Amphastar Pharmaceuticals, Inc.

Greetings and welcome to the Amphistar Pharmaceuticals, Inc. fourth quarter earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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. These statements are based solely on information that is now available to us. 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 the measures and reconciliations to U.S. GAAP may be found in our earnings release. Please note this conference call is being recorded. Our speakers today are Mr. Bill Peters, CFO, Mr. Dan Dischner, Vice President of Corporate Communications, and Mr. Tony Marrs, Senior Vice President of Regulatory Affairs and Clinical Operations. I will now turn the conference over to your host, Mr. Dan Dischner, Vice President of Corporate Communications. Dan, you may begin.

Thank you, Operator. Good afternoon, everyone. I want to welcome you to Amphistar Pharmaceuticals' fourth quarter earnings call. After my prepared remarks covering commentary regarding Amphistar's quarter and full year's performance for 2021, I'll turn the call over to Bill Peters, our CFO and Executive Vice President of Finance, who will provide an update on the company's financials. After Bill concludes his remarks, we will move the call to our Q&A portion where Tony Marrs, Senior Vice President of Regulatory Affairs and Clinical Operations, Bill and myself will be answering your questions. As stated in our press release and financial results published earlier, net revenues were at an all-time high, coming in at $437.76 million for the fiscal year. This represents a 25% increase in revenue and a 39% increase in gross profit. primarily due to our high margin products like primatine mist, glucagon, and epinephrine. On our last earnings call, the company stated that it would file its first inhalation ANDA in the fourth quarter of 2021. And I'm pleased to announce that AMP-008 was filed during that time. As mentioned before, this is a paragraph four filing with the usual possibility of a 30-month stay being triggered. Nonetheless, we believe in our strong non-infringement position and have a fourth quarter GDUFA date this year. AMP008 represents one of multiple inhalation ANDAs in our pipeline, targeting a combined plus six billion market in annualized Equivia sales. Our intranasal naloxone is anticipated to be refiled in the second quarter of 2022 as we maintain a positive dialogue with the agency and receive productive guidance. Concerning our ANDAs on file, and many more. Our second product, AMP006, which represents a market of 50 million in Equivia sales, remains on track with a second quarter GDUFA date. For our third product, teriparatide, or AMP015, the product remains on track with a second quarter GDUFA date. And finally, our fourth product is again our first inhalation filing, AMP008, which I had previously mentioned has a fourth quarter GDUFA date this year. Regarding Vazopressin, which received tentative approval late last year, we anticipate a launch in Q3 this year. The product demonstrates the strength of our vertical integration as we will produce the API and finished product in the United States. Two main components of our long-term strategy include proprietary and biosimilar products. Our intranasal epinephrine remains on schedule to be filed next year, and the company continues to have a positive dialogue with the agency as we work to obtain interchangeable insulin. A milestone was reached with our Primatine Mist product, with over 73 million in annualized sales, surpassing the original 65 million in prior peak sales under Primatine Mist CFC. In-store weekly sales maintain a positive trend, seeing a 9% increase from last quarter and a 31% increase on an annualized basis. Therefore, as primatine mist sales continue to trend upward, we remain confident that the product can reach 100 million by 2024. The company anticipates investing in more frequent nationwide digital, TV, and radio marketing campaigns, coupled with our physician sampling program. Regarding our other two high-margin products, Glucagon has seen an impressive 26% increase compared to the previous quarter. and Epinephrine have seen a 36% increase compared to the same period. With that said, we expect Gluvigon to maintain its market position with the possibility for growth. At the same time, we believe the current market conditions for Epinephrine will remain and we continue to be the reliable supplier where our competitors cannot. To end my prepared remarks, you can see that Amphistar is already headed into 2022 with a schedule of several pending GDUFA action dates and potential launches. The company's current capacity has room for growth to accommodate these new product launches. With that said, the current robustness and further diversification of our pipeline and scaling up our existing capacity are in line with Amphistar's long-term strategy towards self-funded investment to grow the company organically. Therefore, we anticipate investment in capital expenditures to increase in order to meet future pipeline demands. As the company continues to execute on our vision and strategy, Amphistar becomes well-positioned to continue transforming into a significant U.S. biopharmaceutical company catered towards novel treatments and biosimilars. I will now turn the call over to Bill to discuss our fourth quarter and year-end financial results.

