Amphastar Pharmaceuticals, Inc.

Greetings and welcome to the Amphistar Pharmaceuticals first 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 these 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 Dishner, Senior Vice President of Corporate Communications, and Mr. Tony Morris, Executive 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 day, everyone, and welcome to Amphistar Pharmaceuticals Q1 earnings call for the year 2024. We're thrilled to have you all join us today as we reflect on the company's performance over the past quarter. Amidst the dynamic landscape of the pharmaceutical industry, we are eager to share our progress, milestones, and strategic insights with you. Thank you for your ongoing support and interest in Amphistar. Joining me on the call today are two key members of our leadership team. Bill Peters, our Chief Financial Officer and Executive Vice President of Finance, and Tony Mars, our Executive Vice President of Regulatory Affairs and Clinical Operations. Let's get started. Amphistar's performance remains robust, evidenced by our impressive financial results. We are pleased to report a notable year-over-year increase in net revenue, soaring to $171.8 million, making a substantial increase of 23% over the same time last year. This achievement underscores our product portfolio's enduring strength and adaptability amidst an ever-changing environment. As expected, our products such as glucagon injection, vaccine, primatine mist, and our hospital and clinical use offerings continue to experience steady growth. This reflects their ongoing importance and relevance in the market. Of particular note is the consistent demand trend for our hospital products, which we anticipate will remain robust throughout the year. Our glucagon injection saw changes in demand specifically in the diagnostic sector due to another manufacturer's product availability. However, our recent entry into the Canadian market underscores our ability to adapt and mitigate market fluctuations effectively. Regarding primatine mist, although there have been fluctuations in distribution orders from stores, The product has maintained a steadily positive growth trajectory with consistent weekly in-store sales. Furthermore, we remain committed to achieving the 100 million sales milestone for this product in 2024. Shifting our focus, I'd like to highlight our proprietary prescription product, Vaccimi, our intranasal glucagon. The transition from Eli Lilly continues as expected. which is evident in the 22% year-over-year sales increase compared to the first quarter of 2023. This achievement underscores our proficiency in integrating acquired products into our portfolio and driving growth. At the same time, the sales also benefited from initial stockings as we started Baximi distribution in the United States. Baximi has swiftly become a cornerstone of our diabetes portfolio offering patients a convenient and effective solution to severe hypoglycemia. We believe the glucagon market remains underserved with significant growth potential as vaccine continues to be underutilized among diabetic patients. Similarly, our global transition of vaccine has continued to make progress. Our dedication to broadening our capabilities to provide vaccine accessibility for patients worldwide remains steadfast. Furthermore, we persist in prioritizing investments in sales and marketing endeavors to bolster Vaximi's market standing, seizing upon the existing underutilization of glucagon. Looking forward, Vaximi remains a primary focal point for Amphistar, and we eagerly anticipate its significant impact on individuals navigating diabetes management. Turning our focus to our pipeline products, Our efforts are directed towards potentially launching four to five products this year. We are pleased to announce the recent launch of Rextovi, our intranasal naloxone product. In terms of teriparatide, we have received a minor complete response letter, and we anticipate responding to this in the second quarter. Additionally, we anticipate a GDUPA date in the third quarter for this filing, noting that it is still in its second review cycle. Moving on to AMP008, our first inhalation ANDA has a GDUFA goal date in the second quarter, while our other inhalation ANDA filing, AMP007, has a GDUFA goal date in the fourth quarter. FDA has designated this application as a competitive generic therapy. With regard to AMP002, we are actively engaging in a positive, routinely scheduled dialogue with the regulatory agency with the FDA affirming its commitment to prioritizing the review of this application. In our diabetes portfolio, we are on track to refile insulin aspart or AMP004 in the second quarter. Additionally, we plan to file AMP018, a GLP-1 abbreviated new drug application, in the coming months. In conclusion, It's vital to highlight our remarkable performance during the first quarter. The transition and year-over-year growth of Baximi showcase our ability to foster expansion. This achievement underscores our adaptness in integrating acquired products efficiently and reaffirms our commitment to growth. Beyond Baximi, our diverse portfolio and strategic initiatives position us well for sustained success amidst market fluctuations. With vaccine meeting our expectations, and as we anticipate upcoming product launches and continued constructive dialogue with regulatory agencies, we are optimistic about our growth perspectives. Now, I'd like to hand the call over to our CFO and Executive Vice President of Finance, Bill Peters, to further discuss the financial results for the first quarter. Bill Peters Thank you, Dan.

