Amneal Pharmaceuticals, Inc.

Hello, and welcome to Amniel's first quarter 2022 conference call. My name is Alex, and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star 1 on your telephone keypad. If you'd like to withdraw your question, you may press star 2. I will now hand over to Amniel's head of investor relations, Tony DeMeo. Over to you, Tony.

Good morning, and thank you for joining Amniel's first quarter 2022 earnings call. Today we issued a press release reporting our financial results. The press release and presentation are available at amnial.com and a replay of this call will be posted after the call. Certain statements made on this call regarding matters that are not historical facts, including but not limited to management's outlook or predictions, are forward-looking statements that are based solely on information that is now available to us. Please review the section entitled Cautionary Statements on Forward-Looking Statements in the earnings presentation and our SEC filings for a discussion of factors that may impact our future performance. We also discussed non-GAAP measures. Important information on our use of these measures and reconciliation with US GAAP may be found in the earnings presentation. Beginning in the first quarter of 2022, the company will no longer exclude R&D milestone expense from non-GAAP financial measures. In our press release, we provide revised prior period results reflecting this change. On the call this morning are Chirag and Shintu Patel, co-CEOs, Tasos Konidera, CFO, Andy Boyer, Generics, Joe Tedisco, Specialty, and Jason Daly, our Chief Legal Officer and Corporate Secretary. I will now turn the call over to Chirag.

Thank you, Tony, and good morning, everyone. The first quarter was a good start to the year with a revenue of 498 million and adjusted EBITDA of 100 million, as expected. We are on track to achieve our full year 2022 guidance commitments of continued top and bottom line growth. Building on our consistent results and continued success in executing our strategy over the last several years, we are expanding in high growth areas, including specialty, injectables, and now biosimilars. As a global essential medicines company, underlying our strategy is our focus on affordability, access, and addressing unmet patient needs. Looking forward, as we continue to execute, we see our growth profile accelerating. Our business mix increasingly diversifying and our impact on global healthcare expanding. Let me now provide a few updates across our businesses. Starting with generics, our business continues to grow as our productive R&D engine continues to diversify the portfolio with new complex medicines. As a result, MNIL has a low product concentration with our largest generics product represents only 5% of total company revenues, and our top five genetics products are only 17%. With our focus on more complex and higher barrier products, over half of genetics revenue today is non-oral solids, as compared to 35% a few years ago. The mix shift towards complex medicines is continuing as 86% of Our pipeline is non-oral solids. Accordingly, we expect durable growth in this business and we continue allocating returns into high growth areas. In regards to our injectable business, as we have shared with you in the past, this is a key growth area for MU. We are pleased that injectables will grow approximately 30% this year to more than $160 million in revenue as we are well on our way of achieving 300 million plus by 2025. We look to scale our business with expanded capabilities, increased capacity, and new products in our portfolio. We believe these initiatives will drive substantial and sustainable growth in injectables for years. In biosimilars, We are very excited to enter the U.S. biosimilar market with the upcoming launch of our first three oncology products. We are pleased with the approvals of Reluco, a filaggrastin biosimilar, and Ellensis, a bilagizumab biosimilar, which are wonderful achievements by Team Amnio and our partners. In addition, we expect approval for a third biosimilar by filaggrastin, in the next few weeks. As we have shared with you in the past, we are positioning MNU to play a large, critical, and long-term role in the fast-growing $28 billion U.S. biosimilar market. We estimate the market size for these three products based on net revenue is approximately $4 billion, of which about half is biosimilar. We see peak sales for these three U.S. biosimilars of $200 million. This is the first time we are sharing a biosimilar revenue estimate for us. We are also looking for additional opportunities where we can be early to market as we build our portfolio through in-licensing to start and vertical integration in time to become a meaningful player in biosimilars. In healthcare or distribution business, we saw continued nice growth in Q1. We expect sustainable growth driven by strong commercial and operational execution as we expand across multiple distribution channels. In international, we're leveraging our portfolio of complex generics, injectables, specialty, and biosimilars medicines to meet local needs. We believe this strategy will add considerable revenues in time and be highly profitable as we utilize partners and our existing infrastructure. In China, we are making good progress with our enforcement partnership, and we look to be a commercial later this year or early next year. In the $25 billion branded Generics India market, we have launched our label there and are expanding our in-market presence. Around the rest of the world, we are pursuing distribution agreements and look forward to share with you as we make progress. In specialty, we remain focused on driving strong commercial execution of our key branded products and advancing the pipeline. We expect continued full-year growth from Riterion, Parkinson's, and urethroid and hypothyroidism. Ezo