to your point, we don't want to just run another study, resubmit, only to get another CRL.
So we want to make sure, we're on the same page with them.
We think that last study that we did, the pivotal study passed, and meets the criteria.
So that being said, the most recent response letter is relatively straightforward, and we could just move forward with a study.
I think the meeting will help clarify some of these issues.
And we are very optimistic about the new administration and the recent nomination of the FDA commissioner.
I think there has been a lot of talk about the 21st century Cures Act, which instructs FDA among other things to consider the use of real-world evidence to support new drug applications.
So overall, we are committed to this product.
We will continue to work to get it approved.
But we think having another meeting with the agency to make sure we're all on the same page makes the most sense.
Sure.
Great.
Thank you, operator.
I want to thank everybody for participating on the call today, and this concludes the call.
I hope you enjoy the extra hour of sunlight this evening.
Have a great day.
