Amphastar Pharmaceuticals, Inc.

Greetings and welcome to the Amphistar Pharmaceuticals' fourth quarter earnings call. At this time, all participants are in a listen-only mode. A question in the next 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 these measures and reconciliations to U.S. GAAP. may be found in our earnings release. Please note that this conference call is being recorded. Our speakers today are Mr. Bill Peters, CFO, Mr. Dan Dishner, Senior Vice President of Corporate Communications, and Mr. Tony Mars, Vice President of Regulatory Affairs and Clinical Operations. I will now turn the conference over to your host, Mr. Dan Dishner, Senior Vice President of Corporate Communications. Dan, you may begin.

Thank you, Paul. Good afternoon, and thank you all for joining us today. On the call with me will be Bill Peters, CFO and Executive Vice President of Finance, and Tony Mars, Executive Vice President of Regulatory Affairs and Clinical Operations. Following Bill's financial updates, we will move the call to Q&A, where the team will answer your questions. As announced on our press release and financial results published earlier today, our net revenues for the fiscal year have reached the new high at $499 million, reflecting a significant 14% increase with a corresponding 25% increase in gross profit. In the fourth quarter alone, our net revenues hit $135 million. Again, we attribute this success to our high-margin products with primatine mist, glucagon, and epinephrine maintaining a solid market share and having demonstrated impressive growth throughout the year. On a brief note about primatine mist, We still anticipated sales trending towards $100 million in annualized sales by the end of 2024. We plan to increase our marketing spend by an additional $2 to $3 million, thus bringing our total to low double-digit millions for the year. We have adjusted the retail price to accommodate higher cost inputs. Shifting our focus to glucagon, we have seen a notable 29% increase in sales compared to the previous quarter, and a 20% increase compared to the same period. As mentioned in our last call, the changing market dynamics of the glucagon market, both in the retail and diagnostic aid market, have presented a growth opportunity for our generic glucagon. Additionally, I am pleased to announce that the FDA has approved our significantly increased glucagon manufacturing capacity, allowing us to double our output and meet the additional market demand. Moving on to the topic of other revenue drivers for the quarter, we are pleased to report that our other finished pharmaceutical products experienced a notable 52% increase in sales compared to the same period. This significant growth further validates our ability to meet the increasing demand for these products due to competitor shortfalls. We anticipate that this portion of our portfolio will continue to have residual strength throughout 2023. However, at the same time, we could expect fluctuation as these products are influenced by competitor capacity and unpredictable demand. Nonetheless, we remain optimistic about our growth drivers and their potential growth trajectory. Having covered our revenue drivers for the quarter, we can now discuss our pipeline and regulatory activities. To start, I'll briefly overview our proprietary products and biosimilars in the pipeline. Our intranasal naloxone, NDA, received a preapproval inspection in the first quarter ahead of the PDUFA date. While we acknowledge that public demand persists for this product in a crowded market, we remain encouraged as the potential approval will serve as an innovative platform for our intranasal pipeline with our proprietary device. This innovative approach coincides with our time-tested strategy of utilizing our vertically integrated business model. Turning to another proprietary product, our intranasal epinephrine, we now anticipate filing in 2024 following changes we are making to the product. Regarding our first interchangeable biosimilar insulin filing for insulin Aspart or AMP004, progress or filing is on track and we expect it to occur this year. As for our generic pipeline, our AMP008 product, our first inhalation filing I'm pleased to announce that we have responded to the CRL. With the FDA's granting priority review, we have the new GDUFA action date in the third quarter of this year, with a pre-approval inspection extending the goal date to the following quarter. Regarding our second inhalation product in the pipeline, AMP007, we now anticipate this filing to occur in the second quarter. We now anticipate AMP-027 to be filed in the second quarter. Pivoting to our pending refile and refiled ANDAs, AMP-015, or our generic teriparatide, we are seeing progress towards refiling as we anticipate it to occur in the second quarter of this year. For our AMP-002 refiling that occurred in the third quarter of last year, our planned GDUFA action date remains in the second or third quarter depending on a pre-approval inspection, if needed. Before I turn the call to Bill, I would like to reiterate that 2022 saw sustained year-over-the-year growth. While we may experience some fluctuations, we can ultimately expect annualized growth from our total portfolio to continue. Sustaining and building upon those achievements will require an increase in our investment in R&D, from which we remain on track increasing our capacity at all of our facilities as we progress closer to filing and approval. I would like to turn the call over now to the CFO and Executive Vice President of Finance, Bill Peters, to discuss the fourth quarter and year-end financial results.

