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spk09: Hello and welcome to today's Amniel 2Q 2022 earnings conference call. My name is Elliot and I'll be coordinating your call today. If you'd like to register a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I would now like to turn the call over to Amniel's Head of Investor Relations, Tony DiMeo.
spk07: Good morning and thank you for joining Amniel's second 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 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 to U.S. GAAP may be found in the earnings presentation. On the call today are Chirag and Shintu Patel, co-CEOs, Tasos Konideras, CFO, Andy Boyer, Generics, Harsher Singh, Biosciences, and Jason Daly, Chief Legal Officer. I will now turn the call over to Chirag.
spk13: Thank you, Tony. Good morning, everyone. Our solid second quarter performance reflects acceleration from Q1 as expected. Q2 revenues were $559 million, up $61 million sequentially, and adjusted EBITDA was $135 million, up $35 million sequentially. Across all three segments, we saw acceleration in performance from Q1. The top line growth versus the prior year. The core business is strong and performing well. Since the last start of the year, there are two isolated factors that are different from our initial expectations. First, there was the accounting policy change for R&D milestone payments. There was a product opportunity in return aware, which was expected to contribute in the second half that did not materialize as anticipated. These items are not reflective of the underlying strength of the core business, which is performing better than our expectations. In addition, despite more than anticipated inflationary pressures, especially in freight, We managed to continue to deliver efficiencies to drive sequential growth. TASOs will provide more details shortly. As a result, we are revising our full year guidance for adjusted EBITDA. That said, we are reaffirming our full year revenue guidance as we continue to expect mid single digit top line growth in 2022. We are enthusiastic about the acceleration in financial performance we saw in Q2 versus Q1, which we expect to continue in the second half. As we launch new products in high-growth areas, such as injectables, complex generics, biosimilars, and specialty, we expect to drive higher levels of financial performance and acceleration as these key catalysts are additive to our current financial profile. This month marks the three-year anniversary since Shintu and I returned to MNEO. In 2019, net revenue was $1.6 billion and adjusted EBITDA was $339 million. Since then, the team has done an incredible job reinvigorating new product innovations, improving operational execution, driving commercial success. In 2022, we expect about 2.2 billion in net revenue and 500 to 520 million in adjusted EBITDA, and have a durable, thriving portfolio that's diversified across specialty, injectable, complex genetics, biosimilars, and international, with a number of key catalysts ahead. Looking forward, as we execute our growth strategy, We expect further acceleration in financial performance. The growth engine is set. Let's go through each area of the business. Starting with generics, new launches in our diversified portfolio of increasingly complex medicines is driving durable top-line performance. With our focus on complex and higher barrier products, over half of generics revenue is now non-oral solids. We see that increasing over time as currently 90% of our pipeline is non-oral solids. In terms of the total company, oral solids generics represent one-third of total revenues and continues to shrink. We expect continued growth in generics driven by our portfolio of complex products. Moving to injectables. This is a key near and long-term growth driver. We now expect $170 million plus revenue in 2022, representing over 35% growth. We are scaling this business with expanded capacity, capabilities, and portfolio. We believe these initiatives will drive us well over $300 million by 2025. In biosimilars, after many years of hard work by us and our partners, we are only a few months away from beginning commercialization of three important oncology biosimilars. We estimate the market size for these three products based on net revenue is approximately $4 billion, of which half is biosimilars. For us, we see peak sales over $200 million plus in the next two to three years. The biggest opportunity is Alemsys, our Bavazizumab biosimilar. From a go-to-market perspective, we are focused on oncology clinics, integrated health systems, and specialty pharmacies. We believe the key value propositions to the market are a customer-centric service model, effective reimbursement, and offering a suite of oncology products for clinicians. We are working to expand our biosimilar portfolio with additional molecules where we can be early to market and we look to be vertically integrated over time. MNIL is well positioned for long-term success in the fast-growing $28 billion U.S. biosimilar industry. In our healthcare distribution business, we expect continued solid growth to be driven by strong commercial and operational execution as we expand across multiple distribution channels, including federal government, government healthcare market, our direct distribution channel, and unit dose. In international, we are leveraging our portfolio of complex generics, injectables, specialty, and biosimilar products globally. We believe this strategy will add considerable revenue and profits in time as we work with partners for distribution or utilize existing infrastructure. In China, we expect to begin commercialization of multiple products early next year. In India, we are expanding our local presence with our own label. India is a $25 billion pharmaceutical market, and we are encouraged by our early traction this year as we begin our commercial effort in the market. Around the rest of the world, we are pursuing targeted distribution opportunities with strategic partners, and we look forward to sharing more information soon. In specialty, we are driving commercial execution of our key branded products and advancing our pipeline. We expect continued strong growth from Reiteri in Parkinson's and Unitroid in Hypo thyroidism. In addition, LIVISPA for spasticity successfully launched in June as our pipeline delivers new branded products, including IPX203 and DHE Auto Injector in 2023 and K127 in 2024. We see our specialty business expanding very meaningfully. With that, I'll hand it over to my younger brother, Chinti.
