Amphastar Pharmaceuticals, Inc.
Q4 2016 Earnings Call Transcript
Published:
- Operator:
- Good day, ladies and gentlemen, and welcome to the Amphastar Fourth Quarter Earnings Conference Call. At time time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. This conference call may contain forward-looking statements, including statements related to Amphastar Pharmaceuticals. These statements are not historical facts but rather based on Amphastar Pharmaceuticals current expectations, estimates, and projections regarding Amphastar Pharmaceuticals business, operations, and other similar or related factors. Words such as may, will, could, would, should, anticipate, predict, potential, continue, expects, intends, plans, projects, believes, estimates, and other similar or related expressions are used to identify these forward-looking statements. These statements are only predictions and as such are not guarantees of future performance and they involve risks and uncertainties and assumptions that are difficult or impossible to predict. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including these described from time to time in the Amphastar Pharmaceuticals filings with the SEC. I would now like to introduce your host for today’s conference, Mr. Jason Shandell, President of Amphastar Pharmaceuticals. Sir, please, you may begin.
- Jason Shandell:
- Thank you, operator. Good afternoon and welcome to Amphastar Pharmaceuticals’ fourth quarter earnings call. My name is Jason Shandell, President of Amphastar. I’m joined today with my colleague, Bill Peters, CFO of Amphastar. We appreciate you joining us on the call today and look forward to speaking with you and answering any questions you may have. I will now turn the call over to our CFO, Bill Peters, to discuss the fourth quarter financials.
- Bill Peters:
- Thank you, Jason. Sales for the fourth quarter decreased 17% to $63.5 million from $76.9 million in the previous year’s period. Sales of enoxaparin declined to $8.3 million from $19.9 million as a result of the termination of the distribution agreement with Actavis. Due to this agreement, we were unable to ship units for the retail market from August until the end of December. Other finished pharmaceutical product sales increased 10% to $50.6 million, primarily due to increased sales of epinephrine, which offset pricing-related sales declines in our naloxone business. Our insulin API business generated sales of $4.7 million, a decrease from the $10.8 million we reported in the fourth quarter of 2015, as we restructured the MannKind purchase agreement to delay their API purchase obligations. Cost of revenues remained relatively unchanged in dollar terms at $43.6 million, but our margin as a percent of revenues declined to 31% from 43%. In the quarter, we booked a net realizable value inventory reserve of $3.1 million for enoxaparin, as our forecasted average selling price dropped below our cost of goods. Additionally, we had an inventory obsolescence reserve for epinephrine of $3.3 million, as the FDA has informed us that they no longer consider our vial product to be in drug shortage and we will no longer be able to sell it as a grandfathered product. At this time, we do not know when we will have to discontinue selling this product, but we have asked the FDA for additional time to sell our existing inventory. Selling distribution and marketing expenses increased slightly to $1.3 million – $1.5 million from $1.3 million. General and administrative spending increased to $10.7 million from $8.7 million, primarily due to increased legal expenses. Research and development expenditures increased 40% to $12.3 million from $8.8 million due to a $1.1 million expense related to Primatene component inventory repurchase and finished goods inventory we manufactured ahead of our PDUFA date. This change is also due to an increase in API and component material expenses related to our ANDA pipeline. The company reported a net loss of $2.7 million, or $0.06 per share compared to last year’s fourth quarter net income of $7.5 million, or $0.16 per share. The company reported an adjusted net income of approximately $500,000, or $0.01 per share compared to an adjusted net income of approximately $9.1 million, or $0.19 per share in the fourth quarter of last year. Adjusted earnings excludes amortization, non-cash equity compensation and impairments. On December 31, 2016, the company had approximately $74.3 million of cash, restricted cash and short-term investments. In the fourth quarter, cash flow from operations was approximately $14 million and was positive for the 11th quarter in a row. Let me review a few of the financial assumptions we are using as we look to 2017. As I mentioned earlier, the price of enoxaparin has dropped even further. Additionally, we will have to discontinue selling our epinephrine in vial since the FDA no longer considers this to be a drug shortage item, and we do not know how long we’ll be able to continue selling this product. We expect shipments of RHI, API to be flat this year, as we expect decrease demand for MannKind to be offset by other customers. We expect one large ANDA approval, which will provide meaningful sales in the year. We expect that our gross margins in the coming quarters will be relatively flat compared to the average 2016 gross margin until we are able to launch new products, which we believe will be able to sell at higher average margins. We expect incremental G&A spending increases related to legal expenses and compliance costs. We expect research and development spending will increase in both dollar terms and as a percentage of sales, as we are planning to begin several expensive clinical trials. Although a material portion of our planned increases for clinical trials won’t occur until the second-half of the year. Also, during the first quarter of 2017, we sold the ANDAs we had purchased from Hikma last year and realized a $2.6 million gain. We sold these, so that we could focus on other priorities, including our planned reentry into the UK market in 2018 and our R&D pipeline. I’ll now turn the call back over to Jason.
