Going here with our next company presenter at the BofA Annual Healthcare Conference. My name is Jason Gerberry. I cover pharma and biotech at BofA, I'm pleased to be introducing Amphastar Pharmaceuticals. Joining us from Amphastar, we have Bill Peters, CFO, and Tony Marrs, Executive Vice President, Regulatory Affairs and Clinical Operations. Gentlemen, thanks for joining us.
Thanks for having us.
Where do we start? Coming out of the first quarter of the year, maybe, you know, what's surprised you with maybe performance of the business, relative start of the year outlook? You know, the good and the bad, and then we can kinda dig in from there.
Yeah. When we take a look at where we thought we'd be at the beginning of the year versus where we ended up at the end of the first quarter, I think the biggest surprise was the impact of the double discounting that we had from the 340B programs on BAQSIMI. As we mentioned on our conference call, that's something where people are buying the drug at the mandated lowest price for the 340B hospitals and then still collecting a rebate when they issue it to someone who has insurance coverage. They're not really supposed to be doing that. That was the biggest change. It reduced the BAQSIMI sales significantly from where we thought they would be in the quarter. We've taken some steps to alleviate that pressure.
Beginning at the beginning of May, we engaged an external firm to adjudicate those claims and to validate them so that we believe that will take most of those claims away that were not appropriate. Additionally, on May 1st, we also implemented a 3% price increase on BAQSIMI, so that would also alleviate some of that pricing pressure as well.
On some of the BAQSIMI dynamics, can you just unpack a little bit, you know, how much of that is just kinda near-term structural dynamics, timing on when you think that those operational issues can get sorted out? I think maybe you mentioned somewhere in the six to 12-month timeframe. Is that a good assumption?
Yeah. We think that some of these items we think should be alleviated very quickly because of this adjudication process. They might not all happen overnight, and we're not sure that we stop 100% of them, but we do think that we get most of them taken care of. Remember, this is a problem that's across the industry, so this is something that's not just happening to us, but has happened to other players. It just started happening to us, and that's why we are taking the actions now. On, on the positive side, we did see script growth in the quarter, strong script growth, and we had an 8% increase in units.
We believe that if we can stop this pricing behavior, then we can return to growth for the product for the rest of the year. That inflection point really, like I said, you know, happened around May 1st. The second quarter will still have some of the problems that we had, but we believe that within a couple of quarters, we should be back to where we were on or most of the way to where we were on the pricing.
What you know, when you do get resolution on this front, like, what gives you confidence going into, like, say, 2027, that this sort of action wouldn't be repeated on the part of these 340B institutions that you know, the mitigation steps that you're taking will affect you know, kinda normal behavior on a go-forward basis, say, 2027 plus?
Because we're engaging a third party to adjudicate and validate the claims, and we're gonna continue to engage that firm on an ongoing basis. We do have a small increase in G&A costs because of that.
Yeah.
Because of this behavior, we'll partially offset some of the sales. We believe that with that firm in place, they can stop most of the bad behavior. We think that we will be able to return the product to growth next year.
I see. Really we should expect kinda normal volume trends in terms of tracking this. It's just more when we get to kind of the quarterly updates over time, there's more normalization in the revenue recognition.
That's right. You're right there. Also to unpack that a little bit, there is a revenue recognition issue because when we take a look at the end of the quarter, we're assuming a certain amount of inventory in the channels, and we have to accrue for the expected rebates and discounts that we're going to have on those. When we take a look at the timing of that and understanding that, we've had to increase that level of accrual that we've had each of the last three quarters. If this reverses, then at some point in the future, we would be able to start bringing that back down.
Okay. Can you just talk about, since you got the asset from Lilly, your OUS footprint and the efforts that you're taking to maybe narrow where you're promoting the drug OUS in profitability?
Sure. We sell BAQSIMI in approximately 25 countries around the world, the largest is the United States. 80% of our revenues for BAQSIMI come from the United States.
Okay.
The other 20 are the other 20-some countries around the world. When we took on BAQSIMI, we made a commitment to Lilly that, who we purchased the product from, that we would continue to sell the product in every market where they sold it for a minimum of three years, and that three years is up in June. We took a look at the different countries around the world and determined that there was about a handful of countries where we were actually losing money on the product, and that we decided that at that point, we don't wanna keep losing money for those countries, so we're going to discontinue that. What we updated on this quarterly call was that discontinuation will begin in July.
However, it's not going to be, you know, hard fast July 1 we stop selling to those countries. There's going to be a little bit of a gradual reduction for those countries because we'll have inventory for several of those countries, and we want to keep selling the inventory since we have it. In one country's case, we had to give a one-year notice period. We'll be selling to that country until the first quarter of next year. The idea though is that, you know, none of these countries are really that meaningful or material to our top line, and they're all negative to the bottom line.
By reducing, our footprint, we're actually going to have, while we'll have a reduction in sales of BAQSIMI, we'll have an increase in profitability.
Understood. Okay. Was there a thought initially that these could be more promising end markets and just how things have evolved, like, that those just didn't.
