Amphastar Pharmaceuticals, Inc.

pipeline and regulatory activities. On the topic of our filed ANDAs, we are engaged in positive and ongoing discussions with the FDA for AMP002, with anticipated progress in the near future. For AMP015, our teriparatide ANDA, we have submitted our response to address the minor CRL, and the FDA has assigned the GDUFA goal date in the fourth quarter. Additionally, our second inhalation ANDA, AMP007, remains on track for a fourth quarter GDUFA goal date. With regards to our diabetes products, I'm pleased to announce that we have filed our ANDA for AMP018, which is a generic GLP-1 product, and the FDA has accepted review with the GDUFA goal date in the second quarter of 2025. As for our BLA for insulin ASPART, or AMP004, The product is expected to be refiled in the third quarter of 2024. In closing, I'd like to note that Amphistar is well positioned for a promising second half of 2024, with the potential for three significant product approvals, Terra Paratide, AMP015, AMP007, and AMP002. These anticipated approvals are expected to substantially contribute to our revenue growth and enhance our market presence. Our efforts to further strengthen our operational efficiencies and manufacturing capabilities will improve the foundation for transitioning from generics to higher-value products, including branded offerings, biosimilars, and complex products with significant barriers to entry. By continuing to optimize our resources while strategically advancing our product pipeline, along with our commitment to grow our current branded product offerings, Bacsemium primatine mist, We are confident in our ability to drive long-term growth and deliver value. With that, I would now like to turn the call over to our CFO and Executive Vice President of Finance, Bill Peters, to discuss the second quarter's financial results.

Thank you, Dan. Revenues for the second quarter increased 25% to $182.4 million from $145.7 million in the previous year's period. Primatine mist sales grew 38% to $22.9 million in the second quarter from $16.5 million in the second quarter of last year. Remember that in the second quarter of last year, we experienced a one-time inventory drawdown by retailers, which held back sales of primatine mists in that period. Epinephrine sales increased 67% to $27.9 million from $16.7 million due to other supplier shortages in the quarter. Phytonodione sales decreased to $10.3 million from $17.9 million due to increased competition. Anoxaparin and Naloxone sales also saw a decline due to increased competition. Glucagon injection sales were flat as sales in Canada offset the decline in the United States during the quarter. Other finished pharmaceutical product sales decreased to $34.7 million from $37.5 million primarily due to a decrease in medroxyprogesterone sales of $4.6 million due to the discontinuation of the API by our previous supplier, which has caused us to temporarily stop selling the finished product. This was partially offset by increased sales in other products such as dextrose and sodium bicarbonate. Vaccine revenues fall into two categories as we begin shipping the product in the United States and a few European countries in the first quarter of this year. The first category relates to products we shipped directly to our customers, for which we recorded net revenues of $30.9 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 transition service agreement, totaling $7.6 million, which had a cost of sales and expenses of $4.6 million. This resulted in net revenues of $3 million in our other revenues category, which corresponds to Amphasar's net economic benefit for Baximi. Total worldwide Baximi sales were $38.5 million for the quarter, up 10% from $34.9 million in sales reported by Lilly in the second quarter of 2023. We will continue to book revenues on a net revenue basis for those countries where Lilly continues to distribute the product on our behalf. For our own distribution of vaccine meat will increase throughout 2024 on a country by country basis based on local regulations as Lilly has wound down their inventory and we have Amphistar label inventory available. This will result in an increase in product sales and a decline in the net economic benefit recognized in our other revenues. We would like to note that we just completed the first contract year of the five contract year period for potential milestone payments to Lilly. The four potential milestone payments are based on annual and cumulative five-year sales of Baximi. Cumulative Baximi sales in the first quarter or the first year totaled $163.2 million, so none of these milestone payments were triggered. Our insulin API business had sales of $3.5 million, up from $2.8 million last year, as we have shipped RHI API to Mankind for the last time until they have qualified our updated material. Cost of revenues increased to $87.2 million from $73 million, and gross margins improved to 52.2% from 49.9% in the previous year. The benefit of increased sales of higher margin products such as Baximi, Primatine Mist, and Epinephrine were partially offset by increased depreciation and amortization related to Baximi and increases in labor and certain component costs. Selling, distribution, and marketing expenses increased 34% to $9 million from $6.7 million in the previous year's period due to Salesforce expansion and marketing expenses related to Baximi. General and administrative spending increased 8% to $13.3 million from $12.3 million, primarily due to increased expenses related to Baximi. Research and development expenditures increased 5% to $17.7 million from $16.8 million, due to an increase in salary and personnel-related expenses, as well as the ANDA filing fee for AMP018. These increases were partially offset by decreases in clinical trial expenses due to the timing of clinical trials. Non-operating expenses increased to $5 million from $4.1 million, primarily driven by increased interest expense on loans associated with the acquisition of Vaximi. Net income increased 45% to $37.9 million, or 73 cents per share, in the second quarter. from $26.1 million, or 49 cents per share, in the second quarter of 2023. Adjusted net income increased to $48.7 million, or 94 cents per share, compared to an adjusted net income of $34.8 million, or 65 cents per share, in the second quarter of last year. Adjusted earnings exclude amortization, equity compensation, impairments of long-lived assets, and one-time events. In the second quarter, we had cash flow from operations of approximately $69.1 million. During the quarter, we made the required $129 million payment to Lilly for the vaccine acquisition. In addition, we used a portion of our cash to buy back $8.5 million worth of shares and to pay down a mortgage for $8 million. I will now turn the call back over to Dan.