Thank you, Dan. Sales for the fourth quarter of 2021 increased 26% to $120.9 million from $95.9 million in the previous year's period. Importantly, Primatine Mist surpassed our long-term annual sales target of $65 million, with sales growth of 60% in the fourth quarter to $21.5 million from $13.4 million for the same period in 2020, as we continue to see the benefits of our national advertising program. Glucagon also had strong sales during the quarter of $15.3 million. Epinephrine showed strong sales amid continued shortages by our competitors, growing to $18.9 million from $7.5 million in 2020. Anoxaparin sales dropped to $7.9 million in the fourth quarter from $17.6 million amid continued competition in that market. API sales decreased to $2.9 million due to the timing of orders from Mankind and other customers. Gross margins significantly increased to 47% of revenues in the fourth quarter of 2021 from 38% of revenues in the fourth quarter of 2020 due to strong sales of higher margin products like primatine mist, glucagon, and epinephrine. Selling, distribution, and marketing expenses increased at a rate lower than our sales, rising to $4.1 million from $3.8 million due to television, radio, and digital expenses for marketing primatine mist. General and administrative spending decreased 12% to $10.6 million from $12 million, primarily due to decreased legal expenses as we settled several ongoing lawsuits. Research and development expenditures decreased 5% to $17.3 million from $18.1 million due to decreased expenses in China as a result of our restructuring there. Other income included a $2.7 million gain on the settlement of a legal dispute. Net of Contingent Legal Fees The company reported net income of $19.8 million or $0.39 per share compared to previous year's fourth quarter net loss of $6.3 million or $0.13 per share. The company reported an adjusted net income of $20.8 million or $0.42 per share compared to an adjusted net income of approximately $8 million or $0.16 per share in the fourth quarter of the previous year. Adjusted earnings includes amortization, equity compensation, impairments of long-lived assets, and one-time events. In the fourth quarter, we had cash flow provided by operations of approximately $40.4 million, and for the full year, cash flow from operations were $98 million. During the quarter, the company repurchased approximately $13.4 million of stock during the total repurchases for the year to over $28.9 million. Let me review a few of the financial assumptions that we are using as we look to 2022 and beyond. First, let me state that Primatine Mist, with sales of $73 million, far exceeded our long-discussed goal of $65 million in sales this year. We now forecast that sales of this core product will continue to grow and hit $100 million by 2024. Glucagon sales will continue to grow in 2022 as we have a full year of sales compared to last year. We could have sales contributions from three ANDAs which have GDUFA dates in the first and second quarter this year, plus sales from the launch of Vasopressin in the second half of 2022. These trends could lead to significant sales increases in the second half of the year. We expect gross margins to increase once we are able to launch the ANDAs currently pending approval. As with most companies these days, we have been are challenged with higher costs for labor and both higher costs and longer lead times for certain inputs. Our selling, distribution, and marketing expenses will rise as we plan to increase our advertising for primatine mist. However, the advertising expense will decrease as a percentage of primatine mist sales to provide earnings leverage. We expect G&A spending to increase but remain a similar percent of sales. Turning to research and development, We plan to ramp up spending on clinical trials this year as we adjust the timing for trials delayed in 2021 due to COVID. This includes trials for our insulin candidates, two inhalation candidates, and our intranasal epinephrine product. I would also like to note that we recently settled our litigation with Astellas & Gilead for Regedensin, and we received a one-time litigation avoidance payment of $5.4 million which will be booked to other income in the first quarter of 2022. We also anticipate a significant increase in capital spending this year as we continue to double our capacity for inhalation products in order to be aligned with our pipeline development. We are also expanding the capacity of insulin API production at our AENP facility in China. At our Amphistar facility, We are beginning an expansion project that will ultimately quadruple our capacity in Rancho Cucamonga as we look to major insulin and complex injectable opportunities. We plan to finance this expansion with cash flow from operations. At the same time, we will utilize our strong cash position to continue to buy our stock in our stock buyback program. I will now turn the call over to the operator for Q&A.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from David Amsalem with Piper Sandler. Please proceed with your question.

