Amneal Pharmaceuticals, Inc. (NYSE:AMRX) Q4 2022 Earnings Call Transcript

Amneal Pharmaceuticals, Inc. (NYSE:AMRX) Q4 2022 Earnings Call Transcript March 2, 2023

Operator: Hello, everyone. And welcome to the Amneal Fourth Quarter 2022 Earnings Conference Call. My name is Bruno, and I’ll be operating your call today. I will now turn the call over to Amneal’s Head of Investor Relations, Tony DiMeo. Please go ahead.

Anthony DiMeo: Good morning, and thank you for joining Amneal’s fourth quarter 2022 earnings call. Today, we issued a press release reporting our Q4 results. The press release and presentation are available at amneal.com. 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 see the section entitled Cautionary Statements on Forward-Looking Statements in the earnings presentation and our SEC filings for a discussion of factors that may impact our future performance. We also discuss non-GAAP measures. Information on our use of these measures and reconciliation to U.S. GAAP are in the earnings presentation.

On the call today are Chirag and Chintu Patel, Co-CEOs; Tasos Konidaris, CFO; Andy Boyer, Generics; Harsher Singh, Biosciences; and Jason Daly, Chief Legal Officer. I’ll now turn the call over to Chirag.

Chirag Patel: Thank you, Tony, and good morning, everyone. We delivered a strong fourth quarter results with $610 million of revenue and adjusted EBITDA of $154 million. We saw growth across all three business segments in Q4 and closed out 2022 well. Looking forward, our 2023 outlook reflects continued, resilient top and bottom-line performance. Overall, we believe Amneal is uniquely positioned for sustainable long-term growth. The Generics business is robust and growing each year. We are shifting towards more complex, high growth and high impact products. With each new launch in injectables, complex generics and biosimilars, our portfolio of affordable medicines is increasing the diversified. In Specialty, we are focused on expanding our branded business through the upcoming IPX203 launch and advancing our pipeline.

Together with the consistently growing healthcare business, we see multiple vectors of growth and value creation that the heart of our strategy is the focus on unmet patient needs, affordability and providing access to essential medicines globally. Like we now talk about how we are advancing our key strategic priorities. First, in Generics, we are constantly innovating, moving up the value chain of product complexity and expanding our impact on patients. Our strategic focus has been and it continues to be developing complex innovations, such as and injectables that creates tremendous value for patients, the next frontier of our affordable medicines journey in biologics and international. Since 2019, the team has done an extraordinary job our R&D engine, driving strong operational execution and ensuring the commercial success of our business.

As a result, our increasing diversified portfolio is generating durable top line growth. Over the last three years, we have consistently grown faster than the overall U.S. Generics market. Today, Amneal is the fourth largest U.S. Generics company in the terms of our annual prescriptions, and is responsible for saving American patients over $10 billion every year. We expect our topline growth algorithm in Generics will endure long-term. In injectables, we are focused on expanding our product portfolio, adding capacity, and building key capabilities. In 2022, the business was very successful, generating $181 million in revenue, today, we have about 30 institutional products with over 30 new launches expected by 2025. From an operational standpoint, we are more than doubling our capacity with our two new U.S. sites.

As we launch new products and bring new capacity online during 2023, we expect the next inflection of revenues will come in 2024. We are on track to achieving our goal of over $300 million in injectable revenue by 2025. Next, Biosimilars represent the next wave of affordable medicines and are highly aligned with our mission of providing access to high quality, affordable medicines. So, we are so excited about the growth prospects for Biosimilars. As the U.S. market alone is expected to approach $40 billion in net sales by 2027. With the long-term horizon, we see a very strong ROI as the cost to develop new biologics continue to come down, we expect this market will be less competitive than others. In Q4, we launched ALYMSYS, our biosimilar of Avastin; RELEUKO, our biosimilar of Neupogen.

We expect to launch our third product FYLNETRA, our biosimilar of Neulasta in the next few months in conjunction with our reimbursement coverage. Similar to the first-year adoption curve of other biosimilars, we expect 2023 will be a busy year as the commercial team works across payers, providers, and channels to drive uptake. For these three biosimilars, we see peak sales of over $200 million. We look to expand our portfolio and be strategically vertically integrated over time. Our goal is to be top five in the U.S. Biosimilars market, and a global player over time like U.S. Generics we expect to get that. To expand access to essential medicines globally, we are leveraging our diverse U.S. FDA approved product portfolio of complex generics, injectables, specialty, and biosimilars.