Revenues for the first quarter increased 23% to $171.8 million. from $140 million in the previous year's period. Zuccagon injection sales increased 11% to $28.5 million from $25.7 million as we had our first full quarter of sales in Canada during the quarter. Primatine mist sales grew to $24.2 million in the first quarter, which represents a sales growth of 3% from $23.5 million in the first quarter of last year. Epinephrine and phytonodion sales increased 30% and 29% respectively due to other supplier shortages for part of the quarter, with epinephrine sales increasing to $26.1 million from $20.1 million and phytonodion sales increasing to $10 million from $7.7 million. Other finished pharmaceutical product sales decreased $1.4 million to $29.2 million due to the API shortage for MPA which caused us to temporarily stop selling the finished product. This was partially offset by increased sales of other products, such as dextrose and sodium bicarbonate, as well as newer launches, such as regadenosine. Vaccinia revenues now fall into two categories as we began shipping the product in the United States and a few European countries. The first category relates to products we ship directly to our customers, for which we recorded net revenues of $13.8 million. These revenues are recorded in our product revenues net line on the income statement. The second category relates to products sold by Lilly on our behalf under the TSA agreement, totaling $24.6 million, which had a cost of sales and expenses of $10.4 million. This resulted in net revenues of $14.2 million in our other revenues category which corresponds to Amphisar's net economic benefit from Baximi. Total worldwide Baximi sales were $38.4 million in the quarter, up 22% from $31.4 million in sales reported by Lilly in the first quarter of 2023. We will continue to book revenue on a net basis for those countries where Lilly continues to distribute the product on our behalf. Our own distribution in Baximi will increase throughout 2024 on a country-by-country basis, once Lilly has finished their inventory and we have Amphistar labeled inventory available. This will result in an increase in product sales and a decline in the net economic benefit recognized in our other revenues. Our insulin API business had sales of $1.7 million, down from $4 million last year, as mankind cut purchases while they qualified the API produced on our new production line. Cost of revenues increased to $81.7 million from $66.4 million. Gross margins were essentially unchanged at 52.4% of revenues in the first quarter of 2024 and 52.7% of revenues the previous year. Changes include increased amortization and depreciation of vaccine assets and an increase in labor and certain component costs. These changes were partially offset by vaccine sales as well as increased sales of glucagon, primatine mist, and epinephrine, all of which are higher margin products. Selling, distribution, and marketing expenses increased 32% to $9.4 million from $7.1 million in the previous year's period due to Salesforce expansion and marketing expenses related to Baximi. General and administrative spending increased 16% to $15.7 million from $13.5 million due to increased expenses related to Baximi. Research and development expenditures decreased 14% to $17 million from $19.8 million due to the timing of clinical trials and lower material expenses related to our insulin and inhalation pipeline products as a result of a ramp-up in 2023. Our non-operating expenses of $100,000 compared to a non-operating income last year of $100,000 as a $5.2 million gain on our interest rate swap associated with our term loan offset higher net interest expense. Net income increased over 66% to $43.2 million or 81 cents per share in the first quarter from $26 million or 50 cents per share in the first quarter of 2023. Adjusted net income increased to $55.3 million or $1.04 per share compared to an adjusted net income of $32.1 million or $0.62 per share in the first quarter of last year. Adjusted earnings exclude amortization, equity compensation, impairments of long-lived assets, and one-time events. In the first quarter, we had cash flows from operations of approximately $55.3 million. I will now turn the call back over to Dan.

Thank you, Bill, for the updates. With that, we will now take your questions. Operator, please open the line for Q&A.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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 key. One moment, please, while we poll for questions. Thank you. Our first question is from Ekaterina Kainerkova with JP Morgan. Please proceed with your question.

Hi, thank you so much. Just two from me, if I may. So first, on Voximi, can you talk about any of the feedback and discussions you've had with payers post the Lily transition and any implications as we think about price over the next few quarters and any changes in that market from a competitive standpoint, anything different you're seeing from GVOC? And then second question is just on AMP02. Can you just elaborate a bit on the interactions you've had with the FDA? I think you mentioned in your prepared remarks. Just have they asked for any additional data or anything else? And kind of what's your latest confidence in getting that product approved later this year? Thank you so much.

Yeah, so for the first question on the pricing for vaccine, we have had conversations with payers. And in general, most of those contracts are lining up with exactly the same price that Lilly had for those, so we've been able to do that. What we did mention on the last conference call, though, was when we're paying fees to the wholesalers out there, we're paying a higher fee than Lilly paid because they have much better bargaining power. So that's why we said this year for Baximi, we were guiding towards high single-digit unit growth but low single-digit pricing declines. And so those pricing declines are based on that net difference in pricing that we have to pay to the wholesalers.

And for your second question regarding AMP002, we have routinely scheduled meetings with the agency. They have not asked us for anything new regarding this application, and we remain cautiously optimistic as we typically have for it. Um, but I think just routinely having these meetings with the agency is, is giving us, um, and, and they're sharing with us their, their desire for moving this application forward.

