I'm an analyst at Bank of America, and I'm pleased to be introducing our next company presenter, Amphastar, joined by Jason Shandell, President, and Bill Peters, CFO, so gentlemen, thank you first for joining us at our conference.
Thank you.
Thank you.
And maybe if we can just kind of get started here, and we're going to do a question-and-answer format. If you can talk just a little bit about the company's business model. You guys obviously focus on complex, generic products, injectables, inhalation products. It's an industry where companies need to be somewhat secretive about the projects that they work on, but then the challenge is conveying to investors your secret sauce, how you guys select the right products, and how you anticipate creating shareholder value. So maybe just as an opening softball question, can you talk a little bit just about your company's process and how you guys think about the right product opportunities for Amphastar?
Sure. So yeah, so Amphastar really focuses on technically challenging products with barriers to entry. And those barriers can come in the form of the complex generics that require characterization and immunogenicity. Also, some of the products we work on are difficult to procure the starting materials and APIs. So really, that business model is very helpful. Some of the complex generics that we're working on now, we have synthetic capabilities where we can work on recombinant products. And under FDA guidance, if we can do a synthetic but with fewer impurities, there's a pathway to approval. And so, as you stated, inhalation and injectable are really the niche areas that we focus on, extremely difficult areas to get approval, clearly inhalation even more so than injectable. In addition to focusing on the technically challenging, we also differentiate ourselves through vertical integration.
Over the years, some of the issues we've encountered have been with API suppliers, whether the supplier chooses to leave the market or receives a warning letter. It can really impact your pipeline. It can delay your approval, and so that was the purpose of starting our China facility, which we call Amphastar Nanjing Pharmaceuticals, in 2009, and for our pipeline, they're going to supply the majority of the API, and so we feel that in the short run, it's a little bit more cost to the company, but in the long run, it can ensure our pipeline as well as the quality control, so in a nutshell, I'd say our major focus is technically challenging, but we do look for, from the marketing standpoint, large market opportunities, and so many of the products that we're working on, although there's no generic on the market, patents have expired.
It's just very complicated in many cases to do the bioequivalence studies.
As we think about the challenges that the broader generics industry has faced in the United States market, we hear a lot of companies talk about complex generic products as sort of the next wave of product opportunities, and that may ultimately end up differentiating winners and losers in the space. How much of that, I mean, we know that in the U.S., there are anywhere from two-three hundred generic companies at any given time, kind of steady state. Is the barrier to entry really the amount of P&L that you're willing to kind of allocate to some of these projects? Because sometimes we hear some of these companies just won't invest in some of these more expensive generic programs, if you will.
I think the P&L is one thing because it does take a lot more resources, financial resources. But the other thing is just technological know-how. When you take a look at our founders, they're really two of the smartest people you've ever met in your life. I mean, they're basically. Mary's story is kind of weird. She went to school in China before the Cultural Revolution, had to stop going to school when she was in 10th grade. 10 years later, she takes a test, decides to, with just a 10th-grade education, apply to Princeton's PhD program, gets into Princeton's PhD program in chemistry, gets a PhD there, and then goes to do her postdoc at Caltech, where she meets Jack, who had a similar story, dropped out, couldn't go to school, barely finished high school, went right from high school to a PhD program in the U.S.
They're just two of the most brilliant scientists you've ever met. We have something that a lot of companies don't have. There's not 200 people like them in the United States, I'll say, working on some of these complex problems.
I'd say enoxaparin is a good example of that, although the price has come down a lot due to Sanofi- Aventis, but that approval, to this day, only three generic companies ever received approval: us, Teva, which is the largest generic in the world, and Sandoz, the other largest, and so when you think about the amount of resources that they had versus us, to Bill's point, sometimes the secret sauce, and really, our secret sauce comes down to the ability to characterize complex molecules. Jack and Mary's background goes back, even predates pharmaceuticals, where they ran APCL, which was an environmental laboratory, looking at groundwater in the parts per trillion.
So when we're trying to prove sameness to the FDA, we've established some techniques where we can literally, at parts per billion, be able to break down the molecule and prove to the FDA we're not just equivalent but exactly the same. And in many cases, although sameness in terms of the requirement for FDA, actually fewer impurities than the RLD, which is important from an allergic reaction standpoint.
And if you take a look at one of our most recent approvals, which is medroxyprogesterone, that's a product that was off-patent for many, many years. And Teva and Sandoz had both gotten approvals at one point, but both of them had manufacturing problems. They couldn't make it, so they were out of the market for years. Teva recently got in right before we were able to get our approval, but Sandoz doesn't. So you've got two of the largest pharmaceutical companies in the world, and they can't tackle those problems that well, and we were able to do so.
Teva only, at this point, has the vial. We got approval on both the vial and the prefilled syringe.
Yeah.
So thinking about the inhalation space, my question is a two-part question. First, it's challenging. We're seeing with ProAir a number of delays. With the DPI, there's been delays as well, and Amneal has an action date later in May. So I guess on the one hand, as you think about the different types of inhalation devices, where do you guys see your technical expertise overlapping? And then secondly, price competition amongst the brands has gotten fierce with dry powder inhalers. We've noticed GSK, in their recent guidance, talk about greater-than-anticipated price competition for an inhaler. And what I wonder; this is not inexpensive to have a compliant facility that makes dry powder inhalers.
So I do wonder how to think about break-even price if you can even sell a dry powder inhaler before it's not a profitable business to be a me-too three or me-too four to, say, an Advair, for instance.
