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spk09: Good morning and welcome to the annual third quarter 2020 earnings call. All participants will be in listen-only mode. If you need assistance, please signal a comfort specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to MNIL's Chief Financial Officer, Tassos Konidaris. Please go ahead.
spk07: Tassos Konidaris Thank you, Andrew. Good morning, and thank you for joining us for MNIL's Third Quarter 2020 earnings call. Earlier this morning, we issued a press release reporting on quarterly results. The press release as well as the slides that will be presented on this call are available on our website at www.ml.com. We're conducting a live webcast of this call, a replay of which will be also available on our website after its conclusion. Please note that today's call is copyrighted material of ML and cannot be rebroadcast without the company's express written consent. I would like to remind you that statements made during this call state the management's outlook or predictions for future periods of forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review this section and dial cautionary statements on forward-looking statements in our press release and presentation, which applies to this call. Our future performance may differ due to numerous factors, many of which are listed in our most recent annual report on Form 10-K, and are revised and updated on our quarterly reports on Form 10-Q and current reports on Form 8-K, which you can also find on our website or on the SCC's website at scc.gov. We also discussed certain non-GAAP measures. You will find important information on our use of these measures and our reconciliation with US GAAP in our earnings release. Included in the appendix of today's presentation, you will find US GAAP financial statements that correspond to some of our non-US GAAP measures we referenced throughout the presentation. On the call this morning are Shirag and Chidu Patel, our co-CEOs, Andy Boyer and Jordan Disko, our chief commercial officers for our generics and specialty segments, as well as Steve Manzano, our general counsel and corporate secretary. I will now turn the call over to Shirag. Good morning, and thank you for joining us in the review of Anne Neal's third quarter results. quarter versus prior year, with net revenue of $519 million, up 37%, adjusted EBITDA of $114 million, up 60%, and adjusted EPS of $0.16, up substantially versus $0.04. Our strong and consistent financial performance over the course of 2020 reflects the successful execution of our MNIL 2.0 strategy. This could not have been possible without the resiliency and excellent work of our global team. We know that education and commitment to providing affordable and innovative medicines to patients is an integral part of navigating the COVID-19 pandemic this year. We all know how difficult the last few months have been due to COVID-19. And unfortunately, we are clearly not out of the woods yet. From our perspective, in Q3, we saw sequential pickup in demand and lower supply chain disruption compared to the second quarter. Having said that, we continue to be vigilant and actively preparing for the next wave of COVID-19 to ensure we meet the demands of our customers over the coming months. As we discussed in our first quarter 2020 call, this pandemic raised the issue of domestic preparedness and the need to fortify production of critical medicines based in the United States. MNIL is the largest U.S. generics company domicile in the United States, and we believe our operational expertise and excellent quality track record uniquely positions us to be part of an expanded domestic drug manufacturing strategy. Over the course of last few months, We have spent a substantial amount of energy and resources to respond to this bipartisan effort, and we look forward to working with legislators from both parties as well as industry to help protect the health and safety of our citizens. Ever since we rejoined as co-CEOs last summer, we shared with you our intent to reinvigorate the R&D pipeline, successfully launch new products, bolster our base business, diversify our distribution channels, and focus on operational excellence to improve profitability. In Q3, we executed on all these objectives. And let me start with our generic segment, where net revenue increased 17% compared to Q3 of 2019. The double digit net revenue growth reflects the successful launch complex new products. We target launching by August 2021, as well as the continued strong performance by Alluring and Ciprofit. We are building on our strong presence with a steady flow of new product launches, including Fluffinazine hydrochloride tablets for treatment of schizophrenia and Genetics Butans transdermal system for pain management and shortly Genetics Lidocaine patch. As we mentioned in the past, continuing to shift our mix of products to more complex or differentiated products is a strategic priority of ours. This is reflected by the substantial increase in our R&D pipeline focused on non-oral solid products. In addition to new product growth, we were pleased by the strength in our base business. This growth reflects the relevancy of our broad commercial portfolio and customer focus by our commercial and supply chain organizations. Finally, we're constantly looking for ways to leverage our generic product portfolio and manufacturing capability in new channels such as over-the-counter. An example of such initiatives is the recent launch of the store brand equivalent of Waltherin's arthritis pain gel, which we introduced in partnership with PLD. Top line growth as well as keeping a close eye on operating efficiencies led to a substantial increase in genetics at just a gross margin to 37.4% compared to 29.8% in Q3 of 2019. As co-CEOs, along with our broader team, we are acutely focused on operational excellence, continuing to find ways to improve efficiency and optimize our expense base as a key component of our M2.0 strategy. We have a robust list of company-wide activities from gross to net deductions to purchasing to manufacturing and SG&A expenses, which will help drive Genetics' existing gross margin above 40% over the course of time. Let me now turn over to our specialty segment where our business was stable compared with the prior year. We feel good about this performance considering the fact we came off a very strong second quarter and the headwind of COVID-19 is having on a physician office visits and new patient starts. Both Riteri and Unithroid continue to show strong growth approximately 12% and 29%, respectively, and combined prescriptions volume up 6%. Moving on to 89.5 million from 64 million in the prior quarter. The healthcare team has done a nice job growing the top line business despite a slowdown in new product introductions from third party suppliers due to COVID-19 and usually such new products carry higher margins. We continue to be excited about the long-term opportunities in the growing government segment. With that, let me turn the call over to Chintu now.
