Amphastar Pharmaceuticals, Inc. (AMPH) Q4 2022 Earnings Call Transcript

Amphastar Pharmaceuticals, Inc. (NASDAQ:AMPH) Q4 2022 Earnings Conference Call February 28, 2023 5:00 PM ET

Company Participants

Bill Peters - Chief Financial Officer, Treasurer, Executive Vice President of Finance, and President of IMS Ltd., and Director

Dan Dischner - VP of Human Resources and Corporate Communication

Tony Marrs - Sr. VP of Regulatory Affairs and Sr. VP of Clinical Operations

Conference Call Participants

Timothy Chiang - Capital One

David Amsellem - Piper Sandler

Operator

Greetings, and welcome to the Amphastar Pharmaceuticals Fourth Quarter Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions].

Please note that certain statements made during this call regarding matters that are not historical facts, including, but not limited to management's outlook or predictions for future periods, are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the section entitled forward-looking statements in the press release issued today and a presentation on the company's website. Also, please refer to our SEC filings, which can be found on our website and the SEC's website for a discussion of numerous factors that may impact our future performance.

We will also discuss certain non-GAAP measures. Important information on our release of these measures and reconciliations to U.S. GAAP may be found in our earnings release. Please note that this conference call is being recorded.

Our speakers today are Mr. Bill Peters, CFO; Mr. Dan Dischner, Senior Vice President of Corporate Communications; and Mr. Tony Marrs, Vice President of Regulatory Affairs and in Clinical Operations.

I will now turn the conference over to your host, Mr. Dan Dischner, Senior Vice President of Corporate Communications. Dan, you may begin.

Dan Dischner

Thank you, Paul. Good afternoon, and thank you all for joining us today. On the call with me will be Bill Peters, CFO and Executive Vice President of Finance; and Tony Marrs, Executive Vice President of Regulatory Affairs and Clinical Operations. Following Bill's financial updates, we will move the call to Q&A where the team will answer your questions.

As announced in our press release and financial results published earlier today, our net revenues for the fiscal year have reached a new high at $499 million, reflecting a significant 14% increase with a corresponding 25% increase in gross profit.

In the fourth quarter alone, our net revenues hit $135 million. Again, we attribute the success for our high margin products, with Primatene MIST, glucagon and epinephrine maintaining a solid market share and having demonstrated impressive growth throughout the year.

On a brief note about Primatene MIST, we still anticipated sales trending towards $100 million in annualized sales by the end of 2024. We plan to increase our marketing spend by an additional $2 million to $3 million, thus bringing our total to the low double-digit millions for the year. We have adjusted the retail price to accommodate higher cost inputs.

Shifting our focus to glucagon. We have seen a notable 29% increase in sales compared to the previous quarter and a 20% increase compared to the same period. As mentioned in our last call, the changing market dynamics of the glucagon market, both in the retail and diagnostic aid markets, have presented a growth opportunity for our generic glucagon.

Additionally, I am pleased to announce that the FDA has approved our significantly increased glucagon manufacturing capacity, allowing us to double our output and meet the additional market demand.

Moving on to the topic of other revenue drivers for the quarter. We are pleased to report that our other finished pharmaceutical products experienced a notable 52% increase in sales compared to the same period. This significant growth further validates our ability to meet the increasing demand for these products due to competitor shortfalls. We anticipate that this portion of our portfolio will continue to have residual strength throughout 2023. However, at the same time, we could expect fluctuation as these products are influenced by competitor capacity and unpredictable demand. Nonetheless, we remain optimistic about our growth drivers and their potential growth trajectory.

Having covered our revenue drivers for the quarter, we can now discuss our pipeline and regulatory activities. To start, I'll briefly overview our proprietary products and biosimilars in the pipeline.

Our intranasal naloxone NDA received a preapproval inspection in the first quarter ahead of the PDUFA date. While we acknowledge that public demand persists for this product in a crowded market, we remain encouraged as the potential approval will serve as an innovative platform for our intranasal pipeline with our proprietary device. This innovative approach coincides with our time-tested strategy of utilizing our vertically integrated business model.

Turning to another proprietary product, our intranasal epinephrine. We now anticipate filing in 2024 following changes we are making to the product. Regarding our first interchangeable biosimilar insulin filing for insulin aspart or AMP-004, progress or filing is on track, and we expect it to occur this year.

As for our generic pipeline, our AMP-008 product, our first inhalation filing, I'm pleased to announce that we have responded to the CRL. With the FDA's granting priority review, we have the new GDUFA action date in the third quarter of this year, with a preapproval inspection extending the goal date to the following quarter.

