Why don't we get started? Good afternoon, everybody. For those of you who don't know me, I'm Glenn Santangelo. I'm the analyst at Jefferies. I cover the specialty pharmaceutical sector, and I cover Amphastar. We're excited to be hosting the company here today. Joining us from the company is Bill Peters, right to my right, the CFO, and Jacob Liawatidewi, who's the EVP of Corporate Administration, to his right. So this is gonna be a fireside chat for the next 25 minutes. It's a small enough room, so if somebody has a question, you know, I think Bill and Jacob wouldn't mind hearing from you. So we can get you a microphone for the webcast if you did have a question.
Otherwise, you know, we're just gonna do rapid fire here just to sort of cover all the topics with these guys. So, you know, Bill, maybe a good place to start for all these meetings, 'cause I'm not sure of the knowledge level of everybody in the room. Maybe you could just... You know, anyone who's new to the story, just give us a quick overview of the company and sort of what's differentiated of Amphastar and the type of products that you manufacture and the specific capabilities. You know, keeping in mind that your key products, let's call it the top five, make up almost two-thirds of your sales. So maybe just a quick minute or two on the company, the background, and your unique capabilities.
Yeah, just to start off with, we are a company-
Sorry, that was a lot in one question, so
That was... I think I got 10 minutes to talk about there. To start off with, we are a company that's primarily focused on complex generics historically. We're a little bit different from other companies in that space because we're more vertically integrated. So we develop and make our own APIs for a lot of our pipeline products, which most companies don't our size, and we do that to make sure that we have high quality and a strong supply. So those are the two rationales there. We got started, you know, with making Amphadase, which is one of the first products we developed, which was really one of the first biosimilar products ever. At the time, it was an NDA, but it was later converted to a biologic.
So it was really, in our opinion and the opinion of others, the first biosimilar ever. We took the learnings from that product and developed enoxaparin, which at the time was, one of the largest injectable products, Lovenox. We became the first filer to that and learned about, Paragraph IV filings beating that, beating the challenge there. And, we're the second to market with that, which was one of the very complex products. It's actually a biosimilar in Europe, but it is a generic in the United States. We learned new tools there, such as immunogenicity studies, that didn't have to be done for other products, and that those studies have helped us learn as we moved on to other products.
Then our next big milestone really was Primatene Mist, which was our first inhalation NDA, which we reformulated the old Primatene Mist into a new HFA formulation, which helped us understand inhalation products better. And then finally, our biggest milestone recently has been the glucagon ANDA that got approved in 2020. So that was a really complex generic, and it's the only time the FDA has ever approved a synthetic API product as a generic alternative for a recombinant product. So we took a lot of work with the FDA to get that sameness approved to them. But you know, we developed a strong working relationship with them in that process and that our scientific capabilities and our process of working with them really came in and will help us with future products.
Perfect, and this was a big year for the company, right? With the Baqsimi acquisition. Maybe spend a minute on that. You know, can you talk about that deal? You know, maybe why you decided to do it, and now, you know, when you recognize those revenues on a gross basis, and we'll talk about the accounting for all that in a second, it'll now be your biggest product.
Yeah, it will be. So right now, we really liked the product a lot for a lot of reasons. First of all, it is a second, a newer formulation of glucagon that we think is a better formulation than the existing one, the one that we genericized, because it's a ready-to-use product. It's a nasal spray with a dry powder. And so the old product had to be reconstituted and then injected. The new one, you just open up the- open up the container, and you spray it in the nasal spray. So it's a much faster, much more elegant delivery system, we think.
And also, when we took a look at it, we saw that the formulation was very complex and very difficult to do in this dry powder formulation, and we found that the device was also quite difficult to genericize as well. So when we took a look at it, we thought that we were the innovators in generic glucagon and that it would be a difficult product for us to genericize.
Mm-hmm.
Therefore, we thought that it had a long life ahead of it. And so we were also very interested in the endocrinology space since we're working on three biosimilar insulin products, so we just wanted to get deeper into that space. Those were really the strategic rationales for that.