- Jason Shandell:
- Thanks, Bill. Since our last earnings call, we filed three additional ANDAs and removed two ANDAs for market reasons. That brings the total number of ANDAs on file with the agency to five, which represents the market size of over $1. With respect to our CRL for Primatene Mist, we have been in communication with the FDA regarding their request for an additional human factor study, and we have scheduled a meeting with the agency to discuss this issue. With respect to our CRL for intranasal naloxone, the FDA identified four primary issues that need to be addressed prior to approval of our ANDA. The four issues are comprised of
- Operator:
- [Operator Instructions] And our first question comes from the line of Elliot Wilbur of Raymond James. Your line is now open.
- Elliot Wilbur:
- Thanks. Good afternoon. Just first of all with respect to the epinephrine product and I’m assuming relatively pleased to have moved by FDA. Can you maybe just give us a little bit of the background that there? I know there’s different formulations on the market assuming that’s only the vial. But they’re asking you to remove, but maybe just talk a little bit about the opportunity to switch some of that business into pre-filled syringe, and are they also taking similar action against the ampule products that are sold out there by a competitor. And also, do you have an existing or in place regulatory strategy at the time to potentially continue to be able to sell that product that maybe you haven’t talked about previously, because you generally don’t talk about the applications for drugs that you already sell?
- Jason Shandell:
- Sure. Thanks for that question. I mean, you’re correct that this is with respect to the vial product, so we sell both in the vial and pre-filled syringe. And as of now, the pre-filled syringe is still on the drug shortage list. So we will continue with that and the request is specifically to the vial. There maybe some opportunity to move some of the business to the pre-filled syringe. But to your point, we do have the regulatory strategy. We’ve been in communication regarding our application for above the ampule vial and the syringe. And we’re hopeful that if the FDA works with us regarding the timing, we’ve indicated that we have a large amount of inventory. So we’ve asked for additional time to sell that inventory. And we’re hopeful that if they’re agreeable to our timeline then in terms of actually executing on our application for approval then perhaps we could have further discussions as to not removing it since we’d have to remove it just to bring it back upon approval. So we’re in discussions of that sort with FDA.
- Elliot Wilbur:
- Okay. And then do you know if there – the potential regulatory action will also impact the ampule products that are out there?
- Jason Shandell:
- We haven’t focused on the ampule since we don’t sell the ampule, so I probably can’t answer that question.
- Elliot Wilbur:
- Okay. And then can you just maybe highlight at a couple of additional ANDA filings, a couple removals, but I guess in sort of netting things out, it’s been a fairly significant jump, at least, in terms of the targeted brand value of the pipeline. So if there’s any color you could give maybe on the additional therapeutic areas, dosage forms, and how concentrated these filings maybe in terms of the relative branded market has been targeted?
- Jason Shandell:
- Sure. So, yes, we definitely feel we had good progress since the last call in terms of our fillings, and we continue to focus on large markets. And that’s why we did remove two ANDAs from market reasons. They’ve just – from the market standpoint, they were not large dollar values. We talked about the four ANDAs on file on the last call and the one pre- GDUFA filing that made up the significant portion of the $500 million that we referenced for those four. And so the two that we removed really were not large markets, and then the three that we’ve added are significant. They range across therapeutic areas, but at least, two of them, there’s no generic and they’re significant markets.
- Bill Peters:
- And all of the opportunities are $100 million-plus in terms of IMS sales.
- Jason Shandell:
- Yes.
- Elliot Wilbur:
- Okay. And the last question before I jump back in the queue for Bill. I think you indicated you expect gross margin trends throughout 2017 to basically reflect full-year 2016 results. But and just getting to the numbers here, we have pretty significant inventory charge in 4Q that it doesn’t look like you backed out of your – what your term adjusted numbers, so I’m wondering sort of the how material cost of the brand whether or not they reflect or not?
- Jason Shandell:
- Yes. So we, yes, I’ll stand by where I said before is that, we’re expecting that the average 2016 margin across the year will be what we start the year with the first couple of quarters and until we can get some new products launched. Then the reality is that on the enoxaparin product now that that price has come down. And at some point during the year, we’ll also have to stop selling epinephrine most likely during the year, and that’s a very high margin product.
- Operator:
- Thank you. And our next question comes from line of David Maris of Wells Fargo. Your line is now open.
- David Maris:
- Hi, a few questions. First, on the R&D spending, it’s up a lot year-over-year and that’s a good thing, because you’re presumably spending it on new products. But can you just tell us a level of activity on the number – is that reflective of an increase in the number of products that you’re working on? Is it reflective of the complexity, fewer things, but more expensive development, maybe give us some sort of a flavor on what – what’s going into that higher spending? Is it more shots on goal, or is it just more complicated drugs?