spk06: Good morning, everyone. Thank you, Chirag. Let me first start with our COVID-19 response, and I echo my brother's sentiment. I'm truly proud of how our team members have responded and are working with our customers and suppliers to mitigate interruptions. Last quarter, we discussed that approximately $20 million of customers' orders were not filled due to COVID-19 disruptions. In the third quarter, unfulfilled orders declined to approximately $10 million. And I am pleased to report that overall, our manufacturing facilities are operating close to pre-COVID-19 levels. We are building our inventory on hand and strengthening our global supply chain. As Chirag mentioned, since we rejoined last August, we have led a number of strategic initiatives to improve performance in a sustainable way, including rebuilding the R&D pipeline as well as operational excellence to improve efficiency across our supply chain. Let me spend a few minutes highlighting our generic segment and R&D pipeline. Every action we take is aligned to our quality first mindset and will continue its strong quality track record as demonstrated by successful inspections in 2020 and all prior years. Our generic business continues to improve with strong sales and increasing margins. Our results reflect strong volume gains and increased manufacturing for alluring, which enabled our commercial team to increase its market share to 23% compared to 15% in the second quarter. In addition, we are on track to deliver 15 high-value complex generic products by next August and plan to file close to 30 ANDAs this year, up from our prior expectations of 20 to 25. Our portfolio transition to complex generics continues, and over 60% of these 30 ANDAs are non-oral solid dose. Also, our current pipeline of over 100 products is about 80% non-oral solids and includes many complex products. Through our focused R&D efforts, which are made possible by our in-house development and manufacturing capability, we'll be constantly refreshing and expanding our generics pipeline for many years to come. In particular, we are very focused on generating meaningful growth in our injectable product line over the next 18 to 24 months to better meet demands of our hospital business. Turning to our specialty pipeline, we have a number of attractive product candidates that we plan to bring to market over the next few years. We are excited about the potential opportunities as they leverage both our R&D team and our commercial infrastructure. Let's start with IPX203, which is our next generation product for treatment of Parkinson's disease, which we expect will be a material improvement over dietary and existing therapies. PD is a degenerative disorder that affects dopamine producing neurons in the brain that affect movement. Unfortunately, on managing the symptoms such as tremors and dyskinesia. There are roughly 1 million Parkinson's patients in the United States and approximately 60,000 new patients are diagnosed each year. 60% of PD patients in the U.S. are on some form of levodopa therapy and immediate-release carbidopa levodopa is a first-line therapy in PD. MNIL currently markets RITERI, an extended release product that is targeted to more moderate to severe patients than generic immediate release. We see IPX203 as addressing the same patient population as RITERI with improvements in terms of efficacy and patient convenience. Based on our phase two clinical results, we expect that our phase three clinical trial will demonstrate IPX203 to have a superior profile in terms of good on time, which is the time in which a patient has symptomatic relief without troublesome dyskinesia. Such benefit may translate to one to two hours per day improvement in good on time while decreasing the daily dosing to three times versus the current four to six times per day. Such outcomes would be a material improvement in quality of life for PD patients and expand the addressable market for our product accordingly. There are currently two phase three clinical trials ongoing, and we expect to see top line data in the second half of next year with commercial launch plan for 2023. A second near term pipeline opportunity in specialty is K127, which is a 505 program for treatment of myasthenia varis that we in-licensed from Kashi Biosciences last year. MG is a rare autoimmune disease that causes extreme muscle weakness, double vision, droopy eyelids, and difficulties with speech and swallowing. K127 developed through a proprietary drug delivery technology platform is an improved formulation of pyridostigmine, which is the most commonly prescribed first-line therapy for MG. Its successful K127 could offer improved tolerability, once daily dosing with rapid onset and 24-hour symptomatic coverage. This product profile would be a significant improvement over the current generic formulation, which is given three to four times a day. As a point reference, MG is a rare disease affecting 36,000 to 60,000 patients in the United States. We see these as an attractive commercial opportunity based on the concentrated prescriber base and synergistic deployment with our neurology field team. We'll be starting the phase three trial for K127 soon and assuming successful results of the trial, we plan to file this product with FDA in 2022. Beyond these exciting candidates, we are actively monitoring opportunities to make specialty a larger part of M&A's business in the coming years. This includes external partnerships as well as M&A targeting specific platforms that leverage our expertise and have a reasonable probability of success. In addition, we expect to increase the share of our internal R&D budget directed to branded product development in a measured way. At last, I would like to acknowledge our suppliers, customers, and employees for their efforts during the COVID pandemic and thank them for their hard work and dedication during these challenging times. I will turn the call over to now to Tasos.