Regarding our second inhalation product in the pipeline, AMP-007, we now anticipate this filing to occur in the second quarter. Likewise, we now anticipate AMP-027 to be filed in the second quarter.

Pivoting to our pending refile and refiled ANDAs. AMP-015, or our generic teriparatide, we are seeing progress towards refiling as we anticipate it to occur in the second quarter of this year. For our AMP-002 refiling that occurred in the third quarter of last year, our planned GDUFA action date remains in the second or third quarter depending on a preapproval inspection, if needed.

Before I turn the call to Bill, I would like to reiterate that 2022 saw a sustained year-over-year growth. While we may experience some fluctuations, we can ultimately expect annualized growth from our total portfolio to continue. Sustaining and building upon those achievements will require an increase in our investment in R&D, from which we remain on track to increasing our capacity at all of our facilities as we progress closer to filing and approval.

I would like to turn the call over now to the CFO and Executive Vice President of Finance, Bill Peters, to discuss the fourth quarter and year-end financial results.

Bill Peters

Thank you, Dan. Sales for the fourth quarter of 2022 increased 12% to $135 million from $120.9 million in the previous year's period. Glucagon led the sales growth with an increase of 19% to $18.3 million from $15.3 million as the discontinuation of the other glucagon products at the end of 2022 positively impacted demand.

Primatene MIST continues to show strong sales growth during the quarter with sales up of $22.3 million, up from $21.5 million in the prior year. Epinephrine showed strong sales in the fourth quarter amid continued shortages by our competitors, growing to $21.4 million from $18.9 million in the previous year's period.

Other finished pharmaceutical product sales totaled $33.1 million, up 52% from 2021 as the company recorded stronger sales of sodium bicarbonate, dextrose and isoproterenol, while benefiting from the 2022 launches of vasopressin and ganirelix. API sales decreased to $2.3 million from $2.9 million due to the timing of orders from MannKind and other customers.

Gross margins increased significantly to 53% of revenues in the fourth quarter of 2022 from 47% of revenues in the fourth quarter of 2021 due to strong sales of higher margin products like Primatene MIST, glucagon, and epinephrine.

Selling, distribution and marketing expenses increased to $5.5 million from $4.1 million due to increased television, radio and digital expenses for marketing Primatene MIST and increased freight costs.

General and administrative expenses were essentially unchanged at $10.6 million. Research and development expenditures were also essentially unchanged at $17.2 million as an increase in clinical trial expenses for our insulin and inhalation product pipelines was offset by a decrease in spending on materials and supplies.

Non-operating income in the fourth quarter of 2022 was $3.4 million, primarily related to the -- gain on foreign currency compared to the prior quarter's non-operating income of $2.9 million, which was primarily related to a legal settlement.

The company recorded net income of $33.9 million or $0.66 per share, which is up 72% and 66% respectively, compared to the previous year's fourth quarter net income of $19.8 million or $0.39 per share.

The company reported an adjusted net income of $37.6 million or $0.73 per share compared to an adjusted net income of approximately $20.8 million or $0.42 per share in the fourth quarter of the previous year. Adjusted earnings excludes amortization, equity compensation, impairments of long-lived assets and one-time events.

In the fourth quarter, we had positive cash flow provided by operations of approximately $15.2 million. And for the full-year, cash flow from operations was $89.2 million. During the quarter, the company repurchased approximately $18.1 million of stock to bring the total repurchases for the year to over $39.9 million.

Now let me review a few of the financial assumptions we are using as we look to 2023 and beyond. Glucagon will drive sales growth in 2023 as we benefit from competitors leaving the market. Primatene MIST will continue to grow and benefit from our first price increase. We could also have sales contributions from two to four new product launches.

We expect gross margins to remain flat year-over-year as the mix of higher margin products will be offset by increased labor and input costs. Our selling, distribution and marketing expenses will rise as we plan to increase our advertising for Primatene MIST but will remain a constant percentage of Primatene MIST sales. We expect general and administrative spending to increase but remain a similar percentage of sales.

Turning to research and development. We plan to ramp-up spending on clinical trials and purchases of material and supplies this year as we increase spending on our insulin portfolio, two inhalation candidates and our intranasal epinephrine product. We also anticipate a significant increase in capital spending this year as we continue our project to double capacity for inhalation products to align with our pipeline development. We plan to finish our insulin API production capacity expansion at our ANP facility in China this year as well.

At our Amphastar facility, we are in the process of an expansion project that will ultimately quadruple our capacity in Rancho Cucamonga as we look to major insulin and complex injectable opportunities. We plan to finance this expansion with cash flows from operations. At the same time, we will utilize our strong cash position to continue our stock buyback program.