- Bill Peters:
- Sure. It’s a slight increase and we don’t disclose some of our early stage. But the real spending is in two areas. One, it was Primatene. We had a $1.1 million inventory expense into the R&D line for the pre-approved and for the inventory for product didn’t get approved. So about half of that was components and the other half was finished goods that we had manufactured. So that’s all written-off that – which means that if we are able to launch Primatene at some point during the year that we might be able to do so at a very discounted inventory number. The other thing, David, is that, we are now at a point where we’re spending more on the products that we’re working on as far as obtaining API and components for different products that have more material costs to them, and partially some of these are inhalation items, where the devices are somewhat expensive. And so as we move forward, we are expensing both the API and the cost of the devices as we make those purchases and that was really a large portion of the fourth quarter increase.
- David Maris:
- And then just as a follow-up when we think about a year from now, how should that number of filed products assuming that that you get approvals of the ones that you think you’re going to get approvals on it. How will that number increase? What number of filings do you expect in the next year?
- Bill Peters:
- Yes. So we’re looking to do two to three more filings this year, and so hopefully, we’ll get some approvals. But without knowing what the FDA will do, internally, we’re targeting two to three filing additionally this year.
- David Maris:
- Great. Thank you very much.
- Bill Peters:
- Sure.
- Operator:
- Thank you. And our next question comes from the line of Serge Belanger of Needham. Your line is now open.
- Serge Belanger:
- Hi, guys, good afternoon. Just a couple of questions for me. Bill, you talked a little bit about enoxaparin taken another price – large pricing decrease over the last quarter. Just wanted to know if that was in a retail or non-retail segment? And then also have you started shipping product back to retail clients, and now that we’re, I guess, 2.5 – over two months into the first quarter. Do you have an idea if you can capture what you previously had in terms of the retail segment?
- Jason Shandell:
- Sure. I don’t want to disclose retail or non-retail margins just. But I will say that, yes, we did see a downtick in both sides, it’s a little bit more of a downtick on the retail side. But we were able to shift at the end of December into the retail market. And what I mean by that is that, we were shipping extra units to wholesalers where we knew specific retailers were going to be, excuse me, I got a bit of a cold, where certain retailers were going to be buying that product. So that did happen in a small amount at the end of the quarter and try to think of. And as far as maintaining, we know that we’ve maintained, at least, a significant portion of that retail market that Actavis had. But I can’t say that we’ve retained at all.
- Serge Belanger:
- And then on the naloxone, you’re seeing additional rebates in price decreases for that product also. Any idea of how sticky current sales are, given that there’s additional competitive products out there now?
- Jason Shandell:
- Right now, our – most of our volumes have kind of flattened off from the increase that we had previously. So and the pricing decreases are year-over-year, I think, we characterized it like a $1 million-plus. So it’s their material, but they’re not that major.
- Serge Belanger:
- Okay. And then just one last one on the pipeline. I don’t know if I caught that right, but were the Hikma and there’s also – there was a just a portion of them?
- Jason Shandell:
- All of the Hikma ANDAs were sold.
- Serge Belanger:
- Okay. And when will the IMS UK products start making contributions to your top line?
- Jason Shandell:
- Our plan is to launch those in the first quarter of 2018.
- Serge Belanger:
- All right. Thank you.
- Jason Shandell:
- Thanks.
- Operator:
- Thank you. Our next question comes from the line of Gary Nachman of BMO Capital Markets. Your line is now open.
- Gary Nachman:
- Hi, good afternoon. From a macro standpoint, did you lose any big customers in the fourth quarter on any of your important products? And on the important injectable and that to be approved this year, do you have a GDUFA date, get a CRL on it? Any further color on that would be helpful?
- Jason Shandell:
- As far as the customers go, we’re – we’ve pretty much stayed flat. We’ve – as I kind of alluded to in my last question, we did lose some minor enoxaparin in the retail side customers, but some smaller ones. But we held on to a majority of the customers, including the largest one there. So there will be that change. But there were really no other products had any significant changes. And then in terms of our filings, so we removed two that were older. But the one that remains that’s the most mature is the pre-GDUFA product. That’s the one we’ve been sort of signaling that we expect approval this year and it could be meaningful to our earnings. And then the additional three that we filed, they all have GDUFA dates for this year.
- Gary Nachman:
- Okay. And then with a couple of CRLs for Primatene and intranasal naloxone in a relatively short period of time, do you think there was any issue in terms of communications with the FDA, and what you needed for approval? Do they move the goalpost on you at all? Just explain a little bit what you think might have happened there?