Thank you, Dan. Sales for the fourth quarter of 2022 increased 12% to $135 million from $120.9 million in the previous year's period. Glucagon led the sales growth with an increase of 19% to $18.3 million from $15.3 million as the discontinuation of the other Glucagon products at the end of 2022 positively impacted demand. Primatine mist continues to show strong sales growth during the quarter with sales up of $22.3 million, up from $21.5 million in the prior year. Epinephrine showed strong sales in the fourth quarter amid continued shortages by our competitors, growing to $21.4 million from $18.9 million in the previous year's period. Other finished pharmaceutical product sales totaled $33.1 million, up 52% from 2021, as the company recorded stronger sales of sodium bicarbonate, dextrose, and isoproteranol, while benefiting from the 2022 launches of vasopressin and ganorelix. API sales decreased to $2.3 million from $2.9 million due to the timing of orders from Mankind and other customers. Gross margins increased significantly to 53% of revenues in the fourth quarter of 2022 from 47% of revenues in the fourth quarter of 2021 due to strong sales of higher margin products like primatine mist, glucagon, and epinephrine. Selling distribution and marketing expenses increased to $5.5 million from $4.1 million due to increased television, radio, and digital expenses for marketing primatine mist and increased freight costs. General and administrative expenses were essentially unchanged at $10.6 million. Research and development expenditures were also essentially unchanged at $17.2 million as an increase in clinical trial expenses for our insulin and inhalation product pipelines was offset by a decrease in spending on materials and supplies. Non-operating income in the fourth quarter of 2022 was $3.4 million, primarily related to the remit gain on foreign currency, compared to the prior quarter's non-operating income of $2.9 million, which is primarily related to illegal settlement. The company recorded net income of $33.9 million, or 66 cents per share, which is up 72% and 66% respectively, compared to the previous year's fourth quarter net income of $19.8 million, or 39 cents per share. The company reported an adjusted net income of $37.6 million, or 73 cents per share, compared to an adjusted net income of approximately $20.8 million, or 42 cents per share, on the fourth quarter of the previous year. Adjusting earnings excludes amortization, equity compensation, impairments of long-lived assets, and one-time events. In the fourth quarter, we had positive cash flow provided by operations of approximately $15.2 million, and for the full year, cash flow from operations was $89.2 million. During the quarter, the company repurchased approximately $18.1 million of stock to bring the total repurchases for the year to over $39.9 million. Now let me review a few of the financial assumptions we are using as we look to 2023 and beyond. Blue Cougon will drive sales growth in 2023 as we benefit from competitors leaving the market. Primacy Mist will continue to grow and benefit from our first price increase. We could also have sales contributions from two to four new product launches. We expect gross margins to remain flat year over year as a mix of higher margin products will be offset by increased labor and input costs. Our selling distribution and marketing expenses will rise as we plan to increase our advertising for primatine mist but will remain a constant percentage of primatine mist sales. We expect general and administrative spending to increase but remain a similar percentage of sales. Turning to research and development, we plan to ramp up spending on clinical trials and purchases of material and supplies this year as we increase spending on our insulin portfolio, two inhalation candidates, and our intranasal epinephrine product. We also anticipate a significant increase in capital spending this year as we continue our project to double capacity for inhalation products to align with our pipeline development. We plan to finish our insulin API production capacity expansion at our A&P facility in China this year as well. At our Amphistar facility, we are in the process of 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 flows from operations. At the same time, we will utilize our strong cash position to continue our stock buyback program. I will now turn the call back over to the operator for Q&A.