Yeah. So on the first question, in terms of inhalation, both dry powder and metered-dose inhalers, we're working on both. I would say we have an extensive amount of experience with metered-dose inhalers. Armstrong Pharmaceuticals used to sell Primatene Mist and albuterol in the CFC form. And so we've got a lot of experience with the albuterol metered-dose inhaler. Actually, when it converted over to HFA, the majority of the players had switched, and we had an unusual amount of demand for the albuterol CFC because historically, people are resistant to change. They didn't like the smell of the new product. So we were able to ramp up production and sell hundreds of millions of dollars of albuterol without any changes to the application. And when we purchased Armstrong, they were having some real issues with the manufacturing.
So on the metered-dose inhaler, I think we do have a real competitive advantage based on our experience. And something that's interesting on the generic side of things, which is different than our Primatene, which is a new drug, is we have a platform called particle engineering. So in addition to the characterization of the molecule, we can actually even engineer our particles to be the same shape and size as the innovator. So we think from an approval standpoint, that's very important. And in our experience, we'll do very well. To the cost side on the DPI, that's a good observation. I'll refer that to Bill.
Yeah. So just first on the cost side on the MDI, that it is an expensive program to be, but we already have the plant ourselves. So that makes it easy for us. And for our current P&L, we have a lot of leverage once we get some of these inhalation products approved because we have basically a facility right now that's only doing R&D work. It's a 200,000 sq ft facility with 37 employees. So once we get Primatene approved and some of these other generic MDIs approved, then we'll have a lot of operating leverage off of that. But on the DPI side, it is a very expensive product, and it is something that we've put a lot of money into already, and we will have to have a more significant investment as well.
So when you talk about having multiple players on an individual product, I'd say, given the customer concentration that our industry is seeing, it's going to be difficult for the fourth player in to make much money off it, given the cost structure of that.
Switching to injectables, just curious to get your thoughts. A number of hospitals have now kind of created a nonprofit entity in the mountains. Your general thoughts on what this means going forward? Do you think this is a needle-mover for the industry, for companies that are working on complex injectable products, or do you kind of look at it as more concentrated in some of the products that have seen kind of maybe excessive price hikes and maybe not something that will more broadly affect the sterile guys?
Yeah. It's certainly something that we're looking at and monitoring, and I understand why they're doing that, given the price hikes, but to me, I don't know if they really understand what they're signing themselves up for and how difficult it is to operate an injectable facility, given the FDA regulations around that and the complexity, especially if you were working with drug-device combination products, like most of our products are in prefilled syringes. So you have an enormous amount of complexity and an enormous amount of expense around that, so I really don't see how they would really benefit. I don't see how they could possibly make money, and I would see that they probably would have a very difficult time going into it, given what their assumptions are from the market.
And if you take a look at going after products with excessive price hikes, you can take a look at a product like nitroprusside, where we just got that. That's our most recent approval. And two years ago, when we filed that product, there were no generics, and Valeant had taken a thousand times price hike. And so all the hospitals and the government and people, population were up in arms about the price. So a lot of generics went into it because it was an easy product, and now there's eight generics. There's no profit for anybody.
That's true.
Yeah. So with eight generics, there's no money to be made in that product now. So if they're going after these ones where everybody else is seeing the same opportunities, the reality is that the market is pretty efficient out there. And it might take a little bit of time, but the ones that are easy to do and there is margin to be made, there will be competition that comes in relatively quickly.
Okay. And just limited time, two minutes or so. So just curious, 2018, 2019, sort of from your disclosed pipeline, what are your most exciting product opportunities that you want to highlight for investors?
Sure. Yeah. So I would say number one most exciting 2018 is Primatene Mist. We recently resubmitted the NDA. We don't have a PDUFA date yet, so it'd either be a two-month or a six-month review. It's really come down to a discrete issue. This was our second CRL. Both of them focused on human factor studies. We've essentially proven that we were able to reformulate from CFC to HFA safe and effective. The last few years has really been to demonstrate that consumers will know how to use it without any guidance from a doctor or pharmacist, and really, the critical task is shaking it. So we got some really good feedback from FDA, which we implemented into our label, including having a wraparound label on the actuator itself because often patients will throw away the instructions.
The difference between this study and the last one is really a big difference. Really great results, so we're excited by Primatene. That could be a huge catalyst this year, a branded OTC product. And then we've got two exciting generics, one where there's no generic on the market and one where there's only one. They make up about a greater than a $400 million opportunity. So we have PDUFA dates on those this year. We haven't said when, but varying throughout the year. So between those two injectable opportunities and Primatene, I would say those would be the three big catalysts for this year. Finally, we do have some upside in terms of a $100 million bond that we're going after in a legal case. So that might be a fourth catalyst for 2018.
Okay. And the naloxone opportunity in the U.S., how well-tracked is that in IMS? Can you give us a sense of how big a market opportunity could be for that? Is there potentially an expanded role if there's a low-cost generic available?
Right now, we are the lowest-cost generic out there. When you price it by the milligram dose, we do think that we're priced very competitively on that. We're on a run rate of $40-$50 million of sales a year. We do think there's upside, especially for our NDA that we filed for the intranasal naloxone as well, but we won't be resubmitting that until next year.
Okay. Well, we're out of time. So gentlemen, thank you so much for joining us at the conference.
Great. Thank you so much.
Thank you.