Amphastar Pharmaceuticals, Inc.

Welcome to the Amphistar Second Quarter Earnings Call. My name is Anna, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star then 1 on your touch-tone phone. All statements in the conference call that are not historical are forward-looking statements, including, among other things, statements relating to the company's expectations regarding future financial performance, backlog, sales and marketing of its products, market size and growth, the timing of FDA filings or approvals, including the DMS of A&P, the timing of product launches, acquisitions and other matters related to its pipeline of product candidates, its share buyback program and other future events, such as the impact of COVID-19 pandemic and related responses of business and governments to the pandemic on our operations and personal and on our commercial activity and demand across our business operations and results of operations. These statements are not historical facts but rather are based on Amphistar's historical performance and its current expectations, estimates and projections regarding Amphistar's business operations and other similar or related factors. Words such as may, might, will, could, would, should, anticipate, predict, potential, continue, expect, intend, plan, project, believe, estimate, and other similar or related expressions are used to identify these forward-looking statements, although not all forward-looking statements contain these words. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and Assumptions that are difficult or impossible to predict and, in some cases, beyond Amphisar's control. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in Amphisar's filings with the Securities and Exchange Commission, including in the annual report on Form 10-K for the year 2020. For the year ended December 31, 2019, filed with the SEC on March 16, 2020. In particular, the extent of COVID-19's impact on our business will depend on several factors, including the severity, duration, and extent of the pandemic, as well as actions taken by governments, businesses, and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time. You can locate these reports through the company's website at http://ir.anthastar.com and on the SEC's website at www.sec.gov. The forward-looking statements in this release speak only as of the date of the release. Amphistars undertakes no obligation to revise or update information in this press release or the conference call referenced above to reflect events or circumstances in the future, even if the new information becomes available or subsequent events cause Amphistars' expectations to change. I will now turn the call over to Dan Dischner Vice President of Human Resources and Corporate Communications. Dan, you may begin.

Thank you, Anna. Good afternoon, everyone, and thank you for taking the time to join in on Amphistar Pharmaceuticals' second quarter earnings call. My name is Dan Dischner, VP of Corporate Communications. Joining me on the call are Bill Peters, CFO, and Tony Marrs, Senior Vice President of Regulatory Affairs and Clinical Operations. We appreciate you joining us today, and we look forward to sharing our latest updates. I first want to take some time to personally recognize and thank everyone at Amphistar as we continue to maintain our safety and well-being amidst the pandemic. We strive to ensure that each employee can work safely and confidently to supply our nation's critical care injectable products so that these products remain in a reliable and safe supply. Our management team has worked very hard on creating and implementing measures to maintain a safe work environment. And thanks to the help of our employees, we believe we have been successful. As a result of this, I'm happy to report that there have been minimal impact on our workforce or operations as a result of COVID-19. Moving on to business. As per our guidance based on previous calls, I'd like to characterize the second quarter at Amphistar as reaching closer to our catalyst-rich second half of 2020. Amphistar continues to demonstrate resiliency and growth. Our second quarter saw a sales growth of 9% compared to the same period in 2019. Net revenues in Q2 compared to the prior quarter saw a marginal increase of 1%. We are attributing this to COVID-19's impact on patient access to healthcare providers, resulting in a decrease in demand for our products such as lidocaine and cortosin, primarily used in elective procedures. Regarding primatine mist, we continue to see growth as a result of the success of our nationwide TV, radio, and digital marketing campaigns. We continue to see Primatine Mist sales growth remain uncapped and tremendous opportunities as we continue advertising to build up the brand's product. As a result, we maintain our guidance of reaching our prior peak sales of $65 million in annualized sales next year, potentially growing even greater as our marketing spend becomes a lower percentage of sales that self-feeds into a continuous growth cycle. On a further note with Primatine Mist, I'm pleased to announce that we continue to execute on our strategy of expanding the Primatine Mist brand and that we'll be launching the product into Kroger store shelves beginning in the third quarter of this year. We expect this launch to add an additional layer to the product's gaining momentum as Kroger currently encompasses over 2,700 stores. By Q3, our presence will be in the Kroger and its broad family of stores, Walmart, the major retail pharmacies including Walgreens, CVS, and Rite Aid, as well as Amazon.com. As such, we will continue to seek further launches while reinforcing this effort with an advertising spend increase starting in the third quarter of this year. Turning to our newly launched epinephrine multi-dose vial product, Q2 has demonstrated that the product benefits from its 180 days of market exclusivity as this affords Amphistar with the time needed to penetrate this market with a reasonable share and without severely disrupting the market. As such, we continue to make traction in gaining market share. On the matter of our AMP-001 product, we maintain our guidance issued on the last quarter's call where we anticipate a GDUFA target action date for the third quarter of this year and subsequently the fourth quarter if another pre-approval inspection is needed. With AMP001, we remain excited about the product's potential as it continues on the path of becoming the first generic. We remain very excited about AMP002's prospects. Based on our complex submission package, which included a significant amount of scientific studies and the positive response of the agency during our mid-cycle review meeting, we are confident that the agency will find AMP002 to be therapeutically equivalent. This is consistent with our prior achievements in characterizing complex molecules, so therefore, we expect this will be an area of little challenge. Concerning our facility in China, A&P continues to play an essential role in helping bridge the gap from facing common supply disruptions. A&P continues to be a reliable provider supplying the hard-to-source API and starting material which are further synthesized into API for producing many of our finished products here in our U.S. facilities. As described in previous calls, our development projects for our insulin programs are continuing and we believe our insulin biosimilar products have a clear path forward. Finally, I would like to end by highlighting Amphistar's continued success towards advancing our pipeline for further portfolio diversification and what it has achieved so far. Since our IPO in 2014, we have grown from relying on our Inoxparen product, which contributed to 51% of our revenue, to now just being 13% of revenue amongst our more diverse portfolio. This diversification has been essential to the success of our business these last many months. Our commercial portfolio includes branded and generic products from a wide range of therapeutic areas, which are intended for a broad range of uses. some in emergency use settings, others for elective procedures. With this diverse coverage, we can remain stable when there are disruptions to one or more of those areas. This in conjunction with our enthusiasm in primatine mist trajectory, which we expect to be a great vehicle in moving Amphistar forward into the future growth. Primatine mist coupled with our strong pipeline supplying hard to source API, which is realized by our facility, our A&P facility, to produce difficult high barriers to entry validates our business model. This time, the challenge has been with COVID-19, where none of our products has faced a supply chain issue. At the same time, our diverse portfolio and the potential delivered by Primatine Mist affords resilience to the company to propel us further into a catalyst-filled second half of the year. I will now turn the call over to our CFO, Bill Peters, to discuss the second quarter's financials.