spk07: 141 million or 37% compared to Q3 2019. Our after acquisition accounted for $90 million of growth, which implies a quarterly organic net revenue growth of 14% for the rest of the business. Generics performed strongly, up 17% while our specialty segment was consistent to prior year quarter. This performance reflects solid execution in a challenging, albeit improving, market environment. COVID-19 disruption continues to be a headwind across selected products, and while the value of patient visits is recovering, it is not back to normal levels, and acute healthcare utilization is lagging as well. As Chintu mentioned, we're making very good progress in reducing lost sales due to COVID-19 supply chain disruptions, and we're steadily improving our finished goods inventory position. Adjusted gross profit of $206 million was up $55 million, or 36% compared to Q3 2019, reflecting strong generic sales, upcare, and stable performance by specialty. Adjusted gross margin of 39.7% was in line with our expectations and essentially flat to the 40% in Q3 2019. Excluding the Upcare acquisition, adjusted gross margin recurring quarter will have been 45%. So approximately 500 basis points higher than prior year, driven by the strength of generics. Adjusted EBITDA of 114 million was up 43 million, or 60% compared to Q3 2019, reflecting strong generic growth, tight expense management, and a 6 million contribution by Upcare. Adjusted diluted EPS of $0.16 were well ahead of the $0.04 we reported in Q3 2019, mainly driven by the adjusted EBITDA growth, lower interest expense offsetting higher after minority interest and taxes. The improvement in business trends and our financial management efforts have resulted in strong operating cash flow. By nature, operating cash flow fluctuates substantially at any given quarter, and in this third quarter we generated 45 million, or 273 million year-to-date. Our year-to-date performance is substantially ahead of the 53 million we generated the first nine months of 2019. A strong financial performance is strengthening our balance sheet and improves our financial flexibility. As of September 30th, we had $284 million in cash and cash equivalent, as well as an additional $498 million available through our ABL facility. Most importantly, our net debt to EBITDA ratio continued to improve to 5.6x versus 7x at the end of 2019. Let me now turn to a segment of generics which reported net revenue of $342 million, a $51 million increase or 17% from prior year quarter, or $35 million or 12% sequentially. I will highlight that this performance reflects three factors. First, the benefit of our strategy delivering strong new product introductions. Consequently, alluring and sucralophate, both of which were launched late last year, more than offset the declines in the level of hydroxide and the clophenac gel. Second, the resiliency of our base business due to the effectiveness of our commercial initiatives and the relevancy of our broad portfolio of products. Third, less of a headwind than the prior quarter in terms of COVID-19-related backorders and lingering negative effects of prescription trends in elective surgeries. Moving on to adjusted gross margin for the generic segment, which was 37.4%, substantially higher than the 29.8% in Q3 2019 and 35.3% in second quarter 2020. The year-to-year gain reflects new product launches, a number of operational improvements, and favorable product mix offsetting pricing pressures. Let me now turn to our specialty segment, and we're pleased with the resiliency of our commercial execution considering the negative impact of COVID-19. Net revenues of $88 million were in line with Q3 2019, a solid demand growth for right-of-way unit throwing were offset by declines in our non-promoted products. Similarly, adjusted gross margin for the specialty segment was in line with Q3 at approximately 74%. Turning over to Upcare, which reported net revenues of $90 million and adjusted gross margin of about 15%. While top-line growth has been ahead of our expectations, COVID-19 and channel mix is a temporary headwind to Upcare's profitability. Furthermore, the fact that Upcare adds substantial revenue at lower margin creates a mathematical headwind to our overall gross margin percent. This is clearly demonstrated in the third quarter where, as I mentioned earlier, Upcare diluted our company gross margin by approximately 500 basis points. This adverse mix will moderate or even disappear next year as Upcare will be in our base period results. Considering our performance over the course of the year, we believe it is prudent to update our full year 2020 guidance. Specifically, the new revenue range is $1.95 to $2.0 billion, up from the prior guidance of $1.875 to $1.975 billion. Gross margin. 41% to 42% compared to 44% to 46% mostly driven by Acquia. EBITDA, I'm sorry, adjusted EBITDA, 430 million to 460 million, up from 400 to 450 million. Adjusted EPS, $0.55 to $0.65, up from $0.45 to $0.60. Operating cash flow, $170 to $220 million, up from $150 to $200 million. And finally, capex of $60 to $70 million, no change to prior guidance. Let me now add a little bit more color around our guidance. First, we need to be mindful we're in the middle of a pandemic, and it's impossible to predict all the potential outcomes. Having said that, we have a growth portfolio, and our manufacturing operations continue to improve. Second, we expect patient volumes will gradually move towards more normal levels. Third, while R&D and G&A expenses were somewhat tempered this year due to COVID-19, we expect an increase in operating expenses as clinical sites are reopening. With that, I'll turn the call back to Shirad. Thank you, Kassos. We are pleased to have made significant gains this year in executing our MNIL 2.0 strategy. despite the pressures of the COVID-19 pandemic. We look forward to continuing to drive operational excellence and reinvigorate our pipeline. I would like to now turn the call over to operators to take your questions. Thank you.