Okay, well, maybe we probably should spend a minute talking about 3Q results, which you reported last week, right? Another good quarter for the company. I mean, it's been an interesting year, right? When you look at sort of the way people have the full 12 months model, they have revenues up in the high 20s. You know, your EBITDA is growing, you know, rough numbers, 75% this year, and the stock has sort of doubled, right? So could you maybe talk about you know, the past kind of couple quarters and what's driven that upside? Maybe, you know, just touch on the third quarter in particular and why the results have been so strong.
Yeah. So a couple things are driving it. The first one, going back to the glucagon product, is that there were some of the other glucagon competitors, two of them dropped out of the market. That enabled us to take a larger share of that legacy glucagon market. And we were also able to do that because we had the foresight to double our production capacity last year, and we got that production capacity approved in the first quarter of this year. That enabled us to take advantage of the other people leaving the market so that we could ramp up production and capitalize on that. Additionally, Primatene Mist has been growing very well for us, and it's been a little bit uneven as we've seen inventory levels shift at the retail level.
But overall, it's still a product that's growing very nicely and at a steady rate at the retail level. And then finally, we began the Baqsimi transaction. We closed that on June thirtieth, so we had a full quarter of revenues in the third quarter. And the way we're recognizing those revenues right now are on a net economic benefit basis, so it's similar to a royalty in that. Lilly has a, we have a transaction or transition service agreement with them, where they're going to continue managing the production and distribution and marketing of the product for a period of time, and then that's gonna allow us to transition into that.
We're taking that step by step, and in the first quarter of that, which was our fiscal third quarter, they did all the work they had been doing, and then they charged us for that. So they had sales of $49 million, they had expenses of about $20 million, and we recognized about $29 million of revenue in the quarter.
All right, we're gonna talk about that more in a minute. But, you know, you know, one of the things in your, in your opening comments, you sort of talked about, you know, the unique capabilities you have as a vertically integrated company. And, you know, some of the pushback that we get on Amphastar is that, you know, we appreciate that the company's benefiting from shortages and some of the difficulties of others, but, the pushback is that some of those shortages are transient in nature. They're difficult to model and, you know, maybe to some extent, sort of not sustainable. But what's interesting, when you talk about sort of Glucagon, a couple of your competitors sort of left the market, you know, the advances you made on Primatene and now sort of buying Baqsimi.
But, you know, one could argue that capitalizing on these shortages has really been a way of life for the company and for those that haven't been out to Rancho Cucamonga, to your manufacturing facilities, maybe you could shed some light on maybe how you're able to do that, take advantage of those shortages, and why they exist, and how you're able to take advantage of them on a sustainable basis.
Yeah, so we manufacture multiple products that are currently in shortage, and those shortages were exacerbated this year by a tornado that hit one of our competitors' warehouses. So right now, we're the only company on the market making three of the products that we make in that division. However, this shortage product is really not a short-term story. It's really a long-term story. I've been at the company nine and a half years now, and every quarter I've been there, we've had a shortage of one product or another that we haven't been short on, but our competitors have been short on.
We've been in a position where we've tried to meet the market demand for that product, and we've been able to do that more so in the last four years because four years ago, we got our second line that does prefilled syringes approved at our IMS facility, and at that facility, you know, we doubled the capacity. So once again, we had the foresight to double capacity in an area that we saw long-term demand. We meet that demand as best we can, but even right now, with these extra shortages, it's been more than we can actually keep up with. But we're trying to. We're increasing the production to the limits of the facility right now.
You know, unfortunately, that's caused us to delay our intranasal naloxone launch because that's made on the same lines as those products. But we've been able to, you know, help our customers out by supplying 100% of the market for three of the products that are on shortage right now.
But, these are high-class problems to have, right?
Yes.
I mean, you know, you've been at the company for 9.5 years, and could you talk about how your manufacturing capacity has increased over that timeframe pretty dramatically?