Hey, thanks. So just have a few mostly pipeline related. So on vasopressin, you know, obviously there's sort of fluid competitive dynamics here, but I wanted to get a sense of, you know, how you're thinking about competitive dynamics when you're You guys enter the market mid-year. How much more crowded do you think the market will become? And what's the extent to which you think this is going to be a significant contributor, not just in 2022, but perhaps longer term? So that's number one. Number two is on teriparatide. You just remind us, I just wanted to confirm that this is a first cycle review. And then and relatedly, can you Talk about dynamics in that market and your level of confidence that you can be on the market ahead of Teva. Just how you're thinking about that product. And then just switching gears on Primatine, I know the product's done better than you'd initially expected. Can you talk about what you think it's a function of? Is it a function of just Advertising and Promotion. Is there something else that you're sort of seeing that's sort of driving the greater than expected demand? Maybe just give us some more granularity on what you think is happening there. Thanks.

Thanks, David. I'll look at Vazipressin first. And we think, you know, thinking about the market with Vazipressin, we're aware of the market dynamics there already. basically two generics on the market. So the way we look at it is probably the same as you would look at any typical market with multiple generics on it. You know, we feel we can compete. We have, you know, like I said, we make the API and the finished product in the United States. And, you know, we think that that'll help us a little bit. But overall, we think it's what you would typically see in a generic market. On TO2, do you want to... Sure.

Yeah, for... for our teriparatide. It is a first cycle review. Recall the agency had extended the action data, the goal data on that one, and that's encouraging for us. Give them a little bit more time to look at this. This is a complex product, so of course the uncertainty around that is always there, but we remain very optimistic about it. We know Teva has a product and ANDA, and also we can't really speak to theirs as far as where they are in the process, but we do know it's been a significant amount of years that they've been in that process.

And we believe that our legal strategy will enable us to be the market before, even if we get our approval first, we believe we can market it right away, I should say.

And with Primatine Mist, I think there's a couple of things. We increased our spending and added another commercial. We see a lot of positive results around increasing the amount of commercials that we're putting out there. We're focused on changing demographics or focusing on different demographics that may have not been exposed to Primatine before. And so that's sort of where we're getting our confidence. I mean, we see the in-store sales continue to rise. We don't see any drop there. And so we're not sure. But so far, it's positive trends going for Private Team Mist.

Okay, great.

Thank you.

Thank you. Our next question comes from Elliot Wilber with Raymond James. Please proceed with your questions.

Thanks. Good afternoon. First question with respect to 008, maybe just a couple of questions around that. Can you confirm whether or not the 45-day window in which the innovator has to potentially commence litigation against your filing has passed, or are we still within that period? And if you could give us any indication as to what The sales base is on that product within sort of the larger $6.5 billion that you're targeting in inhalation products. And is this a already genericized product or is this potentially first to market? Then I've got a couple follow-ups as well.

Well, I can say that we're still within that window to be sued, so that has not passed yet. and as far as the market size, we'd rather keep that to ourselves right now. Right. So we get a little closer. So we get more information.

As well as the competitive landscape. We want to protect our competitive position if possible.

Okay. And then I want to ask a couple questions around some of the better performing or the stronger performing base products as well, specifically glucagon and epinephrine. Sounds like you have a reasonably high degree of confidence that you're not going to see incremental competition, at least in terms of new generics there. Just wondering, you know, how good you think your line of sight is in terms of trying to be able to sort of gauge incremental competition in the epinephrine market, both the pre-built syringe and the vial market. Obviously saw the news on Hospira likely to be out of the market for some time, but just curious if there's other dynamics out there that might give you a pretty good read into potential additional players that could come into that market. And a similar question on Glucagon, if there's anything that you can gather in terms of competitive intelligence that give you a reasonably high degree of confidence that you may not see incremental competition. In fact, sales may grow in 22 versus 21.