spk11: Good morning, everyone. Thank you, Chirag. First, let me express my gratitude to the MNIL family who make healthy possible for so many. Across our global operations, we are enabling our strategy by driving excellence programs that improve operational efficiencies, maintaining a robust supply chain, and adding new infrastructure for future growth. We also continue to advance our quality culture. Across the R&D organization, we are focusing our efforts and investments towards high growth areas, particularly injectables, complex generics, biosimilars, and specialty. Let me now walk through the different aspects of our business. In generics, we are innovating in complex categories with a rich pipeline extending out for years. We expect 20 to 30 new launches every year. We have 12 launches so far in 2022, including another CGT approval with Baxar Routine Gel. We see a significant cadence of key new product launches on the horizon that will begin to materialize later this year and into 2023. We have included an upcoming key catalyst slide in the presentation to summarize the notable upcoming launches across the company. One of the planned launches in 2022 that we highlighted last quarter was Return Over Year, which due to sufficient supply in the market, we no longer expect to be a contributor for us in the second half of the year. Regarding the Synchron CRO issue that caused a few products to be BX rated, we are very pleased to share that two key products, Zefamine and DOTI had their AB rating returned this week. What a tremendous job by the team to bring resolution to this issue and we look to have all products back in the coming months. Overall, we have 111 ANDAs pending across all dosage forms and are on track to file 25 to 30 more andas this year mainly in injectables in our pipeline of 110 products 90 percent are non-order solid and over 50 percent are expected to be first to market first to file or 55b2 in ophthalmics and otics we have 9 andes pending and 11 products in pipeline in inhalation and nasal there are five andes pending and seven more products in development We expect our increasingly complex, differentiated portfolio of over 275 molecules and leading commercial presence to drive consistent financial performance in generics. In injectables, we expect substantial growth as we expand our infrastructure and portfolio. Our two new manufacturing sites are coming online as planned. We expect FDA approval for our first new site in Q4, and the other is on track for early next year. In total, we look to have 16 production lines across four sites, all for injectables. This will enable us to develop new products, including LVP bags, and ensure consistent supply in a market plagued by shortages. The other key success factor is innovation. We expect 5 to 10 new launches this year and 30 to 40 new injectables from 2022 through 2025. We have 31 ANDAs pending and another 61 pipeline products. They are in a variety of complex areas, including drug device combinations, peptides, long-acting injectables, liposomals, LVP bags, and 505 products. With our expanding infrastructure and continued innovation, we are well on our way to scaling our injectable business to be a sustainable, long-term global supplier. In biosimilars, we are launching our first three biosimilars starting in Q4. Alemsys, our Bevazumab biosimilar, Reluco, our field-grasting biosimilar, followed by Filantra, our pack field-grasting biosimilar. Filantra and Reluco are proudly made in the United States, while LMC is already made in Europe. Beyond this, we look to further expand our portfolio and pipeline. We believe the keys to success are having the right science, regulatory, manufacturing, and commercial capabilities, with the goal to be vertically integrated over time. Whether in the US or globally, biosimilars represents the next wave of affordable medicine. Biosimilars are aligned with our strategy to provide high-quality affordable medicine to patients and represents a key area of future growth for us. In international, we are advancing our strategies in China, India, Europe, and the rest of the world. Recently, we added a new international commercial business leader and now have a dedicated team and infrastructure to drive our global expansion efforts. In China, we continue to file products and look to begin commercializing only next year. In other geographies, such as Europe and South America, we are pursuing distribution strategies to drive access to our portfolio of medicines. in specialty we are expanding our branded portfolio with several new growth drivers as chirag mentioned lavispa launched in june this baclofen orally dissolving granules products treats spasticity related to multiple sclerosis and spinal cord disorders particularly for patients with trouble swallowing for ipx203 in parkinson's we plan to file our NDA shortly and expect a mid 2023 launch upon approval. We are driving our IPX203 commercial strategy, including the coverage and reimbursement model and establishing a patient support system. For K127 for myasthenia gravis, we expect to file our NDA in Q1 2023 and are pursuing other indications. Our other pipeline programs are progressing very well. Beyond the currently disclosed pipeline, we plan to share more on other programs in development. We are adding new 55E2 programs that repurpose existing molecules utilizing our proprietary drug delivery technology platforms acquired from Cashew Specialty. We are so excited in the value of Grande an advanced gastric retention system, and ChronoTag, a modified release technology which we believe differentiates us in specialty and provides high-value product pipeline opportunities long-term. In summary, we have a distinct and clear strategy in place across our business area with robust growth drivers in each. As a company, We are laser focused on execution and making progress every day. I will now hand it over to Tasos.