spk09: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, Please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press start and two. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from David of Piper Sandler. Please go ahead.
spk04: Hey, thanks. So just a couple. So first, I wanted to get your thoughts on your biosimilar business. And there's a couple of questions there. One is, you know, how are you thinking about the FedFold Raston and Avastin biosimilars in the context of an increasingly competitive marketplace? And specifically, what do you think pricing will behave like as more competition pours in in these markets? Do you think you'll see erosion that's anything like what you see for small molecule generics? And then secondly, on biosims, can you talk about other opportunities and when we could get more visibility on other opportunities that you're working on? Thanks.
spk07: David, good morning. As we mentioned before, biosimilars, we have three key products to work with FDA. One is to be filed soon. We are in the opinion we consider biosimilars as more of a complex genetics. Market will behave as such as more competition comes. More people, more doctors feel comfortable prescribing biosimilars. Intent from the Congress was to create competition and reduce pricing. That's exactly what's happening. So from the beginning, we have invested very carefully. And so far, we are only commenting on three programs, not commenting on the additional opportunities we are working on. The erosion you mentioned, like small molecule, no, that will not happen. Small molecule, as you know, I do not expect that. It is extremely hard manufacturing, lots of science, lots of investments. So it will more like behave between complex, high-value genetics and what you see today in biosimilar. Somewhere in between, that's where my guess will end up on biosimilar pricing.
spk09: The next question comes from Gary Nachman of BMO Capital Markets. Please go ahead.
spk05: Gary Nachman Hi, guys. Good morning. First, a little bit of a follow-up to the last question. So, what have been the dynamics with new launches that you're seeing? How much pricing pressure? How difficult to negotiate managed care contracts? And maybe compare Ellering and Sucrofate with Flufenazine that was launched more recently. And then expectations for complex generics going forward. And then just process on the gross margin guidance. I guess I was surprised that it came that much lower. So just talk a little bit more about the mix that's driving that. I know a lot of it is app care, but is there anything else baked in there? Thank you.
spk07: Good morning. So on your questions on complex generics, they tend to be immediate pickup by the customers and conversion to generics, same as how the small molecules bin negotiating with managed care as far as the complex genetics. Biosimilars is a whole new ballgame for us, and we are preparing to launch these products as they get approved. So we're learning how to – we have the specialty group, we have the managed care group, so we'll be negotiating with I don't know where to toss this for. Thank you. Hey, Gary. Good morning. Yeah, there is nothing going on on the gross margin other than the impact of healthcare. So let's kind of peel back the onion. So as you know, we think about it in terms of those three segments. So let's take generics, which by the vast majority of our business, right? So year-to-date, as I mentioned, we're 38.4% margin. That's 240 basis points up from the same period last year. And with nine months under our belt, the overall generic margins for the year will be substantially higher than the 35% where we ended up last year. So we feel great about it, right? So the biggest part of our business is increasing revenues, increasing profitability. The second largest part of our business, right, is specialty. So that margin there, I mean, the gross margins there are relatively flat. So it's about 75%. Seventy-four, 75%, there's a lot of stability there, and there's a lot of durability, right? So we feel great about this. And then the, you know, the other piece that you have is out there, which was, as you know, it was a newly acquired business at the end of January. So when the company, you know, gave guidance in February, it was a newly acquired business. That business has overperformed from the revenue perspective, just to be clear, has overperformed on the revenue perspective, right? And just, it was just its profitability was not as high. just because of COVID and slowed down new product introductions from other companies, not our products. So that created bigger than expected headwind, right, of how healthcare was going to impact our results. And this is what we are reflecting by getting the guidance to 41%, 42%. As I mentioned ahead, next year, Upcare is in our base. Upcare is in our base. So continue down the path from a generic standpoint of launching new products, continue to expand our business. Hopefully COVID-19 will be mostly behind us, so our utilization of our manufacturing plants should be better. Stability on specialty, we should see an expanded gross margins. Sure, and also we're going to the top line and especially on the gross margin. Gary, does that address your question?