We believe our international expansion strategy will add considerable revenues and profits in time. In the fast moving $25 billion Indian pharmaceutical market, we are expanding our presence with a new brand and leveraging our local commercial team as we focus on the hospital market in India. In Europe, we signed a long-term distribution agreement with Orion at year-end. We will register complex generic products starting this year and look to begin commercializing in Europe late next year. In addition, we are pleased to share that we’ve recently signed another long-term distribution partner agreement in Canada. We are partnering with Sterimax to bring our injectable portfolio to Canada. We will continue to pursue additional partnership opportunities around the world.

Second, in Specialty, we expect to be much bigger and more sustainable player over time. Our strategy focuses on 505(b)(2) opportunities that leverage our reformulation technologies to improve existing medicines and provide new innovative therapies for patients. Today, our key branded products Rytary for Parkinson’s and Unithroid for hypothyroidism continued to grow low double-digits combined. Next up is IPX203. We are so excited about the potential of IPX203 to be a best-in-class therapy for Parkinson’s patients. Beyond IPX203, we are advancing our pipeline of neurology and endocrinology programs. We look forward — we look to expand our — over $500 million in specialty revenue by 2027. Third, in AvKARE, we look to expand across multiple channels, distribution, the Federal Government, and unit dose.

To-date, since its acquisition in 2022, the revenue of the business has grown double-digits. We expect momentum in this durable $400 million plus revenue business will continue going forward. In summary, we are very excited about Amneal’s future that our key catalysts happening now across our business such as Biosimilars is more ahead, particularly the planned launch of IPX203 in specialty, as we execute our strategy and launching products in high growth areas, our durable and this billion business continues to grow. We believe these growth drivers will accumulate and generate higher levels of financial performance over time. I will now hand it over to Chintu.

Chintu Patel: Good morning, everyone. Thank you, Chirag. First, thank you to the Amneal family, who worked so hard to make healthy possible for so many. Let me start out with operations, we are focused on operational excellence and optimizing our global footprint. In 2022, the team drove record production of key products such as Adrenaclick, achieved operational efficiencies and expanded infrastructure in key areas such as injectables. Next in R&D, our global innovation team continues to drive a highly productive R&D engine as we shift our efforts towards a wide array of complex pipeline products. In Inhalation, we recently entered a partnership to in-license the soft technology platform for the development of inhalation pipeline products such as Respimat inhalers.

As always, Amneal is built upon our strong quality track record and commitment to the highest standards of quality. Since our founding in 2002, the FDA has conducted over 80 successful inspections of our sites. We are continuously looking for ways to push the quality bar higher to investments and best practices. Let me now walk through the different aspects of our innovation agenda. In Generics, our focus is on complex innovations for about 90% of our pipeline. With over half expected to be first-to-market, first-to-file or 505(b)(2). In 2022, we launched 26 new generic products. In 2023, we expect over 30 new launches with five already launched in the first two months. Today, we also announced our FDA submission of generic Narcan, manufactured at our Branchburg, New Jersey facility.

We see a meaningful opportunity to improve access to this critical opioid overdose treatment. Please refer to our key catalyst slide in the earnings presentation for a list of notable launches. In Injectables, we are scaling up as we expand infrastructure and add to our portfolio. Our newest injectable site is on track for inspection next month, with FDA approval expected later this year. Once approved, we will have all the key capabilities of a leading injectables company with the ability to produce across dosage forms, vials, prefilled syringes, cartridges, and LVP bags. With our expanded capabilities, we have shifted our innovation focus towards injectables. In the last few months, we received approval for our first two LVP bags, Esmolol and Magnesium sulphate.

There are 33 injectables ANDA’s pending and another 59 products in the pipeline. We have made good progress advancing our programs in several complex areas including drug-device combination, peptide, long-acting injectables, liposomals, LVP bags, and 505(b)(2) products. Similar to 2022, we expect to file 10 to 15 more ANDAs in 2023. We are well on our way to scaling our injectables business to be a major player. In Biosimilars, we are very excited about Amneal’s potential in this space. To start, we are pleased to launch our first two biosimilars in Q4 with one more launching soon. Beyond this, there is tremendous opportunity to expand our portfolio with additional molecules as a large number of branded biologics come off patent in the coming years.

Currently, biosimilars are in development for 27 molecules, representing approximately $96 billion of the total $260 billion U.S. biologics market for IQVIA. We are looking at innovative and cost-effective development and manufacturing pathways with partners. As our goal is to be first or second to market in future biosimilars. Over time, we look to be vertically integrated to scale this business effectively. We expect biosimilar will be a key growth area for Amneal long-term. Looking globally, we see 2023 as a foundational year in executing our international expansion strategy. Our focus and effort extend beyond the key initiatives in India, Europe, and China which Chirag highlighted. In addition, we have comprehensively analyzed our entire product portfolio in the context of all emerging markets.