Thank you. Our next question is from David Amsterdam with Piper.

Please proceed with your question.

Hi, this is Skylar on for David. First, could you give us the latest update on the vaccine sales force in terms of sizing and whether you plan to only use a contract sales organization going forward and just how the overall transition is going from Lilly and also any thoughts on eventually bringing manufacturing of vaccine in-house? And then second, on injectable glucagon, could you talk about the mix between diagnostic usage and hypoglycemia usage and how much room there is for more penetration in both of those settings?

Thanks.

So I would say we haven't really disclosed the size of our Baximi Salesforce. We are continuing to use an outside Salesforce on that. We will continually monitor if there's a need for us to bring it in-house. We will continually monitor to do that. But right now, I think we're satisfied with the progress they're making at this time.

And as far as the manufacturing goes, because of the complexity and the machinery and the setup, Bringing that in-house would take several years at best case scenario. So I don't see that as happening or being very likely. And then the other question was related to the split on the glucagon injection. And right now it's about one-third anti-hypo-glycemic and about two-thirds for diagnostic. And we, you know, what we've seen though is that on the anti-hypo-glycemic, The change that we've seen there is more towards the ready-to-use products, such as Baximi. So that's what we've seen the growth in and why we said this year that we did expect to see our glucagon injection product to decline in units overall this year. While we did have growth in the first quarter, we're still saying that our total units in the United States will decline, and that decline will be offset by revenue growth in Canada.

Got it. Thank you.

And if I could just sneak in one more, could you just talk to the extent to which you think you're going to benefit from shortages in 2024 compared to 2023?

Yeah, so with the shortages, you know, what we've said in the past is we've frequently said we've given a number of 20 million plus of benefit from those products. And as of right now, there are, you know, a few products that have continued to be on shortage, such as dextrose, sodium bicarbonate, and epinephrine. And those are still on shorter, have been on shorter since July of last year. And then there's a couple other products like phytonodione that had a short-lived shortage during the quarter, this quarter. So some of those other products, they come and go quickly. But what we have said, though, is that every quarter since I've been here, and I've been here for 10 years now, We've benefited from other companies' inability to supply product for one product or another, so we've been able to have that benefit every quarter for the last 40-plus quarters.

Got it. Thank you. Thank you. Our next question is from Tim Chang with Capital One. Please proceed with your question.

Hey, thanks. Hey Bill, maybe you could talk a little bit about the BEXME rollout in the US, you know, what sort of feedback has your contract sales force given you in terms of, um, just, just, uh, uh, demand for the product one and two, you know, is, is there really any change, uh, with your customers? Obviously this is a market where you're only getting a small sliver of the potential market. Could you talk a little bit about how you can penetrate more of the market in 2024?

Yeah, so the feedback has been very good, and sales have been growing very nicely, particularly in the United States. And we've seen that transition happening. And we have seen growth of the ready-to-use products in the United States, because we think that those are definitely the better solution for glucagon.

Again, I mean, the US market's about 80%. This is going back to Baximi. The other 20% is going to basically flip to your responsibility this year. Is that right?

Yeah. So right now, of the other 25 countries where we distribute Baximi, three of them we've picked up in Europe. The other 21 countries around the world we plan to pick up, and that's once Lilly has completed all of their labeled inventory and we have Amphistar labeled inventory ready to go. So we're working on that. I think a lot of those countries will happen. We think a majority of those companies will probably convert in the third quarter, but we're looking for most of those in the June to August timeframe. And then there's probably be a couple lingering countries that don't convert until the end of the fourth quarter, though.

Okay. And just one last question, if I may. Epinephrine. I mean, this product, I think you've had your best quarter to date with epinephrine sales in the first quarter. Do you expect these type of continued year-over-year growth figures for the next couple quarters going forward?

It's hard to keep that kind of growth up because I think we're maxed out on what we've been able to produce this quarter. So it's a combination of us. Right now for the pre-filled syringe presentation of that product, we are the only company in the country making that for the hospital market. So we're making as much as we can, and we're at our capacity for that product. So I really don't see it going any higher than it is right now.

Okay, great.

Thanks, Bob. I'd probably continue at this level for at least another quarter, if not longer.

Thank you. Our next question is from Jason Gerberry with Bank of America. Please proceed with your question.

Hey, guys. This is Bhavan Patel on board with Jason. Two questions from us. The first is, to what extent is mixed driving growth? you know, in terms of the market moving from single-use generic kits to brands offering two units? Like, what's the product shelf life, and does that create a risk, you know, that patients might take longer than expected to work down their inventory? And then my second question is that, you know, insulin use in type 2 diabetes has declined, and we generally hear from physicians that these glucagon products rescues make more sense for type 1 diabetics versus type 2 who can manage their blood sugar. Do you see type 2 diabetes as a meaningful area to expand Bexamy? And is that embedded in your peak sales outlook for Bexamy? Thank you.