Thank you, Bill, for the update. 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 keys. One moment, please, while we poll for questions.

Thank you.

Our first question is from Ekaterina Nyakova with JP Morgan. Please proceed with your question.

Hi, thank you so much. Just two from me, if I may. So first, just an epinephrine seems like another very strong order for the product. Can you just maybe talk about expectations for that franchise over time, both from a competitor supply shortage standpoint, if you're seeing any changes there, as well as with potentially other players either entering or filing an application in that market? And then the second question is generic ProAir. Can you just help us frame how you're thinking about the size of that opportunity and how quickly you can launch as soon as you decide to do so and how quickly you can, I guess, get uptake for that product? Thank you so much.

So for the Epi, we do have, you know, we have two different presentations for that product. First of all, there's a multi-dose vial and a pre-filled syringe. And the pre-filled syringe has been on the drug shortage supply list for almost a year now, or about a year now, based on a hurricane that hit one of our competitors. So that portion of the business has remained relatively robust. However, as Dan had mentioned in his comments, what we've done is we've taken some steps to increase the capacity of that plant by increasing some of the efficiency of some of the labor and the different packaging steps. So we've been able to increase the production of that product and pump out more sales as we showed this quarter. So we do expect that that shortage for that product will be, you know, we're seeing from the competitor that they're going to start returning to the market in the fourth quarter now. I think last quarter they said the third quarter. This quarter they're saying the fourth quarter. But returning to a regular supply sometime next year. So, you know, It's hard to say exactly, but right now we're just preparing ourselves to make sure that we can take advantage of this and we can supply as much as needed to the industry. As far as the multi-dose file, there is a new competitor to that one out there, so we do expect that the sales of that presentation will drop somewhat as the market has gone from two to three suppliers.

On the generic ProAir, as we mentioned in the call, we have launched the product, so we've already got it out there. Where we're going with that, you know, obviously there are other competitors in the market, and we're still working on securing business there. So right now I don't know that we really have a good idea, but it's been received well so far, so hopefully we'll be able to give an update a better update later.

One of the things with that one is that we're increasing the capacity of the packaging over time, so we might be off to, I don't want to say a more moderate start, but then we expect to increase the ability to meet the demand for that product over the course of the next few quarters.

Thank you.

Thank you. Our next question is from David Amselin with Piper Sandler. Please proceed with your question.

Thanks. So got a couple of pipeline questions. So I know 002 has kind of been beaten over the head, but is there anything new that you could add regarding your interactions with the FDA or more specifically what they're hung up on? That's number one. Number two, on the GLP-1, Just remind us, is that a P4 or a P3? Is that a litigated filing? And is there already generic competition or do you anticipate that there will be others when you're in a position to launch? So that's number two. And then number three on 017, similar kind of question. Is that a P4? Is that going to be a litigated filing? and talk about the nature of competition in that market. Thanks.

Yeah, for AMP002, we continue to have routine conversations with the agency. The last conversations we've had have been, and I guess maybe stepping back, the idea is just to kind of get a sense of what they're doing and the progress that they're making for the issue. We think we understand what their issue is. And based on those conversations, we feel that they're coming to an end to be able to resolve their issue. And so based on those calls that we routinely have with them is why we feel that we believe it'll be a near future that they'll take action on the application. For the AMP-018, the GLP, it is a paragraph four filing on that product.