spk12: Thank you, Chintu. Our second quarter financial results were in line with our expectations and reflect solid top and bottom line performance and substantial sequential acceleration. Our business fundamentals are strong, and while we continue to expect a stronger second half versus the first half, we have adjusted our full year 2022 guidance. Let me first start with the second quarter, where we reported total net revenue of $559 million, adjusted gross margin of 44%, adjusted EBITDA of $135 million, and adjusted diluted EPS of 19 cents. These metrics were substantially stronger than the first quarter of 2022, with revenue up 12% and adjusted EBITDA up 35%. Q2 generics revenue, 365 million, increased 5 million or 1% versus prior year, driven mainly by injectables, AdrenaClick, and 2022 new product launches. It is worth noting that the second quarter of 2021 was our highest generics revenue quarter last year, benefiting from timing of numerous large new product launches, such as Zafemi and Abiraterone. From a sequential perspective, Q2 generics net revenue of $365 million increased by $47 million, or 15%, reflecting growth, like before, of injectables and Adrenaclick, as our global supply and commercial teams ensured solid, growing, and consistent supply of these highly complex and high medical-need products. In specialty, Q2 net revenue of $97 million increased 8 million, or 9%, versus prior year, driven by Unitroid, up 46%, and Rytory, up 14%, partially upset by Zomic's loss of exclusivity. The prescription trends for Rytor and Unitroid continue to be strong, up 7% and 14% year-to-date, respectively. From a sequential perspective, Q2 specialty net revenue increased by 12 million, or 14%, driven again by Unitroid and Rytor. Moving on to Outcare, where Q2 net revenue of 97 million grew 11 million, or 13%, compared to the prior year. reflecting strong customer acquisition success in the distribution channel, which continues the trend from Q1 2022. Q2 2022 adjusted gross margin of 44% was slightly higher than the prior quarter and approximately 330 basis points below Q2 2021. The decline to prior year reflects a tough comparison due to timing of new product launches, as previously mentioned. due to adjusted EBITDA of 135 million is 8 million below the second quarter of 2021 driven by product mix and investments in our commercial teams to support new product launches that will drive future growth and diversification. Having said that, our current quarter adjusted EBITDA of 135 million reflects a 35 million or 35% sequential increase due to revenue growth and stable operating expenses. From an operating cash flow perspective, we see significant stability, and we continue to generate a substantial amount of cash. During the first six months of 2022, and excluding the $100 million installment related to the legacy impacts patent settlement, we generated $95 million of operating cash flow, compared to $96 million in the first six months of 2021. From a balance sheet perspective, we continue to be in a solid position, and I will highlight the dynamics. First, our 2.6 billion term loan B does not mature until May of 2025, and since half of it is fixed, we're partially protected from interest rate increases. Second, in Q2, our net debt to adjusted EBITDA rate increased to 5.4 times versus 4.8 times at the end of 2021. This is a temporary increase driven by capital tax and acquisitions and the first legacy impact spot and settlement payment. Looking ahead, we expect our net debt to adjust the dividend ratio to resume its steady decline. Let me now turn to our full year expectations and revised financial guidance. First, regarding net revenues, we'll continue to expect $2,150,000,000. to $2 billion to $150 million, which reflects mid-single-digit growth versus prior year. This speaks to the relevance in diversification of our product portfolio. From an adjusted EBITDA perspective, we now expect $500 to $520 million, compared to our previous guidance of $540 to $560 million. This update reflects three unique factors which do not impact our long-term strength. Last quarter, we shared with you that Ritonavir was expected to be a key growth driver for us later this year. However, for reasons of adequate supply in the marketplace, this launch has been delayed. And while it may be a growth driver in 2023, it represents a shortfall to our original expectations. Second, last quarter, we also shared with you an accounting policy change, as we no longer exclude R&D milestone expenses from our non-GAAP results. This change is consistent with similar policy changes across our industry. Our updated guidance now includes 15 million of such payments, and by nature, this change does not have any cost or economic impact. Finally, similar to many other companies, we're experiencing higher than expected inflation and foreign exchange headwinds, which we have been able to offset by various operating expense reductions. Our updated adjusted EBITDA guidance of 500 to 520 million is about 40 million below our original expectation. It's important to keep in mind that this is in line with our 2020-21 actual adjusted EBITDA of 512 million and substantially ahead of 2020 adjusted EBITDA of 433 million. The substantial growth over time reflects the reinvigoration of our top line, solid performance of tacking acquisitions, and numerous expense rationalization efforts. Let me now move to adjusted EPS, where we now expect 65 cents to 70 cents compared to previous guidance of 80 cents to 85 cents. This update reflects this change in our adjusted EBITDA and higher interest expense. From an operating cash flow perspective, We now expect 200 to 225 million, about 25 million below our original expectations. And these amounts exclude the anticipated cash payment this year of 131 million related to the legacy impacts legal settlement. As you may recall, from the 8K we issued mid-July, we were able to settle this legacy impacts matter for about 265 million. From a timing perspective, We paid $100 million