spk05: Yeah, that's great. Thank you very much. Thank you.
spk09: The next question comes from Greg Gilbert of Truist Securities. Please go ahead.
spk03: Thank you. Good morning. Chirag and Chintu, I was hoping you could share with us your thinking about the strategic importance of AvCare longer term Obviously, you've lived with the asset for some time now, and as Tassos just said, it's performing well financially. So I'm curious about the strategic importance of that asset longer term beyond simply being a sort of diversification angle. And then, Joe, I was hoping you could comment on what's going on with Rytarian in terms of – you know, face-to-face detailing versus other methods you've learned about over the past several months, and what's the outlook for continued growth on that important brand? Thank you.
spk07: So good morning, Greg, Mr. Chirag. So let me – on FCA, we have two – actually, three avenues within the business. One is government business, which we are mostly excited about. We have multiple products from us and third parties. Being the largest U.S. domicile genetics company, we have more products to offer to our portfolio. Number of products still going off patent for the government business over the next five years, so we're substantially building our pipeline for government business. So that, we're very excited. Another part is unit dose, which is we launched our first product and have built up the capacity to launch eight more products in next year. Strategic importance, and third segment is direct to providers, which is a small segment. And with lower margins, it sometimes is helpful to create, to build our customer bonding and partnership, because when they're in shortage, we're able to supply immediately, which is what we did during the COVID time. So it comes handy. The strategic importance is that we, All three areas we're directly distributing to our customers, so which allows margin expansion for overall revenue, as well as increase in sales with different alternative channels. So we continue to be very excited about AppCare.
spk08: Thank you. Thanks, Cheryl, and thanks, Greg, for the question. Yeah, I think we were pretty pleased with the performance of Raitari through the third quarter despite the COVID headwinds. Obviously, new patient starts have been the biggest challenge across all of pharma, especially in the at-risk patient populations that aren't going back to their doctor for their regular visits. But refills remain strong. We got a decent amount of what we felt were new patient starts to keep some semblance of growth over the prior year. But we've also seen, even though script growth may not be as high as revenue growth, but we're seeing a higher number of pills per script in Ritard v. Dispense. And I think that's indicative of more 90-day sales going out the door, which is overall good for refill rate on that brand. Now, in terms of the efficacy of the sales force, a large part of the second quarter, they were sidelined due to the lockdown. And, you know, we had to adapt, as most companies in the industry did, and we became fairly effective in virtual promotion, holding, you know, virtual lunch and learns through Zoom. And I think going forward, as territories have opened up, we maintain a mix or a balance between in-person detailing and the ability to hold some of these events that we used to do in-person virtually. which is why we've seen our SG&A costs come down a little bit. But we feel good about Raytari. We've got runway through 2025 with our settlements, and we're ready to return to growth in 2021. Thank you.
spk09: The next question comes from Ami Badia of Lurie. Please go ahead.
spk00: Hi, good morning. Thanks for taking the question. Two questions. Just for Chirag and Chintu, with the availability of, you know, can you comment on the availability of opportunities that you can add to your CNS portfolio with the ZOOMIC expiry next year? What's your commitment to adding some other assets to that portfolio? And then specifically for Chintu, could you comment on the expectations on some of the new product opportunities over the next few months into August 2021? Specifically, if you can give us any additional color on the respiratory product, and then also expectations for when you might be able to get Copaxone 20 and 40 megaproof. Thanks.
spk07: Thank you, Amin, Mr. Chirag. So CNS opportunity, as we have mentioned, that's our top priority from the M&A perspective. We're looking at various products, companies, Whatever fits with our neurology fill cells, and as you know, the dietary is our lead product, we will add on to the movement disorder or particularly to PD category. So we've been active on that front. We are also building organ and pipeline and movement disorder overall, which would complement with our neurology fill cells. K-127 is an example, and we're looking to see if we can build out with the external partnership more product partnership. I'll turn it over to Ching before the new product launches.