And we're still within the period of time where we have not been sued to date, but we still could be, and we do expect competition on this one when we're in a position to launch the product.

And AMP-007, that is a paragraph four filing as well.

And do you expect competition?

It's hard to say at this point. We'd rather not say at this point.

All right. Fair enough. Thanks.

Thanks.

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

Hey, guys. Thank you for taking my questions. Two for me. First with Baximi, as long as presumably it's going to grow in the second half, this overall company gross margins, second half versus first half, we saw a little bit of margin degradation in 2Q versus 1Q. So just wondering how we think about the impact of mix and more Baximi in the revenues dropping to the gross profit line. And then On business development, I'm wondering how you're thinking about that as something that might kickstart your goal of getting to pipeline 50% proprietary programs by next year versus using BD more as a tool to maybe add a complementary market-ready asset like Vaximi. Thanks.

Yeah, so first one on the Vaximi and the market trends there. Yeah, third quarter is always the biggest quarter, so we're expecting it to certainly ramp up from the second quarter on that basis. And the other thing is that on the accounting, remember that when Eli Lilly books the sale, when they're the distributor and we get the net economic benefit, that's at 100% gross margin. There's no cost of goods associated with that, so we're getting that net. So when we move from having them sell a majority of to having us sell a majority of vaccine, that we start incurring significantly more cost of goods for those revenues. Therefore, the gross margin trend does drop. And so one of the things I want to make sure people realize is that that trend will continue on into the next quarter as we start picking up more countries in the quarter. As far as the business development goes, Yeah, so we're actively looking for things, and we've actually looked at things that are both in development and more like vaccine already on the market. So we've actually been in discussions with both those things. There's nothing to announce at this time, and I don't want to say we're close on anything, but we remain diligent and also want to make sure that we're paying the right price for these assets. So a couple of the processes that we've looked at this year have been competitive processes where we're not necessarily the highest bidder, but we're okay with that because we want to remain disciplined. We have a strong faith in our R&D pipeline, so we really want to make sure that that's our first number one focus. And if we do any business development on top of that, that's really just icing on the cake.

Got it. Okay, thanks, guys.

Thanks.

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

All right, thanks. Just a couple. Could you just comment on how you think Rex Tovey will do for you guys when you launch that in the second quarter? And then secondly, just sort of comment on, you know, how you expect selling and marketing costs to shape up in the back half of the year versus the first half as you, you know, fully take over back semi in the U.S. and some of these other countries, well, not just in the U.S.?

Yeah, thanks, Tim. You know, Rex Tovey, as you know, is a crowded field. And one thing, you know, our focus is on more of the government first responders, municipalities and first responders. And as we've discussed before, our product is also different. You know, we're using our proprietary device. So, It's still too early to really say how we're going to do there. It takes time to secure those contracts. But we don't really anticipate it being a big product for us just because of the competitive nature of that environment there.

And then on the sales and marketing trend. Two things there. One is that for most of the foreign entities, we don't really have a significant sales and marketing trend. It's mostly a distribution agreement, so we will have distribution expense that's going to fall into the cost of goods category there. However, as we look at the United States and we ramp up, we are planning to add some people to the sales force, so the sales force is slated to grow in the third quarter. And I'll say that's an incremental growth as we make sure that we cover some more territories that were not as well covered in the past. So we are growing that, and one way to think about it is that we're probably going to spend a similar percentage of on sales as we did for vaccine a year ago. So the sales are up about 10%, and so the sales and marketing expense should grow about 10% as well.

Okay, got it. Thanks. Thanks, Tim.

Thank you. Our next question is from Serge Bellinger with Needham & Company. Please proceed with your question.

Hey, good afternoon. A couple questions. First on Baximi, I think you mentioned sales were up about 10% year over year this quarter. I'm just curious if that was volume and market share driven or there was a price increase involved in that growth. And then secondly, on the pipeline, you highlighted three annual approvals that you're expecting over the second half. Maybe talk about the market opportunity for each and how they compare to the generic pro-air opportunity in terms of being impactful to Amphistar's top line. Thanks.