in the second quarter. We expect to pay $31 million in the fourth quarter, and the remaining $134 million split over 2023 and 2024. This settlement results in substantial overhead in a fiscally responsible manner without material impact to our leverage ratios or long-term strategy. Our updated full-year guidance implies a financially stronger second half of 2022 compared to the first half a bit lower than our original thinking. This growth will be driven by three factors. First, strong underlying demand for key growth brands such as AdrenaClick, Rytory, Unitroid. Successful resolution of the AB Synchronicium. Second, multiple new product launches such as Livispump, Biosimilars, and numerous other ANDAs. And finally, favorable manufacturing overhead and operating expense actions. Looking beyond 2022, we believe that the actions we have taken the last few years to turn around the financial performance of our business, along with substantial investments to reinvigorate our pipeline and competitive position, bode well for sustainable growth and diversification. Specifically, in the near term, we see the following key four catalysts for growth. First, we have our three biosimilars launching with expected peak sales over $200 million. Second, injectable revenues is building each quarter from 39 million in Q4 2021 to 52 million in the second quarter of 2022. We now expect over 170 million in injectable revenue this year, compared to 127 million only two years ago. And we're well on our way to our goal of achieving over 400 million by 2025. There are several high-value generic launches over the next year-plus. And fourth, specialty revenues ramping up with the expected IPX203 launch by the middle of next year. For MNIL, it all comes down to execution around our key success factors and continue to move the product portfolio towards more differentiated, high-growth areas. Let me now hand it back to Shirak. Thank you, Drossos.
spk13: Even with our revised full year outlook, we see tremendous momentum across our core business. Q2 accelerated versus Q1, and we expect key products and new launches will drive acceleration in the second half. After that, a robust lineup of key catalysts in high growth areas are upcoming. We expect these growth drivers to build and accelerate financial performance. I'll now open the call to questions.
spk09: Thank you. For our Q&A, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. And when preparing to ask your question, please ensure your device is unmuted locally. Our first question today comes from Balaji Prasad from Barclays. Your line is open. Please go ahead.
spk01: Good morning, everyone, and thanks for the questions. A couple from me. Firstly, with regard to the biosimilar launches, it seems to have been staggered now with only one expected for 2022. So what are the gating factors for this? Second, on the EBITDA adjustments, I seem to pick up around $8 million for the R&D for the quarter. So when I look at the guidance, that's around $40 million at the higher end of the range. So can I just extrapolate this to arrive at around $25 million of R&D for the quarter of $30 million? And is the rest solely due to retinobare? Thank you.
spk13: Thank you, Balaji. Good morning. Let me turn this over to our head of biosciences to answer the first question, Harsher Singh, and then Tasos will take the second question. Go ahead, Harsher.
spk14: Good morning, Balaji, and thank you for the question. As Chirag stated earlier, our largest opportunity is in an emphasis, which we plan to launch in October 1st of 2022. Supply is already on the ground. On the other products, we want to make sure that we have reimbursement in place as we get to launch. Reimbursement for Reluco, our J-code, has been granted, and so we expect to launch that in Q4. For Selnetra, we are still expecting approval on our J-code, and that will be a gating factor for our launch. I hope that answers the first question.
spk12: Tarsos, over to you. Yeah, so the numbers, as you think about the $40 million drop, so the expected R&D milestones this year, we're anticipating them to be 15, 1.5 million, okay? You can then from there, you know, you can assume it was about, I'm sorry, return of it was about 25, right? And then we probably combination of higher inflation and higher inflation and FX, that was combined, call it about $15 million. And that last part was offset by other operating expense reductions, okay?
spk01: Got it. That's a helpful test, though. Yeah, it's very helpful. Maybe just follow up there on the guidance part. With revenue doing well in H1, just curious to understand, you're maintaining the revenue guidance for 2022 for the full year and not tweaking it further?
spk12: No, I'm sorry. Can you just repeat the question?
spk13: Why are we keeping the revenue target?
spk12: Okay, sure. So the revenue target, I think that kind of speaks to, listen, within a $2.2 billion business, there's always ups and downs, right? But overall, our business performs extremely well. So generics are growing. The revenue growth of generics has accelerated. Last year was 2% organic. This year we expect it to be 4%. So they have a diversified portfolio of about 250 products there and a number of new AMDAs coming in every year. So I think that's who that specialty is playing exactly as we expected. So we knew that specialty overall this year was a transition year, right, in terms of being flat relatively year over year as we lost the zombie, you know, button, while that's been completely offset by the continued strength of unit throwing and rightory. And then finally, you know, AvCare is just performing ahead of our expectations. Now, with AvCare, there's been a substantial amount of growth in the distribution channel, which is more of a lower margin channel for us, but nevertheless, it adds incremental EBITDA, so we feel great about it. But that is a little bit more insight as to why revenue kind of stayed where it was. Yeah, injectables are going just incredibly strong. Does that help?