spk06: Yeah, hi, good morning, Amy. So we have, as we have spoken before, we have a very diverse portfolio, and we are you know, very confident about launching the remaining seven products in next nine to 12 months of our complex products. And those are mainly in a non-oral solid area. We have good launches coming up in ophthalmics, in topicals, in trans-thermal. As far as the glitter mirror, we expect, we are cautiously optimistic that there will be a second half of 2021 launch. And regarding the respiratory product, at this time, we are not giving any more colors than what we have done before. But it also seems like towards the end of 21 launch. But as we go to get closure, we will be able to provide more details.
spk00: Thank you.
spk09: The next question comes from Randall Sinicki of RBC Capital Markets. Please go ahead.
spk02: Great. Thanks for taking my question. Two questions. First, the implied fourth quarter EBIT based on guidance, is that a good run rate for next year? I think consensus implies a step up. So if you could just help us understand what some of the moving parts there are. to that would be helpful. And then secondly, Shrug, on the topic of complex products, I wanted to ask you maybe a bigger picture question here. The drug landscape continues to evolve, and obviously there's a lead time in terms of building the pipeline. At least one of your peers who also has a branded business has called out digital therapeutics and opportunity, specifically adding technology to traditional drugs. Has AMEO looked at that, and are there other 505 opportunities or ways to differentiate that you see that you could pursue to build out your pipeline as we think about the next three to five years? Thanks.
spk07: Thank you, Randall. We'll get back to your first question later on. I'll pass that on to Tasos. But let me, on your complex products and building out the portfolio, excellent question. As we have mentioned before, we have a strong genetics R&D, complex products, diverse base of therapeutic categories. freshen your pipeline every year. Now how do we grow MNEO? We have additionally then genetics. So one focus is biosimilars which I mentioned it is it would be competitive, it would be slow ramp up, therefore we are more excited on the specialty business. We haven't We have two products, Unitroid and Rytory. We have K127 in pipeline, IPX203 in pipeline. We're looking at drug delivery technologies which can deliver more products in B2s categories. The way to look at it, as you know, the 55B2s are basically taking the older molecules, one that I developed 30 years ago, 20 years ago, apply new technologies, to make the to let to have the lesser side effects as well as uh patient convenience so that is what we are working on and we see multiple opportunities and it is it's not a new thing we're applying our knowledge and experience in this field to build our systematic pipeline which we can next five years, six years, seven years. And we see tremendous growth. And as we mature, we can take that drug delivery technologies and move into more of a pro drugs and other technology based products. So this is where we are. We have position and we'll be keep doing it. But keep in mind, we're not taking your eyes off the genetics business. It is a stable business, growing business. And we have multiple therapeutic areas where we can constantly add products every year over the next five years we have seen so far. I hope that answers your question on specialty and genetics. I'm sorry.
spk06: Go ahead. I just wanted to expand on technology and our complex. So at Chirag's Complex, we have entire spectrum of diversity by portfolio, and we have a in-house developed technology also to address the need for the complexity rate to bring to market, because many products are customized technologies, right? On a 558-over-second asset, which I talked about, K-127 is using a proprietary platform to deliver that product in a certain way. And, Randall, there are many products They're great molecules, but they were not developed properly to deliver right way in the human body to give them a good efficacy and a better profile. So we have a few technology platforms that are under evaluation. and we expand on that and repurpose those products to bring that to market to provide great quality of life and better uh drug delivery uh through many means so we are laser sharp focus on our 505 b2 by using a very unique platforms thank you
spk07: So Randall, just a couple thoughts. So we look at the EBITDA in Q3. We delivered $109 million. when you look at the implied full year guidance of what this means for Q4, you know, that implies anywhere between 96 and 111. So essentially Q4 is in the ballpark of Q3. And, you know, Q4 is a strange quarter for everybody, right? So we're in the middle of, elections, you got COVID, you had wholesaler inventories with the holidays and so forth. So typically Q4 just creates just more volatility. So our ability to perfectly project Q4 for every company is just a challenge. But we feel good about how we think about Q4. As in regards to next year, you know, we'll give you our guidance at the end of February, right? So we'll give you guidance at the end of February. At this point in time with us, so what we're focused on is sustainability and growth. That's what we're focused on. So we're not looking to be one-quarter heroes or anything else of the management team. We're looking for sustainability and growth. And this is how we plan to approach next year, okay? And I think when you look at the specialty area, I think we feel very good about the sustainability and the visibility of that business. Hopefully, we'll have some additional growth, which subsides next year. On the generic side, you know, it's a race, right? It's a race. You know, this year we benefited of Ellering and Socralfate. Next year, we're likely to have some competitors there, right? But there is a new pipeline, the strength of the pipeline. So our expectation and our hope is that those new products, right, will be offsetting competition on the rest of the portfolio. And finally, as Sirac said, you know, we were very focused on ensuring every investor dollar gets invested properly, right? So whether or not is the gross to net deductions or whether or not is where we spend R&D and those DNA expenses, and this year that has been a good guide for us, right? So we're really focused on investing every dollar and continue to be as efficient as we can. So hopefully that gives you enough, you know, to think about next year.