Yeah, so over that time, we have doubled the prefilled syringe line at IMS. We've doubled the capacity of our inhalation products in Boston, and part of that is for Primatene Mist, part of that is for the inhalation products that we expect to start launching relatively soon. We doubled the capacity for the lyophilized products at our Rancho Cucamonga facility. We've also added two new pen filling lines to our Amphastar facility as well, and those are gonna be for the pipeline products that we have, including teriparatide, which is in the product pipeline, and also, that's where we're gonna make the finished product, insulin products once we get those on the market.
So modeling the top line of this company is, you know, hard enough, but maybe modeling the margins is almost even just as hard, if not harder. In this quarter, you know, we saw that big step up in the gross margin, right? And, you know, it was maybe largely a function of Baqsimi, and you touched on this a minute ago, how, you know, you don't book Baqsimi sales on a gross basis at this point in time due to the transition agreement that you maybe have in place, and you booked those revenues net of expenses. So those revenues, what, $28 million or $29 million this quarter came in at pure margin. How long will that last? How big of an impact did it have on the gross margin?
Will that also be the case in 4Q, and how should we think about that margin on a go-forward basis, that gross margin into 2024?
... Yeah, so first of all, we did book all of that revenue on a net basis per the per GAAP. So, that $28.7 million of revenue just fell straight to the bottom line. So that had a large impact on the gross margins for the company this quarter. But also, we did have strong sales from our glucagon product, which also has higher than corporate average gross margins and strong sales of Primatene Mist, which has higher than average corporate average gross margins as well. So we really had contributions across the product line, but really the Baqsimi was the driver of that.
As we look going forward, things are gonna change every quarter, so that makes this even more complicated for analysts and other people outside the company to model. It even makes it difficult for us inside the company to model. But starting in the fourth quarter, we're still going to be recognizing those Baqsimi revenues on a net basis, but one of the costs that's in that number drops out and moves to our income statement, and that's the cost of U.S. marketing, which is the second biggest expense amount in that number there. So that comes out of the gross-to-net from the... that we get from Lilly and then goes into our selling expense line. So we'll begin picking that up in the fourth quarter.
Then starting, hopefully in the first quarter of next year, if things go well, we're going to begin distributing the product in the United States ourselves. So the distribution costs, at that time, will fall out of that difference and then go into our cost of goods, and we'll also be bearing the cost of goods for those products as well. So, what's gonna be more complicated, though, is that this is gonna happen on a country-by-country basis. So in the first quarter, the U.S. comes on, so we'll get the cost of goods for sales in the U.S., and we'll get the distribution expenses, but we won't in for Europe. Europe will still continue to be distributed by Lilly until we take over on a country-by-country basis.
We think some of that could happen in the second and/or third quarter of next year.
So it's gonna be another year, basically, until we get to a normalized basis in the way we traditionally report and think about Baqsimi. But, you know,
Completely normalized, but the biggest things are that the differences are the U.S. selling expense and the U.S. distribution and cost of goods-
Mm
... since the U.S. sales are about 80%. So by the end of the first quarter, we'll have most of those costs on a more normalized basis. But because that's gonna happen mid-quarter, it's a little bit hard to tell. It's, you know, it's gonna be phased in at that time. So the second quarter will be closer to true. It'll just be the international piece, which is the smaller.
At the end of the day, is Baqsimi accretive to your gross margins or dilutive?
Very accretive.
Very accretive. Okay. All right, and, glucagon being your second biggest product underneath Baqsimi, the generic glucagon, you said two of the competitors left the market. So when we think about the growth rate, right, that will start to normalize, at some point here soon. You know, when we think about the absolute sales as being somewhat sustainable, the growth rate should start to reflect, you know, more difficult comparisons, if you will.
Yep, that, that's true.
That's all correct. Okay. All right, and for Primatene Mist, 3Q, better than expected, and I think, you know, on the call you tried to explain it, demand has been sort of constant. We've had some lack of wholesaler buying in the first half of the year, which was maybe difficult to explain, and now the wholesalers may be caught up this quarter, which we now had this outsized quarter. But, you know, there's also some seasonality. So when we think about that 35% growth this quarter, right, and it's important 'cause this is your third biggest product, right? We shouldn't expect that sort of outsized growth rate to continue and maybe track more in line with that mid-single digit, sorta, you know, underlying demand for the product.