spk01: Yes, thanks, Douglas.
spk09: Our next question comes from Nathan Rich from Goldman Sachs. Your line is open.
spk00: Hey, good morning. Thanks for the questions. Maybe just building off of the last question, Tassos, can you maybe help us think about what the right jumping off point for EBITDA is as we think about how to build into 2023? I think at the midpoint of the guidance range this year, you'll be at about a 23% EBITDA margin. As we think about next year and the growth in injectables and biosimilars, how does that influence the margin profile that we should have? expect and also is 15 million of kind of R&D milestone expense a year kind of the rough range that you would expect to be in on a go forward basis?
spk12: Yeah, thank you. So I think they're right. So it's kind of rewind a little bit so we can see how the profitability profile of the company has changed. So, you know, when we go back to 2020, the adjusted EBITDA to revenues was about 22%. In 2021, we were at 24%. And as you know, that was an incredibly profitable year for us last year. A number of very strong new product launches. And this year, as you just said, it's 23%. So I think this is the right jumping point for us, okay? And also when we think about, let's pick the midpoint of the guidance, right? $510 million, that's 23%, as you mentioned. And that includes kind of solid top-line growth, right? And that includes about $40 million worth of incremental investments, which is about two points of profitability that we're making in support of biosimilars, in support of new product launches and, you know, pre-commercialization work around IPX203. So I think 23% is the right point. And I think as we think about next year, you know, we'll see how things play out. But our expectation is over the course of time as the injectables, which is a more profitable piece, as more of the more complex ANDAs coming to be, which are more profitable and less exposure to price erosion. And the specialty with IPX203 in future years, K127 and so forth. So we'll expect that 23% to grow over the course of time. Does that help?
spk00: Yeah, that's great.
spk12: I'm just going to hit your second question. Your second question was, is $15 million the right number? We think so. So this is about the same time we're going to be opportunistic, right? So over the last few years, we've invested tremendous amount in our R&D. So we spent about $180 million in R&D. And I think we're going to be opportunistic. To the extent that we see right technologies, right, that we can in-license, we'll execute on those. But I think the right level, the way we think about history, right? Last year was 26 million, this year is 15. So I think that's probably the right level we're thinking about it. But at the same time, it can go up and down, just always depending on what's available in terms of technologies and interesting new products.
spk13: Nathan, I'll just add one thing to share. Our goal, internal goal, would be to get to 27% of EBITDA. because of the mix that passes just walk you through.
spk00: Great. That's helpful. If I could just ask a quick follow-up on the launch of Olympus in October. Have you started to have discussions with some of the key kind of purchasing entities in that channel? And can you maybe talk about just kind of how the contracting and purchasing process works as we think about, you know, that ramp to the 200 million of peak sales in the next few years.
spk13: Oh, great. And this is the building block. And then it goes on beyond 200 million as we bring more biosimilars and move up the value chain and become one of the leader in biosimilars in the United States market as well as global market. I'll hand it over to Harsha who is working very hard building the entire team. We're almost 45, 50 people strong team now in all areas of services, customer support, oncology cells, contracting, managing ion and other distributors and strong foundation as we have done successfully. I would proud to say that we're number one generic sales team, and our customers can vouch for it. And we're doing a great job on specialty being close with Parkinson patient and KOL. As you can see, Rytory growing at 7% and Unitroid growing at 14%. We do one thing really good is to set up a great sales and marketing infrastructure. Institutional and biosimilars, injectable biosimilars go together, and Hashed, please provide more detail.
spk14: Good morning, Nathan, and thank you for the question. As Chirag mentioned, our health system sales market access and commercial leadership teams are in place, and we're scaling up our oncology clinic team and should be fully staffed by the middle of this month. We started discussions across all of the players, across oncology institution, GPO channel, and payers. And I think what you start to realize in this market is there are a lot of hands out. And what's important to us is to make sure that as a late entrant or later entrant into these first three markets, particularly Olympsis, which is coming first, we focus on the highest control payers and providers where we can deliver asymmetric value while ensuring stable market and reimbursement dynamics. We want to make sure that our partners continue to want biosimilars and that we can deliver them as much if not more value than the next player. I hope that answers some of your questions. I won't go into the details of our commercial strategy, but suffice it to say that we're going to enter by engaging and ensuring that the economics work across the channel. and we'll focus disproportionately first in the categories where we haven't seen high enough biosimilar uptake, and that is hospitals. And so we go hospitals and oncology with two different strategies and different field forces. I hope that answers your question.
spk00: Yeah, great. Thanks very much.
spk09: Our next question comes from David Amselen from Piper Sandler. Your line is open. Please go ahead.