spk02: Hey, Tassos, can I just follow up and ask you, because I just don't want this to be a question lingering with respect to the stock today. I mean, if you annualize Q4, you're getting $400 million-ish in EBIT. Consensus is closer to $500 million. So, do you guys have the pipeline going? confidence that we can see a decent step up as we think about 2021. I know you're not going to be specific in guidance right now, but just give us some sense of, you know, are you confident that the pipeline can support a big step up?
spk07: Yeah, so my view, and you know, we cannot comment, not only we or anybody else on external consensus and others, right? So number one is when you look at this year, right, which was the first year of what's called a turnaround with the new management team with Shurak and Shindu came in August. there was a substantial step up in EBITDA from $355 million last year to about the midpoint of the range of about 445. So that was a 25% increase. So we have seen a meaningful step up in the business. and everything I think you have heard, how we are operating this year and how we're thinking about the year that focuses on sustainable growth next year and beyond. So I think that's as much as I can tell you at this point in time. And by raising this year, by raising guidance, the NIPIDA guidance this quarter, I'm not sure that implies things are getting worse. I think this implies things are getting better. So I'll stop there.
spk02: Okay. Thanks, guys.
spk09: The next question comes from Dana Flanders of Guggenheim. Please go ahead.
spk10: Great. Thank you for the questions. My first one is just on the base generic business. I think in your prepared remarks you had mentioned capacity utilization is back close to pre-COVID levels. And I know you've had a lot of success winning contracts this year. As you look towards 2021, is that part of the list for the generics business past this now? Or how much of a tailwind, you know, could additional kind of contract wins and base business maximization be for you heading into next year? And then just my second quick question on OTC. I know you had a store brand launch or VGEL with a partner about a month ago. Just curious if that's a channel you plan to get bigger in and if there's a strategy around that. Thank you.
spk07: Thank you, Dana. Good morning. So, our main business, we have a large commercial portfolio. We have 250 products, and we continue to find opportunities. We have one of the best customer service focused just in the United States. So, all three large customers and many small customers, we have a very deep customer relationship. And then relying on our alternate supply infrastructure with U.S. and India and Ireland coming soon. So that allows us to keep working with our customers to add on. We keep finding new opportunities within 250 products. So base business is stable and we expect to grow. not counting the competition on obviously the new product launches like alluring and that is expected. So we're very, very proud of what we have done on a base business and rightfully so. It's a large portfolio over the years we've built it. We have the capabilities, capacity, quality to supply and that's exactly what we are doing it. We are one of the most reliable supplier for them. and high quality and great customer support, and we are getting rewarded for that. On OTC, we've been, we have multiple OTC, basically the ANDAs, which gets the Rx to OTC switches, more than 10 products over the years. Fully concentrated launching OTC by ourselves. We've been supplying through a partner PLD, which happens to be a very large OTC distributor in the United States. I believe they're second largest after Perigo. It's a private company, long-term relationship. We have over 10 years with them, Long Island based. excellent management team and founders. So we are expanding our, the VGL is we have a substantial market share already. We were the first one to introduce generics VGL. So we will obviously will have higher percentages in market share for OTC market as well. And we're looking at multiple switches from our MTA would be more inclined to do that because of the patient convenience as well as cost. So very excited about that. We'll look into other opportunities as well within OTC. It's a good field, and we have a great partner. So we'll keep expanding our portfolio in OTC.
spk09: The next question comes from Nathan Rich of Goldman Sachs. Please go ahead.
spk11: Good morning. Thanks for the questions. To start, I just wanted to follow up on the topic of biosimilars. I know it's early, but I'd be curious to kind of get your kind of high-level view on what your commercial strategy will be in these markets. you know, obviously we're seeing kind of more options out there, you know, more competition. How are you guys thinking about pricing and kind of building market share as these approvals come?