Yeah, no, that's correct. So I think Q3, it's typically for Primatene Mist, it's seasonality. Q2 and Q3 typically is the lower sales quarter, and Q4 and Q1, the higher sales quarter, because of the allergy season, cough and cold season, asthma tend to be more prevalent. But Q3 was kind of different because we saw Q2 sales, like what you said, to the wholesalers or the retailers, was down, while the in-store sales, the retailer report, continued to be stable, actually grew about 5% year-over-year. So we see Q3, there's some compensation due to lower than usual Q2, and then the retailers are, like, catching up, of their, reducing their-
But, but Jacob, you know, I just wanna come full circle with this because the company has talked a lot about sort of investing in Primatene to sort of grow that with a 2024 goal, you know, of generating $100 million in sales in Primatene. But when we look this quarter at the $25 million, that's artificially inflated for the wholesaler... Not, I mean, maybe that's a poor choice of words, but it was inflated this quarter because of the wholesaler buying. But I, I, I, I, I mean, I don't put words in your mouth, but I-
Sure.
Is it fair to say you're still comfortable with that $100 million target?
Yes
... in 2024?
Yeah, no, absolutely.
Okay. Anything else to... You know, when we think about those top three products, Baqsimi, glucagon, and, and Primatene, anything else worth, worth touching on or?
No, I think you captured it very well. I think Baqsimi still have a long runway to increase because-
Yeah
... I think that's still-
Sorry... Yeah, I just wanted to spend time 'cause that's half-
Yep
... your sales, right?
Yeah.
So if we can get those three products figured out. Turning to the pipeline, you know, you mentioned, you know, multiple product launches that can come in the next, sort of next, you know, let's call it 12-24 months, right? And when you think about, you know, those, those pipeline products, a lot on the injectable and, and even some on the inhalation side, you know, is there a way for you to sort of frame this up for people and, and what some of the bigger ones are? You know, are you still comfortable with that cadence of adding, you know, two to four products a year, and, you know, how we should think about that in 2024, and maybe, you know, some highlights to that pipeline?
Yeah, absolutely. I think start with our. We believe the biggest potential will be generic teriparatide. Basically, as of today, there's no generic. We hope to be the first generic to enter the market. Right now, it has the GDUFA date of Q1 2024. That IQVIA about $600 million. So we think that's a big potential, almost like glucagon market. At the time we entered glucagon market, the IQVIA was, I believe, about $300 million. So now this one's $600 million. So the next one, our AMP-008, which is our first generic MDI, it has a FDA action date this quarter.
So sometimes later this year, we believe we should get the approval, and that's, we are very excited about that because that will be our first generic MDIs.
I'm sorry, so when is the approval on that you're hoping for?
The action date or the GDUFA date is this quarter, Q4.
This quarter?
Yep.
Okay.
Yeah, within the next month and a half, we should hear something. Lastly, the one that FDA missed, the GDUFA date, is AMP-002. That product also, there's no generic. The IQVIA sales, I believe, is about $500 million, if I'm not mistaken. And so again, we are very excited about that. Obviously, a little disappointed the FDA missed the GDUFA date, but as of today, we still have active communication with them. There's no pending data or study or anything that we need to submit. Everything's in the FDA-
All right, so there's no CRL, but-
No
... we passed the PDUFA date, so we're just sort of in a holding pattern-
Yep
... till we hear on 002. 015, you said, the GDUFA date's 1Q2024. Do we have a specific date on that?
Uh-
We do, but we haven't disclosed it.
Okay. And I presume that's the same thing for 008?
Yep, we-
You have a date, but you haven't disclosed that.
Correct.
Those are the three we need to pay attention to.
Absolutely.
015, 002, and 008.
Yep.
Correct.