pipeline delivers new branded products, including Libespa, and DHE this year, and IPX203 next year, we see our specialty business expanding very meaningfully over the next several years. Before I pass it over to Chintu, I would like to acknowledge Joe Tedisco, who is moving on from MNIL to be a CEO of a bio-pharmaceutical company here in New Jersey. I want to thank Joe for his awesome contribution to MNIL over 11 years. and his strong leadership. He has built a great team and has contributed to MNU in a great way. We wish him all the best. And with that, I'll hand it over to Chindhar. Thank you, Chirag, and good morning, everyone. First, my sincere thanks to 7,000-plus members of the MNU family who work hard every day to make healthy possible. We believe our relentless focus on excellence across operations supply chain, quality, and science-driven innovation differentiates MNIL. Through our excellence programs, we are constantly reducing cost and improving efficiencies. In R&D, we are directing more spend towards high-growth areas, particularly biosimilars, specialty, injectable, and complex generics. Let me now walk through the different aspects of our business. In generics, We feel great about our pipeline and continued innovation in complex categories. So far in 2022, we have eight new launches. We expect 20 to 30 new launches this year and each year going forward. Just this past week, we received another CGT approval for Baxo Retin-Gel. MNIC is the industry leader in CGT approvals. Overall, we have 111 AMDs pending across all dosage forms in generics, and expect to find approximately 30 more ANDS this year. In our pipeline of 101 products, 86% are non-oral solids, and most are expected to be first-to-market, first-to-file, or 55B2s. We continue to move towards an increasingly complex, differentiated portfolio of over 250 molecules that is driving sustainable growth. One of the key product launches in 2022 is RetanoWear, which is co-administered with Paxlovid. We are excited to be one of the main US suppliers for this key COVID-19 treatment. RetanoWear is an already approved ANDA that our team has been working hard to fulfill substantial demand. In addition, we improved supply chain for a drain-out leak or epinephrine auto-injector and expect more revenue in 22. As we look to the rest of 22 and into 23, we see significant launches on the horizon that will start to materialize later this year and drive growth in 23 and beyond. We don't disclose many launches for competitive reasons, but let me share a few key upcoming ones among many others, including in ophthalmics and otics, generic Prat-Folde and generic Ciprodex, in oral solids, carbidinol ER and masalamin, in injectable vasopressin, liprolyte, multi-dose methylprednisolone acetate, and extinatide, in LVP bags, dexmedidoidine, ropivacaine, and magnesium sulfate. In retail generics, we expect the depth of our pipeline and leading commercial presence to drive consistent financial performance. In ophthalmic otics, we have eight ANDAs pending and 11 products in the pipeline. In inhalation nasal, there are four ANDAs pending and seven more products under development. In injectable, we expect substantial growth as we expand our portfolio and add new capacity and capabilities. As a reminder, in January, we acquired the Sol Baclofen franchise, which added live results to our institutional bag and additional commercial capabilities. Last November, we acquired Punishka Healthcare, which added state-of-the-art manufacturing capabilities and doubled our capacity to 16 production lines in total. The integration is going very well, and we are preparing for commercial production in 2023. This acquisition and expansion of other sites has enhanced MNIL's ability to do more R&D and supply commercial product from multiple sites. In terms of innovation in injectables, we expect five to 10 new launches in 22, with four already this year. We have 28 ANDAs pending and another 61 pipeline products. They're in a variety of complex areas, including drug-device combination, peptides, long-acting injectables, liposomals, LVB bags, and 505 products. Overall, we are on track for over 14 injectable launches from 2022 through 2025. As we have shared in the past, we believe the combination of our robust quality track record, increasing supply capacity, and continued innovation positions us very well to scale our injectables business and be a sustainable long-term supplier globally. We are very excited about the large and growing biosimilars market and how MNIL is well positioned for near and long-term growth. The recent approvals of our first two years biosimilars and one more approval expected later this month is a watershed mark for MNIL. We are planning for Q3 launch of Reluco and Alumsys. We expect to be one of a few companies with three U.S. biosimilars on the market in the oncology space. We were pleased that alumnus received a first cycle approval. This is a tremendous accomplishment by the team and demonstrates our core competencies in this space. Combined with our partners, we have substantial science, regulatory, manufacturing, and commercial capabilities needed in our universe. We believe the key to success are having the right development path, manufacturing capabilities, and being vertically integrated over time from development to commercialization. We are actively working to enhance our key capabilities and expand our portfolio to drive growth organically and inorganically as we target to add new biosimilar launches in the years ahead. We are very enthusiastic about our future in biopharmaceuticals, particularly biosimilars, as the opportunity is coming to fruition now for us. In international, we are advancing our strategies in China and India and the rest of the world. We see global expansion as another vector for long-term sustainable growth. In China, we currently