spk07: That's an excellent question. We are utilizing our specialty infrastructure led by Joe Tedisco. Looking at various alternatives, we have the existing relationship with large wholesalers who happen to be the first three products we're launching is in oncology so they happen to be leaders abc and mccasin in oncology and we enjoy uh years of great relationship we want to find a practical solutions we don't believe you need a pill cells of hundreds of people to sell the same approved branded product again That is waste of resources. As doctors get comfortable, I think what more is needed is customer support, physician education about biosimilars, and that is where Joe is focusing more. Somewhat of a creative partnership with large already oncology players such as McCasin or ABC would be also in play. We do want to start laying out the groundwork for what should be the biosimilar distribution. Why does it have to follow the traditional model? How do we work with our managed care partners, the PBMs? And that's all on the table. And I will stick with what I've said before. Biosimilars will become more competitive But it has a lot of products. As you know, there's $200-plus billion of biologics which are branded, and that is the best way to provide access and affordability now to next 10 years. So it's an excellent business opportunity, but it more fits in with the the genetics player, which fits in the players who are focused on the affordable, providing affordable medicines. And that's exactly the mindset we're using to launch biosimilars. Hope that answers your question, Nathan.
spk11: Yes, that's helpful. Thank you. If I could just ask a very quick follow-up to Tassos on the generics business. I think earlier in the prepared remarks, it sounds like volumes are maybe still a little bit below normal levels due to COVID. So I guess, you know, question being, you know, would you continue to expect to see that those volumes improve kind of as things normalize into the fourth quarter, just as we think about, you know, sort of a steady state for the generic segments before considering, you know, new launches that might add to that? Thank you.
spk07: Yeah, really, really hard to answer that, right? So from our perspective, we think it's, you know, as I mentioned before, I think Q4 looks somewhat like Q3, right? But, you know, you have half the country, more than half the country exploding on COVID, right? Now, you know, we've been done pretty well in the last nine months, right? We've done pretty well in the last nine months. So you have, you know, I think you have some puts and takes, right? So you have, for example, Ellery, that should do better. Now we have Unclogged Capacity a bit, so that should be doing better. but then we have other products, some of our injectable products that may be under pressure as people kind of stay out of the hospitals. So I think there's some puts and takes, but we don't expect, you know, dramatic shift one way or the other versus truth. That's how I think about this, Nathan. Yeah, and next year there will be. It's being launched soon. It's approved. So you can just think about that, that complex products and high-value products add tremendous values. And this is in genetics business. We've been at it since 2002. Every year, we must refresh our pipeline. I mean, new commercial products, new product launches, and it's exactly what MDL has. And we have rebuilt this pipeline, added on more products, and very excited and feel very comfortable that year over year, over five years, we have new product launches which can offset competition, which is always expected in genetics for what you launch the previous year, as well as stabilizing the base business and keep finding opportunities since we have a very large base business and it's keep growing. I hope that answers your question, Nathan.
spk11: Yeah, thanks very much.
spk09: I see we're coming to the bottom of the hour. The last question comes from Balaji Prasad of Barclays. Please go ahead.
spk01: Hi, thank you for raising my hand. Good morning. I joined the call slightly late, so excuse me if this has been asked already. So two questions from me. Firstly, on the biosimilars, we just wrapped up our generic and in a biosimilar industry symposium where lots of experts had the opinion, multiple experts had the opinion that there is a strong plus more advantage in biosimilars. So considering your positioning in Nelast or Filgrastim, Neuphogen, where you would be number five, number six, I want to pick your brains on how you think you'll be able to break through this first mover barrier and the multiple movers out of here. Secondly, I want to get your thoughts also on injectables as to where you are currently in terms of your product build-out and your outlook on the injectable side for next year. Thank you.
spk07: Thank you, Balaji. Good morning. You're absolutely right. The first mover would have advantage in biosimilars, and it will stay there for longer time. As market opens up, the second, third, fourth will have respective market share. It is difficult being a to find creative new channels, and that's what we are trying to do. government channels, the wholesalers channels, the captive channels. We do not expect to match the first mover, definitely. And our future plans for biosimilars will be more focusing on can we be first in the first wave or second wave. I believe in biosimilars would be very difficult if you're in third and fourth wave. So that's exactly what we are focusing on. On injectable, today we do approximately $150 million of net sales. Our portfolio is growing. Our pipeline is growing. We're focusing on products which are more, again, complex in nature, using band meals, R&D capabilities, more suspension-based products, difficult products, required trials, and, again, bringing the first-to-market injectable products then to complete in volume, and also looking at various other strategies in injectable. Very excited to grow that business over five years.
spk01: Thank you, Chirag.
spk07: Thank you, Balaji.
spk09: This concludes our question and answer session and today's annual third quarter 2020 earnings call. Thank you for attending today's presentation. You may now disconnect.
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