spk04: Hey, thanks. So just had a few. First, I wanted to come back to the guidance and regarding the return of your opportunity not coming to pass. I guess where I'm going with this is, are there any other regular way, generic opportunities that are still in your guidance, both top line and EBITDA, of course, that, you know, have risk? And just in general, you know, can you talk to, you know, how you're risk adjusting for new launches on the generic side of the house? In other words, what I'm trying to get at is, you know, is there another potential ritonavir situation that could result in another step down to the guide? So that's number one. And then number two is, You had the recent settlement, and, you know, that was pretty straightforward. But I guess on opioids, I should say, can you talk to, at least in the next six, 12 months, you know, how large of a transaction you could do in terms of M&A? How are you limited, you know, at least in the near term? And then, you know, when do you think you won't be as limited in terms of deal sizes?
spk12: Thank you.
spk13: David, just to clarify, Retonavir is a unique opportunity. It is Paxlovid. It is one of the drugs within. So there are two tablets in Paxlovid, numeral Tavir and Retonavir. So we are part of that supply chain, which has been just delayed because of the demand, softer demand, and moved to the later part of the year or less this year, more next year. So just clarifying it, it is not part of the typical generics launch, which we do risk adjust really well and weigh in the FDA timing. We so far have launches coming in. We have more expected even next week some good ones as well. So continue to perform in line with that. And your M&A question before I hand it over to Tasos to explain more how we guide. And the M&A part is, yes, we have done a tuck-in acquisitions over three years, almost spending $400 million in cash. We will continue to do tuck-in acquisitions. We do have a very powerful organic pipeline. So we're not in a dire need to do a transaction. When opportunity comes, we figure things out. So we have multiple strategic options in all segments of our business. I hope that answers your question, Tassos.
spk12: Yeah, I think of the story of how we think about risk adjustment. So number one is, you know, we track over the last, you know, three, four years, every single ANDA, and we know exactly what our internal expectations are, and we have extremely detailed models around risk adjusting those. And when we enter our annual budget process, we just got a collaboration between our R&D teams, our regulatory teams, our commercial teams. We go through AMDA, AMDA, the expected timeline, and then we take the overall number, and then we haircut that based on our hysteric models. That has seemed to work every single time. Sometimes, you know, one thing is for certain, you're going to be wrong, right? So sometimes we tend to do better than that. Sometimes we tend to do a little worse. but over the current, as you know, you're not in control of the FDA necessarily, right? So over the course of time, I think we've been pretty spot on in its dynamic model. As Surag said, was just a unique one. It was a one-off opportunity. We're trying to be helpful to all the people in need, trying to supply the marketplace, and ultimately did not work out. So I think it's a one-off. Finally, in terms of are there any other, there is no other kind of substantial opportunity that we expect that's going to have a material impact next year, right? So vasopressin, that's a great opportunity. We feel great about that. The biggest issue for us, just in terms of risk, was the timeline of resolving the synchrony, should they be rated? Because I think we did an outstanding job, but at the end of the day, you know, the FDA had, you know, seven, eight months to conclude. Right? So that issue now is substantially resolved. I think that's going to give us substantial amount of growth in the second half of the year. So I'll stop here.
spk04: Okay.
spk09: All right. Thanks, guys. We now move on to Gary Natchman from BMO Capital Markets. Your line is open.
spk02: Hi. Good morning. So first, the gross margin was a bit weaker than we expected in 2Q. So how should that trend the rest of the year and into next year, given the business mix? Just talk about the pushes and pulls there. And then on the lower EBITDA guide, if Ratinavir was $25 million this year, how much could it contribute next year? If it's a delay with that, would it be a similar amount in 23? And then just on the biosimilars, how soon could you add? to the portfolio to get more critical mass there? How much of that would be internal versus external? And then just how important is that from a competitive standpoint in that space just to bring more into the overall portfolio?
spk13: Thank you. I'll pass it over to Tasos for gross margins and the return of next year opportunity. And I'll take the biosimilars question. Go ahead. That's great.
spk12: So I think as we think about the overall gross margin for the company, I think we're looking at around 44% this year compared to about 46% last year in 2021 and compared to 42% in 2020. So it's essentially coming in between 2020 and 2021. So from a historic perspective, I think there's a huge turnaround on the performance of the business. And I think between kind of first half, second half, in terms of gross margin performance, I think we're looking for overall stability. So I hope that helps.