have five products filed with 10 to 15 expected by the end of and 20 to 30 over time. In March, we were pleased to be one of the companies to receive a sub-license to manufacture and commercialize Paxlovid in 95 low- and middle-income countries. We are evaluating distribution strategies to drive access to this COVID-19 treatment. In specialty, we are expanding our branded portfolio, and we see a number of growth drivers. Our current specialty pipeline represents 500 million to a billion dollar U.S. pixels. First, we expect to launch Livispa for specific in June. Next, we look to launch our DHE auto-injector for migraine and cluster headaches later this year upon approval. For IPX203, we completed our pre-NDA meeting with FDA. At the American Academy of Neurology meeting in April, we presented two extracts sharing top line clinical efficacy results and post hoc analysis showing 1.55 hours more good on time for dose. We expect to submit our NDA in Q3 and pending FDA approval remain on track for launch in mid 2023. We see $300 million to $500 million in U.S. pixels for IPX203. On K127 for Myasthenia gravis, we expect to file our NDA by end of 2022 and are pursuing other indications. Also, our other pipeline programs, K114 and K128, are progressing well. We look to share more on our expanding specialty pipeline. We are adding new 55B2 programs that look to repurpose existing molecules, utilizing our drug delivery technology platforms, Grande and Chronotech. We believe these technologies differentiate us in specialty. Overall, we are very excited about our specialty growth prospects and expect at least one new launch per year going forward. To summarize, our strategy for accelerated growth is built upon our strong foundation of innovation, support quality, and operational excellence. Across the business, we remain laser-focused on execution this year. I will now hand it over to Tasos. Thank you, Chintu. Our first quarter financial performance was in line with our expectations. And thanks to the good work by all our colleagues who are pleased to reaffirm our full year 2022 guidance for continued top and bottom line growth. For the first quarter, we reported total net revenue of $498 million, adjusted EBITDA of $100 million, and adjusted diluted EPS of $0.12. Our results include $5 million of R&D milestone expenses, which we no longer exclude from our non-GAAP results. The annual run rate of these expenses is 15 to 20 million and represents external collaborations to advance our R&D pipeline. This policy change has no economic or cost impact to our business. Q1 generic net revenue of 318 million grew 5 million or 2%. Products launched in 2021 and 2022 contributed 14 million of growth offsetting the typical declines in the remaining portfolio. As we have said in the past, our focus on innovation and strong commercial execution is a key differentiating factor that enables our sustainable top-line growth. Consequently, products launched prior to 2019 now account for about 65% of generic net revenue and declining fast. This reduced reliance on older, more prone to competition products bodes well for continued growth and profitability. In specialty, Q1 net revenue of $85 million declined $11 million, or 11%, and represents the low point of quarterly revenue for the year. This performance reflects Zomix's loss of exclusivity, as well as higher than typical quarterly reimbursement costs related to rhetoric. We continue to be excited by the total prescription growth of ride-throwing and unit-throwing, up 6% and 13% respectively, as well as the upcoming launches of Lyfe-Vispa and DHT auto-injector. Our after-network ratio of 95 million grew 10 million, or 12%, reflecting strong customer acquisition success in the non-federal distribution channel. Q1. 2022 adjusted gross margin of 43.5% was in line with prior quarter and reflects three dynamics. First, generic gross margin of 42% at 300 basis points improvement from prior quarter. Second, after gross margin of 15%, 500 basis points declined from prior quarter due to mix of business. And finally, 15 million of costs related to timing of our manufacturing production schedule. The last item is a timing issue and will improve in future quarters, providing substantial additional gross margin and profitability. Q1 adjusted EBITDA of 100 million was actually a few million higher than the expectations we shared with you during our February earnings call. As I mentioned earlier, It also includes $5 million related to our reporting policy change and $15 million of manufacturing overhead allocation. From an operating cash flow perspective, we generated $120 million of cash, which we continue to deploy in driving sustainable long-term growth. Consequently, in the first quarter, we invested $131 million to fully fund the previously announced acquisitions of Sol, Kassib, and Funiska Healthcare. Looking ahead and consistent with our discussion in our February earnings call, we expect substantial acceleration of top and bottom line growth over the course of this year. This growth will be driven by four factors. First, multiple new product introductions such as Ritonavir, Lavispa, Lyrazo, and our new biosimilars. Second, strong underlying demand of key growth brands such as Adrenaclip, the family right there when you withdraw it. Third, favorable fix over his manufacturing adjournment. And finally, stability in our operating expenses. As Dr. Diabolo said, well understood and within our control, he has confidence in delivering a 2022 financial guidance. Let me give a call to Dr. Chirag now. Thank you, Dr. Chirag. In summary, we are on track for another great year in 2022. We see momentum across our business, including our first US Biosimilar approvals. We see these road drivers building and accelerating our company performance this year, next year, and beyond. I'll now open the call to questions.