As a result, we have systematically identified over 50 product opportunities across different emerging market countries. In 2023, we have begun registering products locally. We have a dedicated team at Amneal focused on driving international expansion. In specialty, we are expanding our branded portfolio to advancing our pipeline. Our PDUFA date for IPX203 is coming up on June 30. We continue to see this as a $300 million to $500 million peak sales opportunity as we look to impact a broader portion of U.S. Parkinson’s patients. We are also looking at international licensing opportunities. Beyond IPX203, we have continued to advance our branded pipeline and are pleased to share the addition of K-130 to our specialty pipeline. K-130 is the new R&D program for symptomatic neurogenic orthostatic hypotension.

There is a potential broad use case across several patient population, including Parkinson’s and other chronic diseases. This 505(b)(2) program utilizes our proprietary drug delivery technology platform, GRANDE, which is an advanced gastric retention system. We are working on additional R&D program in the pipe — in the preclinical phase. In summary, we are executing our innovation strategy and advancing our pipeline, particularly in high growth areas. I will now hand it over to Tasos.

Tasos Konidaris: Thank you, Chintu. I will start with our fourth quarter results, then move on to our full-year 2022, followed by 2023 guidance. We’re very pleased with our fourth quarter results with total net revenue of $610 million, growing 14%, adjusted EBITDA of $154 million, growing 26%, and adjusted diluted EPS of $0.23, up 35%. Q4 Generics’ net revenue was $399 million, an increase of $53 million or 15% versus the prior year period. Our results reflect favorable prior-year comparisons, solid growth of Zafemy, and the breadth of our new product launches. As a point of reference, new products launched in 2021 and 2022 accounted for $35 million or 70% of our growth this quarter. Q4 specialty net revenue of $103 million, increased $2 million or 2% versus the prior year period, driven by Unithroid, up 34%, Rytary, up 13%, partially offset by the final quarter impact from the loss of exclusivity for Zomig nasal spray.

Our AvKARE business continues to perform exceedingly well with Q4 net revenue of $108 million, up $18 million or 21%, compared to the prior year period, due to continued growth of our distribution channel and new products to better meet the demands of our customers. As we outlined on our Q3 earnings call, the drivers of sequential revenue acceleration from Q3 to Q4 played out as expected. Our expansive and diversified portfolio continues to perform well and increases our financial resiliency and predictiveness. Q4 2022 adjusted gross margin of 43.4% was slightly up, compared to the prior year period. Q4 adjusted EBITDA of $154 million was $32 million or 26% greater than the prior year period. We believe strong Q4 results are indicative of our P&L profile over time with a faster-growing top line, solid gross margin and operating expense leverage, generating robust profitability.

Now looking at full-year €˜22 results, where we met on our financial guidance metrics. Total net revenue of $2.2 billion grew $118 million or 6%. Full-year 2022 generics top line grew 5%, driven by new product launches, growth of our injectable portfolio and our Adrenaclick epinephrine auto injector. (ph) net revenue grew 16% driven by the distribution channel, while specialty net revenue declined $4 million or 1%, a strong growth in Unithroid, up 33% and Rytary up 8% offset the Zomig loss of exclusivity, which is an impact we could now annualize. Full-year 2022 adjusted EBITDA was $514 million, up $2 million year-over-year, reflecting top line growth partially being offset by inflationary pressures and growth in our sales and marketing functions in support of numerous product launches.

Full-year 2022 adjusted diluted EPS of $0.68 declined 13%, in part due to higher interest expense. From an operating cash flow perspective, we generated $210 million, of which $145 million was used to settle certain legacy legal matters. As we discussed in the past, we’re very focused on resolving expeditiously various legacy legal issues. Earlier in 2022, we resolved the Opana year matter, and in the fourth quarter of 2022, we recorded an $18 million charge related to majority of opioid cases. We believe this amount is consistent with our position as a generic manufacturer with limited market share. From a balance sheet perspective, we finished 2022 with net debt of $2.6 billion and net debt to adjusted EBITDA of 5.1 times, compared to 7 times three years ago.

In 2023, we expect to refinance our $2.6 billion Term Loan B and continue to delever over time through EBITDA growth and debt pay down. Let me now turn to our 2023 guidance where we expect another year of stable results as we build for sustainable long-term growth. From a top line perspective, we expect 2023 total company net revenue of $2,250 million and $2,350 million, which reflects continued mid-single-digit growth driven by all segments. In generics, we expect low single-digit growth, reflective of the following four dynamics. First, we believe our three biosimilars should add $40 million to $60 million this year, driven by ALYMSYS. 2023 represents our first year of commercialization in this new products market and we believe our products and commercial teams can add substantial value to our customers.