spk13: Yeah, and the return on it is we would know more about the forecast. and opportunity, but as the demand has been slow, we expect lower than the 2022 expectations. But it's good to have a relationship with the supplier and continue to build on beyond even 2023. On the biosimilars, the strategy has been in license the products, which we have done. We continue to in license, but as we have said, And we have said that in the genetics market, and it's a no-brainer, eventually the vertically integrated companies will win. This market will become more competitive, not as competitive as retail genetics. So having the control over quality, having control over science, understanding CMC, expertise in regulatory, working with FDA on designs of the trials, And manufacturing, with the continuous manufacturing and other technologies, all this will play a role. So, therefore, MNIL would like to be vertically integrated and to have U.S. manufacturing, as that has done really well for us over the years, and also use India's infrastructure to better serve the world, because those biosimilars will become global. And it's a very large market coming up for us on a biosimilar. So we'll do fewer licenses, and our goal will be to have 75, 80% of portfolio in-house over time. Thank you. Okay, great.
spk02: If I could just get one follow-up. Just on the net leverage coming up on the legal settlement, at what point could you potentially trip your debt covenants and You know, when do you think, how long will it take to get back to a more normalized level? Thanks.
spk12: Yeah, we are way far away from tripping any debt covenants. And just as a point of reference, you know, it was only a couple of years ago that our net debt to EBITDA was over seven times. So, you know, right now we are at, you know, 5.4 and our expectation is to be at about 5x at the end of the year. So, you know, looking ahead, I think, you know, what we have said publicly, we want to get below 4X, okay? So it's another turn, right, that we need to deliver on. You know, my gut feels, you know, depending on any M&A, different uses of cost, it'll take us a couple of years to get there. And, you know, it's going to steady decline from here. Okay, great. Thank you.
spk09: Our next question comes from Greg Fraser from Truist Securities. Your line is open.
spk08: Good morning, folks. Thanks for taking the questions. You bumped up your target for injectable sales this year. How much of that change was driven by better performance of the current portfolio versus higher expectations for new launches? And if the base portfolio is doing better than anticipated, can you speak to the drivers behind that? And then just a question on opioid exposure and the litigation that you're involved in. Can you just give us an update there? Are you working towards a settlement? We've recently seen progress on that front from other companies. So just curious how you're thinking about the path forward for annual. Thanks very much.
spk13: So Greg, on injectable cells, the current portfolio went up as well. We had solved it. Lyra cell cells counted this year as well, and new product launches. So all three contributed this year to go over $170 million. And as we look ahead, we have multiple new launches coming, even this year, in injectables, multi-dose, vasopressin, potentially the first back products, and next year continue on to more launches from our new sites So very excited about injectable new launches as well as current portfolio. One thing is for sure, to have a great quality, great supply track record matters a whole lot in sterile business compared to the oral solid business. And we have done that very successfully as a hallmark of MNEO being number one quality company in affordable medicines. We continue to perform such a way on injectable as well. We will do so in biosimilars. Your second question, we have Jason, our chief legal officer, would address that.
spk10: Good morning, Greg, and thanks for the question. With respect to the outcome timing of the resolution of the opioid matters, that's, of course, uncertain, but we're encouraged by certain reasonable outcomes in some of the case decisions that have fallen recently. The focus of these trials is primarily on the active market and correct promotion of We will continue to defend those cases. That's a big position.
spk09: Thank you. Our next question comes from Elliott Wilbur from Raymond James. Your line is open.
spk03: Good morning. Just if I might, one financial question for Tasos, and then I had a question for Shintu on the pipeline as well. So first for Tasos, just trying to get my arms around trends in the SD&A line, specifically within the generics segment. I think last quarter run rate was 21 million. This quarter, you know, 25 million. Those are adjusted figures. But basically, looking at the annualized rate there, I mean, it's roughly twice the level the company was spending two years ago. So just try to understand sort of what may be behind the step up in spend.
spk12: Got it. Okay. So I just want to make sure, Elliot, so you're talking about the step up in the operating expense of the company, essentially, right?
spk03: Specifically within the generic segment, the step up in the SG&A trend. Yep, I got it. I got it.
spk12: Yep, yep, yep, yep. So overall, one of the things we said this year, we're looking to spend an incremental $40 million, right? in terms of investments. So that's driven by the investments in biosimilars. That's the direct answer to your question, kind of getting ready to launch, to properly launch. So biosimilars right now as a segment is rolling under generics. Okay, that's I think the direct answer to your question. Overall, our level of investment in generics has remained the same. Right, relatively limited investment change there. And then what we had is this year we acquired Sol. So you have the Buffalo Can portfolio, that's all under generics, so that added to the operating expenses and getting ready for the biosimilar. So I think that's the answer to your question. Next year, right, now that we have these expenses primarily in the base, next year we should see the expected growth in generic spend to be flat, slightly up, as opposed to the rate of growth this year. Does that help?