Okay, perfect. All right. That narrows it down a little bit. And can we talk about AMP-004 on the diabetes side? I feel like that's, that's something you've talked about in the past-
Yes
... as being meaningful.
So right now, that is on schedule to file by end of this year. So everything's on schedule. We have active communication. It is a BLA. We have disclosed the product. It's an insulin aspart. We are going after interchangeable biosimilar, so we have active communication with FDA as part of the prior filing. So we are very excited with that, so-
Okay, and intranasal naloxone, I mean, that, that's will be launched in 2024, given you already got approval. You don't think that's, you know, that material, but it's still, you know, incremental. Is that a fair way to describe it?
Yeah, no, absolutely. I think naloxone nasal spray or intranasal naloxone will be something that part of our production line already. There's really nothing new to... for us. We are very comfortable. The only reason we postponed the launch just because the demands of our existing products just over our capacity, so we prefer to focus on the existing products.
Okay, you know, maybe in the last couple minutes, let's turn to some financial questions, right? Because that's what it all boils down to. And I obviously appreciate that you haven't given guidance, right? But I'm just trying to think through, you know, some of the headwinds and tailwinds over the balance of this year, you know, from factors like the shortages you talked about, right? That Pfizer unfortunate incident in the North Carolina facility. You know, we have Baqsimi being reported on a net basis, transitioning to sort of a gross basis. Anything else, you know, that we should think about, you know, when we're sort of modeling 4Q, you know, as it relates to big pushes and pulls on that number?
The biggest things were the things that we talked about, were the Baqsimi accounting and the change there, and also the, the Primatene Mist, really the, the inventory changes that we've seen there. But the thing we didn't talk about was really in the third quarter, the seasonality of the glucagon product, because it's really strong in the back-to-school quarter, so that third quarter. So both glucagon and Baqsimi usually hit their seasonal highs in the third quarter. So those are expected to drop a little bit sequentially from third to fourth quarter.
Okay. And I know you definitely, if you don't want to guide 2023, you definitely don't want to guide 2024. But what's interesting about 2024 is if you look at the way the analysts currently have the revenues modeled up 24%, and I think, you know, at last check, they have the EBITDA modeled up 17%, and I think, you know. I understand maybe the big growth in sort of revenue, right? Because we're at a minimum gonna be going from a net to a gross basis for your biggest product, Baqsimi, and maybe that explains a fair amount of that. But it's interesting that the Street has, you know, EBITDA modeled at a much lower growth rate than revenues.
I'm wondering if you could just sort of give us any sort of high-level color commentary on those numbers and how we should think about them.
Really, the two things that would cause a difference there is the one you hit on, which is the Baqsimi going from net to gross, so that there will be more expenses. But the other thing is that we've mentioned that the R&D was a little lighter, right, recently, because just the timing of certain clinical trials and also filing fees, since we didn't have filing fees this quarter. So those two things could impact it. But overall, I would expect that we will—when we get this operating leverage, and based on the profitability of some of these products that are in our pipeline—I would actually expect the bottom line to grow faster than the top line.
Maybe one last question on the balance sheet. You know, you're sitting with cash, call it a little north of $300. You know, the debt at, I think, $640 as the last quarter, which kind of puts your leverage maybe just over one. I mean, how does the company think about, you know, those capital allocation priorities, given the cash flow you're generating and already relatively low leverage?
Yeah, so the 300 is, at quarter end, subsequent quarter end, we paid down another $50 million of debt.
Yep.
So, the deleveraging-
Uh
... especially of the
Yep
... variable interest rate, loan that we had was our key thing. Now we have all of our loans are fixed rate, so-
Yep
... fixed rate 250 at 5.25, and the fixed rate convert at 2%, so we're pretty happy with that. We'll consider returning cash to shareholders either through buybacks or keeping some on hand for the payments that we have to make to Lilly. But I think we have a very good problem to have, that to deal with, with excess cash on the balance sheet.
That's a good problem to have. All right, Bill and Jacob, thank you very much. We appreciate it, everyone. Appreciate you guys attending today.
Thank you.
Thank you very much.