Yeah, I think you answered a lot of the questions for us on epinephrine specifically. We feel confident that that market won't change too much. We don't have any reason to expect anything else to happen in that market at this time. And with glucagon, yeah, we think that the market is continuing to grow. Possibly, we've seen where Thank you very much. and other competition with either of those products.

And especially with glucagon, given the fact it's such a hard product to do and so complicated, it'd be very difficult for other players to get into that.

Okay, and then last question, just on the primatine trend within 2022, obviously very strong results in the fourth quarter. Historically, that product has not actually declined in the first quarter, and I'm just wondering, kind of given the performance in Q21, if it would still be reasonable to expect sequential growth in the first quarter of 2022.

Yeah, so right now, we did have some very strong sales in the fourth quarter, and I don't think the product's really been on the market long enough to really see quarter-by-quarter trends, but we do see A little bit of seasonal trend in the March-April timeframe and also the December timeframe. So we did see a pickup there. But that's not as big as the long-term trend. So I think we have to have it on the market a little bit more to see if there's other trends other than those two pickup times. And basically, our sales are buying ahead of those times. So we're shipping to the drugstores ahead of those times. I will say that we did update the graph in the presentation today, so it's on the website, and you can just see a continued upward momentum with, I think there's a little bit of seasonality to see with the blips in the chart there, but overall it's still a nice upward trend.

Okay, thank you for taking the questions.

Thank you. Our next question is from Jacob Hughes with Wells Fargo. Please proceed with your question.

Hey, thanks, guys, for taking my question. I just had a couple of follow-ups on teraparotide and the gross margins. For 015, just a clarification, does TEMA still have first-filer exclusivity here? And why do you believe you could launch immediately and then I know I think Lily consented, so maybe that's part of it, but maybe you could just clarify that. And then on the launch curve for that product, could you speak to that? And do you expect more than one generic to be on the market?

So for teriparatide, the whole legal strategy of getting the confirmation from Lily enabled us to make sure that TEVA was not the first filer. So anymore that they had lost that status, we believe that they have lost that status, which will enable us to launch upon approval. So that's the first part of that question. The second part was?

I think the competitive landscape. I mean, obviously we know that TEVA filed a long time ago, and we don't really know where their application is at this time. and we're really not aware of any other filers. It is been on patent for a while and you would expect, you know, someone else possibly, but right now we're not aware of anybody else.

Okay. Bill, I'm going to grow smart as, you know, you know, they were up approximately 400 basis points versus 20. I think some of that was an easy comp and poor Q20, but, You talked about some offsets from labor and cost inputs, but is there any way you can quantify that and how we should think about the gross margin expansion for 2022?

Yeah, as far as expansion goes, we're not expecting any expansion until we launch new products. So that would be in the second half of the year. We will be a little cost constrained. at maybe the first couple quarters. But overall, gross margins could go up or will go up once we have new products.

Thank you. Our next question comes from Serge Bellinger with Needham & Company. Please proceed with your question. Hi, good afternoon.

Thanks for taking my questions. First one, I think Bill or Jacob mentioned the potential for pre-approval inspections. Just curious, when do you expect to hear from the FDA about that? And if one is needed, does it affect all the products or just specific end of?

Yeah, we don't anticipate there to be any pre-approval inspections for any of the products that we've had applications for for some time, with the exception of the one that we just filed, the inhaled product that we just filed. and if we did have one, it would not necessarily trigger any others. They wouldn't necessarily be linked. Got it.