Yeah, so as far as the expiration goes, most of these products have a two-year shelf life from the date of manufacturing. So that usually takes a little while to get released and then into the wholesale channels, into the retail, then to the customer. So generally the customer, depending on when they get it, has 12 to 20 months of shelf life from when they buy the product.

Yeah, I think as far as type 2 diabetic patients, I think that's true and I would agree that the bulk of the percentage of people with type 1 that are needing these glucagon products is higher for type 1 as compared to type 2. Just partially it's a compliance issue. Type 1 diabetics, because they're dependent on the insulins, are more compliant than type 2. And so with type 2, there'll be less utilization as a percentage of that population for the use of these glucagon products. that population getting more educated and getting more into the healthcare system with some of the GLP-type products, I think that should increase as they get more into the healthcare system.

And then as far as, you know, our forecasting goes, you know, we knew about the GLP-2s when we, you know, when we bought the product, and we ran multiple scenarios on this, and, you know, our base case scenario I think is relatively similar is the one that we've forecast and we keep in our presentation. So I think we're very comfortable in getting to that, even with the market changes that people have seen over the last year.

Thank you. Thank you. Our next question is from Serge Ballinger with Native and Company.

Please proceed with your question.

Hi, good afternoon, everyone. This is John on First Surge. Just a couple of quick questions. First, regarding the insulin biosimilar AMP004, you mentioned you're going to be refiling it in the second quarter. Do you guys have any context or any feedback that you've gotten from the FDA thus far regarding how many rounds of review you might expect for this product? And then generally speaking, can you give a little color on the overall market opportunity that 004 might enter into. And then just on the side, you know, regarding the patent listing challenges from the FTC reported about a week ago now, I believe you have, if I'm correct, you have, you know, inside 30 days to either dispute the letter or amend your patents. Can you give a little color on the process that you guys are going through and what might expect over the coming weeks? Thanks.

Yeah, for your first question regarding the insulin product, the agency hasn't shared with us how many rounds they would expect, but this is our first biosimilar biologic product that we filed an application for. What I can say is that the dialogues that we've had with the agency and the document that they gave us where they asked us to resubmit our application, the amount of comments that we received on that far exceeded what our hopes would be in the sense that it wasn't as simple as this is the minimum that you could do. They actually gave what I would characterize as a very solid attempt to give us some very positive feedback about items that they'd also like to see in the application that in my mind is almost as though this would prevent us from having a cycle, an additional cycle. So I think that from the FDA's desire based upon that, I would expect them to be very forthcoming in this and to kind of help to, when they do give, if there are additional cycles, the feedback that they would give. would be very clear to really help us. It seems like this is a product, based upon the years of dialogue that we've had with them, it seems like this is a product that they realize the capabilities that we have and the technologies that we have, that they are very invested in helping us with this application.

And as far as the sales opportunity for 004, It's over a $4 billion product. There's over 41 million units of the product sold a year. So we see it as a really big opportunity for us in the long run. Definitely, we'll be at a lower price point than what they're selling now, but we already have our equipment in place right now to manufacture the product, so I think we're pretty confident in our ability to get a reasonable market share there as well. Then turning to your last question about the letter from the FTC, yes, we did receive that. We are one of many companies that received this second round of letters from the FTC about Orange Book listed patents. So we've done two things since receiving it. One, we've had some discussions with the Lilly attorneys, who were the ones that submitted it to the Orange Book, and they were confident that it was appropriate, what they did, and that they were following the law when they did that. And the second thing we're doing is that we're engaging an outside counsel to also look at that. So we'll get into that. And my understanding of the timeline that you mentioned, the 30 days, is we have 30 days once the FDA sends us a letter, and we have not gotten that letter as of today. So once we get that letter, we'll have 30 days to respond from that time. And if our outside counsel is able to analyze it in that time, then we'll do so. But I'd also like to add that we have three Orange Book patents for this product. There's one that expires in 2036, which is a formulation patent. The patent in question expires in 2038. But then we also have another patent that expires in 2039. So this isn't the last patent, and it's not the most important patent either. So no matter what happens to this, I don't think it really changes our our trajectory or our implication or our forecast for this product.

Great. Thanks for the clarification on all that.

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

I want to extend a heartfelt appreciation to everyone who joined us today for AMPHISTAR's Q1 earnings call. and for your continued support. We look forward to sharing our progress with you in the quarters ahead. Have a great day.