- Jason Shandell:
- Yes. Obviously, with the PDUFA, you’ve got a set series of meetings and communications, and we received information requests on both products throughout the process and felt positive. So we were and more recently on the naloxone very surprised by the CRLs, and we do believe there may be some misunderstanding with some of the data that we’ve submitted. And that’s the reason why we’re seeking meetings with the agency for clarification.
- Gary Nachman:
- Okay At this point, do you think you’re 100% committed to both products? I mean it – the way it was described in the press releases, it seemed like a lot of it was sort of administrative. But did you feel at this point that you could make it to market?
- Jason Shandell:
- Yes, we are committed to both products and believe that they both are approvable.
- Gary Nachman:
- Okay. All right. Thank you very much.
- Operator:
- Thank you. And our next question comes from the line of David Amsellem of Piper Jaffray. Your line is now open.
- Unidentified Analyst:
- Hey, this is Samir on for David. Just two quick ones here. Can you provide some more color on the type of filings you plan to submit this year in terms of dosage form and whether they could be first to market opportunities? Also, do you have any more color on the potential for new competition in the injectable in the naloxone market that you could potentially see on the horizon?
- Jason Shandell:
- Sure. So with respect to our upcoming filings this year, we are still – on the last call, I did suggest that we’re targeting an inhalation product. That’s going to be near the end of the year and potentially could slip until the beginning of 2018. But we’re still setting our goal to get that filing at the end of this year. Another filing that’s an important one for us is an injectable product. There is no generic on the market for this one either, and it is a significant market. But at this point, we’re not providing any more details.
- Unidentified Analyst:
- And then new competition on the injectable in the naloxone market?
- Jason Shandell:
- Oh, yes, sorry. So we have – we are aware of some potential competition in terms of the injectable naloxone. Of course, we don’t know any specifics, but we have heard some rumblings that, but just like any drug, there’s always that potential.
- Unidentified Analyst:
- Thanks.
- Operator:
- Thank you. And our next question comes from the line of David Steinberg of Jefferies. Your line is now open.
- David Steinberg:
- Thanks very much. I just want to delve into Primatene a little bit more. So the base molecule was on the market for decades to well characterized used by millions of Americans, it was just in the CFC form, not in HFA form. And so just curious you’ve now gotten your second CRL and they’re asking for human factors study, which as I understand, I asked before. So did – were they not specific in what they wanted? Did they – why they’re asking for more human factor studies when they already asked you? It seems like, it’s a bit of a head scratch, or do you think that they’re just stringing this along and they just really don’t want to approve it?
- Jason Shandell:
- Good question. This is the second CRL, and they have acknowledged that we’ve made good headway since the last one. But it was frustrating to hear that they think an additional study is needed. It sort of comes down to the data that was submitted and they think that some further improvements of the label could be made to even further increase the ability of potential consumers to understand this. We definitely – we have a meeting scheduled with them to clarify some of the data that we’ve submitted. We believe that we could do another study relatively easy in a short period of time. But to your point, we don’t want to just run another study, resubmit only to get another CRL. So we want to make sure, we’re on the same page with them. We think that last study that we did the pivotal study passed and meets the criteria. So that being said, the most recent response letter is relatively straightforward, and we could just move forward with the study. I think the meeting will help clarify some of these issues. And we are very optimistic about the new administration and the recent nomination of the FDA commissioner. I think there has been a lot of talk about the 21st century Cures Act, which instructs FDA among other things to consider the use of real world evidence to support new drug applications. So overall, we are committed to this product. We will continue to work to get it approved. But we think having another meeting with the agency to make sure, we’re on the same page makes the most sense.
- David Steinberg:
- Right. And just one quick follow-up, Jason. I may have missed it, when is the meeting? And have you hired FDA expert consultant to work with you on this? And if you do the additional study, what’s a realistic timeline for potential filing and approval?
- Jason Shandell:
- Sure. So first, we have hired numerous consultants that are FDA focused – former FDA people, so we’re on top of that. Secondly, assuming we were able to find a common ground with the agency and conduct another study, these are short studies. We believe that we could run another study and actually have the data for resubmission by May of this year. That being said, it’s premature until we have the meeting to really know. We’re not giving the specific date of the meeting. But we’ll definitely have an update before our next earnings call and most likely at one of our upcoming conferences.
- David Steinberg:
- Thanks very much.
- Jason Shandell:
- Sure.
- Operator:
- Thank you. And I’m showing no further question at this time. I would now like to turn the call over to Mr. Jason Shandell for closing remarks.
- Jason Shandell:
- Great. Thank you, operator. I want to thank everybody for participating on the call today, and this concludes the call. I hope you enjoy the extra hour of sunlight this evening. Have a great day.
- Operator:
- Ladies and gentlemen, thank you for participating in today’s conference. This conclude today’s program. You may all disconnect. Everyone have a great day.
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