Okay. And then secondly, in the past, you've been able to capitalize on various market shortages of products. Just curious what you were able to capitalize on in the fourth quarter and whether that will continue

The primary beneficiary of that was the epinephrine pre-filled syringe. So that's something that one of our competitors was not able to supply. So that's one of the reasons why our epinephrine was up so much year over year. And we've previously said that the overall market shortage and many more. We expect that the epinephrine

Thank you. Our next question comes from Tim Chang with Northland Security. Please proceed with your question.

Hi, thanks. You know, with this diabetes portfolio, I know you guys are talking about interchangeability with your insulin pipeline. You know, has there been any sort of update on that from the FDA side? And, you know, what sort of progress are you guys making on your insulin products?

Yeah, we continue to have very good dialogue with the agency. I think from the interchangeability situation, we have a good handle through those conversations on what the expectations are from the agency as well as our ability to meet those. We have one product that is going to be the trailblazer, if you will, and the other products in our diabetes portfolio we'll be following shortly behind those. So if you have a spectrum of development, we have the first one that's pretty far along and then the other two that are not far behind it. So all three of those are in relatively advanced stages with one further ahead than the others.

And maybe just to follow up to that, interchangeability, I guess, you know, I'm starting to see some biosimilars get it on their labels with that interchangeability definition. And I'm sort of wondering, you know, how important will that be for your biosimilar? Does that mean that basically pharmacists can switch to your product without any sort of physician approval? Is that right?

Yeah, that's correct, physician or pharmacist approval. So if they were to write a script for a certain type of insulin, it could be substitutable, if you will, for the interchangeable, whereas with the biosimilar, that likely is not the case.

Thank you. Our next question comes from David Steinberg with Jefferies. Please proceed with your question.

Thanks a lot. Good afternoon. I have a couple questions. So back to Primatine. I think you said in your prepared remarks that you thought sales could reach or approach $100 million by 2024. On the other hand, you did $73 million this past year, and Q4 annualized is around $85 million. So if you look at those trends, Thank you for joining us. The gross margin is about 400 basis points, give or take, last year, and they've increased about 900 basis points over the last three years. If you get all these new approvals that are lining up for you, say, two or three years down the road, where could gross margins be, theoretically? Could they be in the mid-50s, for example, by, say, 2024 or something like that? Thanks.

I think that's a bit aggressive for that timeframe. While we do expect them to be higher in 23 and 24 than they are today, I think that that 50s is a bit over, probably above where we believe it will be by that time. However, you know, if we look further out, it is possible to hit those numbers, but I think we have to be, have more of our biosimilars launch, have more and maybe start some of the proprietary products that we're now working on as well. So I think that's a doable number, but I just don't think that's by that year.

And with primatine, I'm not sure how to answer this question. This is our – you know, our guidance is for 2024 to get to that $100 million mark. As you mentioned, we have pretty much got it into all the big box chains and all the different retail elements. We need to kind of expand the market for that, and we think that the strategy we have in place will help us get there for that and achieve that $100 million by 2024. Fair enough.

And just... on your biosimilar strategy, particularly as it relates to the insulin market where you'd be leveraging your French insulin API facility. The FDA's recent guidelines in immunogenicity, how could that or would that help accelerate the process for approval?

Yeah, well, they've made it clear from a technical perspective what the expectations are through that guidance. They've given some Statutory references to that that'll give them a very open policy on what the expectations are. And what it's allowed us to do is use that as a foundation for our conversations with the agency. Of course, it doesn't tell you specifically everything that you need to do on a very detailed level, but it broadly talks about those in different categories. and what we're able to do is leverage that guidance as a foundation for the conversations and fill in all of the gaps based on our current technical knowledge and some of the characterization work that we've done historically for some of our other products.

Thank you. There are no further questions at this time. I'd like to turn the floor back to management for any closing remarks.

Great. Thank you, Paul, and thank you all very much for joining us here today. We appreciate it, and we look forward to updating you on our progress on many fronts as we move forward. As always, if you have any additional questions, please do not hesitate to contact us when those questions arise. And again, thank you for your time today.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.