spk03: Yes, thanks. And then just one follow-up question for Shintu on the pipeline, specifically thinking about the injectable portfolio, obviously expected to be sort of a key element of top-line growth over the next several years. But how should we think about your strategy sort of within the world of injectables? And if I look at the pipeline today, roughly 30 or 31 ANDAs pending, what percentage of those would you consider to be complex, I guess, within the world of injectables and sort of, you know, how has your modeling on the injectable portfolio maybe changed in the last, you know, six months to a year versus what you were thinking about three to four years ago? And I guess the reason I ask the question is if you look at some recent approvals like Velcade, I mean, there were eight approvals first day and, you know, Vasopressin, Certainly has turned out to be much more price competitive despite what still is relatively limited competition. Still seems like you need to move up the technology value chain even with injectables in order to reap the type of returns that are available, some of the higher quality assets in the space. Just wondering how you guys are thinking about the evolution of your injectable strategy.
spk11: Hey, good morning, Elliot. Great question. So we have a very robust pipeline. We have multiple areas of focus. First of all, we expanded our infrastructure that gave us a lot more capabilities in emulsions to liposomals. We've been investing heavily also in infrastructure creation organically to cater to microspheres, drug-device combination, in the back portfolio. So our pending 31 ANDAs, at least half of them or close to half are either the shortage products or the first two markets. Our approach to pipeline is very robust. Even with current portfolio, not too many people have a suspension product. So we're both big commercial product and Triumph are very, very complex product, which always has multiple challenges, from the R&D to approval to sustainability. so with our expanded infrastructure and our focus and our pipeline this year we will file another 15 products most of them are very niche products i totally get your point on a valcade or you know pamitrex and other products that's not our strategy our strategy is to go after tough to formulate very niche apis uh go for peptides liposomal and also we have some products which is even though having approvals is always in a shortage so we are going after those products we had our quality track record our manufacturing abilities that's what the amni is known for so we have a 61 products in the pipeline out of 61 more than half of our portfolio is in this complex injectable space which we are very excited and the results are speaking or also in the future Most of the launches every year, seven, eight key launches will come from the injectable space. I hope that clarifies your question, Elliot.
spk13: In sterile bags, so that's terminally sterile bags, septic sterile bags, that's a huge portfolio coming out of bags products.
spk03: Okay, thank you. That answers the question. Appreciate it.
spk09: Our next question comes from Ekaterina Naiskova from J.P. Morgan. Your line is open.
spk05: Hi, this is Ekaterina. I'm from Chris Shaw from J.P. Morgan. Thank you for taking your questions. So first, on biosimilars, I guess. So there's been some debate about the importance of having interchangeability on your label. So where do you stand on that debate? Do you think that having interchangeability is important to drive biosimilar uptake or more of a nice-to-have feature with, you know, things like having supply and, you know, maybe pair relationships as being actually more important? And then my second question is on generic pricing. Are you seeing anything different this year than last year? So, obviously, inflation is pretty high in the U.S. Just wondering if that's changing generic pricing dynamics at all and if it's having any impact on, like, how you're negotiating prices or if you can potentially, like, I guess, push back when, you know, people are asking you, like, oh, yeah, let's, like, reduce price by, like, X amount. Thank you.
spk13: Good morning. Go ahead.
spk11: I think I'll take the first question on first on interchangeability. So we think interchangeability is definitely a tool that would, you know, give much more comfort to doctors, especially depends on a therapeutic category and the product. What we are looking at, it's not that each product interchangeability will give you a upper hand. So I think it is very essential. FD has opened up and is clear. As MNIL, we will definitely look for our programs to have as much interchangeability as possible as we go forward. It will give us better marketing and better comfort levels with our customer and patient.
spk13: Great. Let me take this generic pricing that always comes and then We have been loud and clear that the oral solid markets and certain other generics have become unsustainable for many companies and product rationalizations have happened and this could create shortages in the future. So we've been in constant dialogues with our customers that penny a pill is not a wise thing to do for American patients. And it's being heard, it's being evaluated because There is no company in this world can produce peniapil. And FDA by itself is worried about the investment in quality control, investment in future R&D for genetic drugs, which saves hundreds of billions of dollars for American patients and provides 92% of the prescriptions in the United States. And also there is a worry about the supply chain. We saw that in the Ukraine war now, the pandemic, and we can't wait for another emergency to not have essential medicines made in America. So we'll keep pushing that issue as well through our industry association as well as government that please wake up. We need to have this done. It takes four to five years and make key starting materials, API, and finished products in the United States. So overall pricing pressure is still there. We urge and we hope that it reduces because there's no way to go on these oral solids and the bottomless products. And Neil fortunately sits in a bit of a proper position because of the complex portfolio and having all other dosage forms as part of our platform and the company. So we don't face as much of a problem as other companies may face who have a more oral solid portfolio than us. Sorry, I gave you a much bigger answer and a bit of an issue in the industry, but I hope that is helpful for you, Catalina.
spk05: No, no, very much appreciate the color. Thank you.
spk09: This concludes our Q&A. I'll now hand back to Chirag Patel, Co-CEO, for final remarks.
spk13: Thank you very much for everyone joining and have a wonderful weekend. Take care.
spk09: Today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
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