Thank you, Dan. Sales for the second quarter increased 9% to $85.8 million from $79 million in the previous year's period. Primatine Mist once again showed strong growth compared to second quarter last year with sales up nearly 400% to $12.5 million from $2.5 million. Epinephrine sales grew 122% to $7 million from $3.1 million as we launched the multi-dose vials in May and had strong demand for our pre-filled syringe product. Anoxaparin saw sales increase to $10.2 million from $9.8 million in the prior year, primarily due to a change in customer mix. Naloxone sales increased to $8.7 million from $7.8 million on higher unit volumes. Sodium bicarbonate also saw sales increases as we were able to utilize our new capacity to satisfy market demands. As Dan mentioned, we saw a trend this quarter of lower sales for products which are frequently used in elective surgery, including certain lidocaine products and critrosin. Phytonodione also saw sales declines from $12.4 million to $10.7 million. Our insulin API business had sales of $4.9 million, down from $5.3 million in the prior year, primarily due to the timing of shipments. Gross margins declined to 39% of sales from 41% of sales due to reserves for commitments and purchases of raw materials used in anoxaparin, which were made to help strengthen our supply chain. Selling, distribution, and marketing expenses increased to $4 million from $3 million, primarily due to marketing costs associated with our national television and radio ads which began airing last July. General and administrative spending increased to $15.9 million from $12.4 million primarily because of one-time expenses associated with the separation agreement with a former executive. Research and development expenditures increased slightly to $16.1 million from $16 million due to the expansion of our R&D program at our Chinese subsidiary, Amphistar Nanjing Pharmaceuticals. As we have previously publicly stated, some of our clinical trials did experience minor delays in the second quarter due to precautions concerning the COVID-19 pandemic. We anticipate that these expenses will increase in the upcoming quarters as our clinical trial program returns to normal. Other income declined due to the $59.9 million settlement related to our long-standing legal case with Momenta and Sandoz, which was booked to other income in the second quarter of 2019. The company reported a net loss attributed to Amphistar shareholders of $200,000, or zero cents per share, in the second quarter, compared to a net profit of $47.8 million, or 96 cents per share, in the second quarter of 2019. The company reported an adjusted net income of $7.6 million, or 16 cents per share, compared to an adjusted net income of $4.1 million, or 8 cents per share, in the second quarter of last year. Adjusted earnings excludes amortization, equity compensation, impairments of long-lived assets, and one-time events. In the second quarter, cash flow from operations was $30.1 million, which is Amphistar's highest quarterly amount ever other than last year when we had a one-time $59.9 million payment from Amenta and Sandoz. During the quarter, we repurchased $5.8 million of stock leaving $5.1 million remaining on our buyback authorization. Today we announced that the board authorized an additional $20 million program which we plan to utilize in the future. I will now turn the call back over to the operator to begin Q&A.