Sure. So I'll take the first thing. The units were up. Remember, the main thing in the United States is, now that we're selling it there, is that we actually have a net pricing decrease in the United States because we have higher fees that we have to pay to the wholesalers. So that's a gross to net item. So we actually see a price reduction in the United States this year for the second quarter. So all of that and more is unit growth. And the pricing outside of the U.S. really hasn't changed much at all, other than maybe there's only one country that had a material change, and that's because it moved from a government pay to a non-government pay over some price negotiations. So the price went up, but the units went down. And as far as the AMDAs for the market share, So Terra Paratide, as you know, it's already a multiplayer market, so I think our expectations are that we'll get a reasonable market share of that product, but it's not going to be as big as we had thought at one point. AMP002, I think what we've said in the past is that it's a relatively large market, but we're going to be somewhat capacity constrained for that market, so we're going to probably get a lower market share than what you would consider to normally have in a two-player market, but we still see it as being a good market and a large market for us. And then AMP007, we haven't said because we've been somewhat consciously flouting the issue there because we don't want to let people know what the product is. for competitive reasons. So I will say that we see this as a very good market opportunity for us, though.

Thanks, Serge.

Thank you. Our next question is from Glenn Santangelo with Jefferies. Please proceed with your question.

Thanks for taking my question. Hey, Bill, I also wanted to unpack vaccine a little bit because what's interesting is the results were probably better than I think we were expecting. Looking at some of the script data, it looked like the numbers were trending in negative territory for the first quarter. Based on your response to the previous question, you kind of made it sound like it was more volume-driven than price-driven. Could you maybe reconcile those data points and what drove the strength in the quarter and then and then maybe related to that as we look for the back half of the year can you maybe give us a little more color on the country by country transition and when you think the transition uh to amphistar will be fully complete sure um so yeah so so the units in the quarter yeah we i will say that we had a couple um hiccups as we transitioned from lily um um

supply numbers to ours, NDC numbers in certain drugstore chains and certain government programs. So we did have a hiccup, and there was a little bit of a time during the second quarter where we weren't getting every script we should have been getting. But I think all of those problems were resolved by the end of the quarter. And so I think we're expecting the third quarter to tick back up the way it should be. To a certain extent, some of the units sold later in the quarter were I think more of some of the wholesalers trying to gear up to make sure they have enough inventory in the channel because they want to make sure that they have enough for the large back-to-school surge that's usually happening in August. So I think that's part of it. And XUS, we still had some nice trends there. So that's been going well as well. As far as the country-by-country basis, Our goal is to get a majority of other countries that are not distributed by AMFSTAR over to our distribution by the end of this quarter. So we have a lot of countries planned for cutover in August and September. So this is going to be another one of those quarters that's a little bit mixed in that there's going to be multiple countries that are cutting over So our expectation is that by the fourth quarter, there will only be three countries that are still being distributed by Lilly. Our goal is probably on those final three. We might not take over distribution of them until January 1st. So we're looking at either a December transition for those final three countries or maybe January 1st. But most countries should be our distribution by the end of the third quarter, which means that the fourth quarter will be a little cleaner from that standpoint. It'll be a little truer.

Perfect. I appreciate all those details. Maybe I can just ask one quick follow-up. You know, on some of the other product categories, like when we think about, like, lidocaine and phytonidine, you know, we see, you know, the supply issues. you know, ebbing and flowing in the market, and that creates sort of these big swings in the results. And so as you look to the back half, without maybe giving specific guidance, are there any sort of, you know, product areas you'd call out where you're seeing either shortages or competitors sort of coming back online that may influence, you know, some of those product categories in the back half? And I'll stop there. Thanks.

Yeah, so... As I mentioned, the competitor that had the supply problems over the last year has said that they will begin distribution of some of these supply-constrained products in the fourth quarter. So we do expect that they will be able to do that for their disclosures. So any of those things could drop off in the fourth quarter. We're not seeing that in the third quarter yet. So the third quarter is kind of holding steady. And as Dan had mentioned, I'll just point it out again, we have increased the capacity of the facility that makes all of those products so that we could better take advantage of those. And that was one of the reasons that drove the epinephrine sales in this quarter. We think it probably should drive higher sodium bicarbonate and dextrose sales in the third quarter. So with that, we can, you know, make more product out of that facility, hopefully taking advantage of these things as they come up. And so that, you know, we want to be in a position so that if there is a supply shortage by another competitor on these products, that we're able to supply the entire market. So we're kind of gearing up to be able to do that.

Perfect. Thanks.

Thanks. Go ahead.

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 thank everyone for joining us today. The second half of 2024 remains to be a highly anticipated period with three potential launches. We look forward to updating you all again and again. Thank you and have a great day.

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