I will now turn the call back over to the operator for Q&A.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Thank you. Our first question is from Tim Chiang with Capital One. Please proceed with your question.

Timothy Chiang

Hi, thanks. I noticed that your other finished product sales were up a lot in the fourth quarter. I think they were up like 50% or more. Could you just sort of comment on what's driving the growth in that line? And then sort of just provide a little bit of color on AMP-002. I noticed that the target action date is in the second quarter. So it's only a couple of months away. Are you guys feeling pretty good about that product leading up to the potential approval date?

Bill Peters

Yes, so let me start with the other finished pharmaceutical product sales. And that one, yes, we had very strong sales there as products like sodium bicarbonate, dextrose, both had some shortages in the market. And so we were able to ramp-up our sales because of our increased capacity that we put on at that factory a couple of years-ago.

Additionally, we had some short-term isoproterenol pickup in sales that was actually stronger than we expected. And the Vasopressin and Ganirelix sales are also starting to pick up and be higher than what they have been previously. However, as we look to all of those products, none of them are reaching the sales levels of the products that we do break out. So that's why we'll continue to include those in the other finished pharmaceutical product category. Tony?

Tony Marrs

Yes. For AMP-002, we remain optimistic about the product. As we've said before, we continue and we continue to have engagement with the agency, dialog with the agency on the product. So with this second quarter GDUFA date, we remain optimistic.

Timothy Chiang

And maybe just one follow-up. I think you pushed out the epinephrine intranasal filing to next year. Is that right?

Tony Marrs

Yes. That's correct. We've engaged with the agency and continue to have dialog with them. They've come back with an additional request for us, and we plan to meet that additional request. And it did, unfortunately, push our submission date back until 2024.

Timothy Chiang

Okay. Great. Solid quarter for you guys.

Tony Marrs

Thanks.

Bill Peters

Thanks, Tim.

Operator

[Operator Instructions] Our next question is from David Amsellem with Piper Sandler. Please proceed with your question.

David Amsellem

Hey, just a few. So first on Glucagon with the higher capacity, you're calling it out as a growth driver for 2023. I guess can you comment on the extent to which you think it's going to grow year-over-year? I guess, maybe not quantitatively but just talk about where you see the opportunity. There's the hospital setting. Is it an added opportunity -- or I should say, institutional setting, and just talk about the trajectory of that product. You also highlighted Vasopressin as a growth driver in 2023. It is a crowded market. So I'm just trying to get a sense of your thought process there, so if you can talk about that.

And then lastly, on a couple of these filings, can you talk about 007? Is that one where that's a P4 and you expect that to be a litigated filing, if I'm not mistaken? Just give us some refresher there. And on 027, what's the underlying brand sales there and in terms of whether it's a P4 or something else. Can you give us some color there? Thanks.

Tony Marrs

Yes. So I'll start. Hi, David, I'll start with the glucagon market question. As we talked about last quarter, what's really happened is that some competitors have dropped out of the market. And so it's given us the opportunity to expand our share of the market as long as we can meet it. That's why the expansion of the capacity was so important.

The market that we were originally marketing it in, and then now with the diagnostic aid market also seeing competitors drop out of it all, it also allows us that opportunity as well. So as we've said, we think of it as a way to expand our current market, or basically, we think of it as doubling our capacity and being able to lead both the diagnostic side as well as the other side that we were already doing. Vasopressin?

Dan Dischner

Vasopressin, we picked up a little bit of market share over the last quarter. And so we're it's still not as big a product as we thought it might be a year-ago, but it's a product that did grow from the third to the fourth quarter. And because we only had it for half a year, we'll have a full-year of sales, and every quarter should be higher than it was this quarter. So there's definitely growth. That's why that one is a growth driver. Even though it's not a large product, it's still going to contribute to that growth. And I think the third question was on 007.

David Amsellem

Correct. Yes.

Dan Dischner

Yes. So 007, yes, that's going to be a P4 filing. Hard to say about litigation, but that's always a possibility. And 027 that we have a planned filing for this quarter is a relatively small product. So of those two products, the 018 and the 027 that we've adjusted our presentation to show there that total $3 billion, the vast majority of the sales go to the 018. And both of them are planned to be filed in Q2.

David Amsellem

Terrific, thank you.

Dan Dischner

007 and 027 -- 007 and 027, not 018, just to clarify.

David Amsellem

Yes, got it. Thank you.

Operator

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

Dan Dischner

Yes. I want to thank everybody for joining us today. 2023 remains on track for two to four approvals. We remain optimistic about our opportunity to further grow the Glucagon market, thanks to an increase in capacity in addition to seeing further advancement in our pipeline. We look forward to updating you on our next call. Thank you.

Operator

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