Second, we expect the strength of our generics R&D pipeline to add over $100 million in net sales with many of these new products having already been approved. Third, we expect resolution of the capital supply chain issues that impact our controlled substance products, as well as a few future injectable pipeline products. Fourth, we expect the competitive nature of our generics segment to persist from a price and volume perspective. In specialty, we expect mid-single-digit growth driven by Rytary and Unithroid. We’re very excited about the potential FDA approval of IPX-203, but we have not included that in our net sales guidance. At AvKARE, we expect continued double-digit growth driven by the ongoing expansion of the distribution segment, as well as new product innovations in the government and hospital segments.

Moving down the P&L. We expect 2023 adjusted EBITDA of $500 million to $530 million. Our outlook includes approximately $15 million of inflation and $30 million of incremental investments in sales and marketing to scale up in higher growth areas, such as specialty, biosimilars and injectables. From an adjusted EPS perspective, we expect $0.40 to $0.50, which reflects higher interest expense related to our likely Term Loan B refinance. On the cash side, we expect 2023 operating cash flow, excluding any legal settlements between $200 million and $230 million, which is in line with the $210 million we delivered in 2022, despite higher interest costs. Furthermore, we expect $50 million to $60 million in capital spend. Finally, from a phasing perspective, we expect 2023 to develop in a similar manner of 2022.

With that, let me hand it back to Chirag.

Chirag Patel: Thank you, Tasos. In summary, 2022 was a year of strong performance across our diversified portfolio. Amneal is a fundamentally different company were in 2019, when Chintu and I came back. The business is expanding into high-growth areas such as biosimilars, specialty, injectables and complex generics. The top line is growing each year, we had provide — devoting our strategic focus, investment and energy to the high-impact areas of the global pharmaceutical industry. Looking out one year from now, we envision an even stronger Amneal with a flourishing biosimilar business, specialty accelerating with IPX-203, a generics business that has a whole new basket of complex innovations, injectables, inflecting higher, healthcare continue to grow double-digits, all building on our consistent durable financial profile.

Over the long-term, we believe Amneal is uniquely well positioned to drive sustainable growth and create value for all stakeholders and society. We will now open the call to questions.

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Q&A Session

Operator: Our first question is from Elliot Wilbur from Raymond James. Elliot, your line is now open. Please go ahead.

Elliot Wilbur: Good morning. Thank you. Good morning, everyone. Question real quickly on the pipeline, and I guess specifically thinking about the specialty segment and I’m referring to slide five in the deck. Previously, the company had talked about peak sales potential for pipeline assets in the specialty segment of being $500 million to $1 billion. Now the language is $500 million by 2027. I’m presuming there’s no change there, and that’s just a desire on your part to be a little bit more granular in terms of the timing, but I wanted to confirm that? And then a follow-up, big-picture question, Chirag, I think you sort of addressed this in your closing commentary. But in conversations this morning, investors clearly sends a change in the generics landscape, maybe not necessarily getting better for the industry as a whole, but certainly not getting any worse.

They looked at Amneal as one of the best managed companies and that’s the only company has been able to produce organic top line growth in the last couple of years. But they sort of express frustration with the fact that EBITDA has been roughly flat the last couple of years as you kind of scaled up investments and a lot of kind of one-offs have prevented — has kind of diluted the cash conversion metrics and prevented the company from kind of attacking its debt load. So I guess as I think out to 2024 and beyond, I mean, where do we get to a point where we really start to see the EBITDA leverage relative to top line growth kick in, meaning that they — and that’s kind of, I guess, a question on both investment spend and also gross margin dynamics and relative mix.

Thanks.

Chirag Patel: Thank you, Elliot, and thank you for your compliments on Amneal. It is over 7,000 people strong team culture, pipeline, investment that we have done over the years. We’ll continue to believe in the United States market, which is where we are from. So let me answer your big picture question first and then the clarification on the $500 million to $1 billion in just granularity nothing different there. We hope to get (ph) billion as soon as we can on specialty. So big picture, what we see, and as I mentioned, a year from now or two years from now, we have multiple vectors of growth. So let’s take each one of them. Generics, you’re right, it’s not getting worse. It may be getting a bit better where certain responsible buyers we have reached out.

You know the three big buying rooms, so when I say buyers, they’re not thousands. And some of them has said that we hear you. There is no room for any price reduction any further. These are extremely low-priced drugs. And if anything goes further down, there is the risk of shortages companies like us, other companies, Teva, already have done it, in even Indian companies getting out of those molecules, that leaves going for investment in generics business, R&D investments, as well as quality and manufacturing automation that FDA is pushing for it. So all of these do not work if ruthlessly the prices keep going down, because government has allowed the three buyers to consolidate and these are large companies that have been consolidated. And it’s just unfair for suppliers, who cannot even do a small consolidation, and that has to change.