No. We knew from the beginning that most of these countries were really not strong markets for us or for the product. However, the product had been launched there.
Okay.
In some cases it's partially the selling price, but sometimes it's a regulatory burden. To only have one product in a country that has a relatively high regulatory burden, we don't have any economies of scale to do that. You know, the regulatory cost might be high for us to operate in that country.
Okay. longer term, you have, do you have the, I think, what, peak target of $250 million-$275 million?
Yes.
On BAQSIMI? What are kind of the key levers that get you, drive that growth? Is it compliance, expansion? You know, is it just more about, you know, more share gains for this approach within the broader space?
The main thing there is compliance.
Sure.
People comply and they fill their script for a glucagon product. The ADA recommends that everyone who's on insulin gets a script filled of glucagon because it's an emergency rescue product that could have to be used if a person has too much insulin in their body, so when they go into hypoglycemia. It's recommended that everybody has them. When we purchased BAQSIMI , only 10% of the insulin users were actually filling an annual script for glucagon. That's now up to 12%. Why is that? Some people just aren't doing it because they, you know, they maybe got it the first time they got insulin, and maybe they didn't after that because they didn't need this as a rescue product. We wanna get people in the habit of filling that every time and also having everybody fill it every time.
We think there's a significant upside to that. Our forecast really only has us have to get to that 15%-16% level of compliance for us to get to that sales forecast. We don't think it's an unreasonable target to get there.
Okay. Maybe we'll just shift gears to the base business and margin dynamics for that business.
Yeah.
You have some ongoing pressures to glucagon, epinephrine, and a few other legacy products. How should we think about the floor on those products?
Yeah.
When those might stabilize?
Glucagon, we've seen several new competitors come out over the last 1.5 years. We believe that we're almost at the floor, but not quite there yet. We think the rate of decline has softened significantly now. While this, you know, the upcoming quarters might be below where we were in the first quarter, that's not gonna be a significant quarter-over-quarter decline that we've seen in the past two quarters.
As far as epinephrine goes, you know, remember we've got two different products epinephrine. We've got the epinephrine multi-dose vials, and that's where the pricing pressure and the competition has come in. That's a product where at one point it was a very high-priced product, a very high margin product, and we've had multiple players come into that. We went from a two-player market to a three-player market to a four and then five-player market. Now with that extra competition, the price keeps dropping with every new entrant and then as does our share. We've seen, you know, on a year-over-year basis, we still will see some additional reductions of that price.
For the most part, that one we also think is kind of at the end of its downward slope and should start to level off soon. Also in epinephrine, we sell the prefilled syringe product as well. With the prefilled syringe product, last year there were two suppliers of that product, we and another party. That other party's not shipping right now. In the first quarter we saw an uptick in sales of that product on a year-over-year basis. As of today, they're still not shipping that product. We believe that we can, you know, have, you know, that the growth of that product could offset some of the decline in the other, the other epinephrine product.
Okay. on margins, when we think about product mix, cost inflation, just API sales mix, you know, which of these are more transient, which of these are maybe structural issues?
So, the transient, we believe is, you know, the biggest thing there is the BAQSIMI issue being transient because we believe that we can get around that with the actions that we've taken. We think that that comes back. Glucagon, that's something that's more structural and that stays that way. We've had some pricing increases from some of our suppliers that, you know, we think that that's hopefully settled down and it won't continue to happen, or at least in the level that we've seen over the last year. The other thing is that when we launch new products like ipratropium, which we launched in April of this year, those tend to be higher margin products.
When we see that, we see something where we are selling more of a higher margin product, and that's gonna be the biggest growth driver this year. That's gonna help margins for the rest of the year. Then, you know, two other dynamics that we have this year is that we do have mentioned that we will be selling some APIs out of our China facility. Those tend to be lower margin products, those will, you know, result in higher sales, but at a lower margin than we have.
When we look to next year and launching insulin, while overall it's going to be a relatively, probably, on its own, it might seem to be a slightly below average margin product, it's going to significantly increase the utilization of our factory, both in the U.S., where we make the finished product, and in China, where we'll make the API. The factory utilization should balance some of that lower margin off. I think it will be something that's pretty close to our corporate average.
Which is, what, 40%?
Well, it was 41% in the first quarter, but we think that that was a temporary low point, and we think that that comes back and that's the low point for the year.
Is there a threshold on the low end where you say, "We're not gonna participate if gross margins drop below X"?
That would be on a product-by-product basis, and in most cases, we would actually sell product at a negative gross margin because of the, any, fixed cost it would consume. For example, enoxaparin is a product where right now, for the last couple years, we've sold it at a slightly negative margin. However, We cover all the variable costs and some fixed costs and so therefore, we would, you know, even though it's negative margin, it's something where we continue to sell it because it does absorb a lot of overhead.
I see. Okay. I guess longer term though, BAQSIMI mix improvement is, I imagine, a tailwind for gross margin.
For this year, yes.
I mean beyond this year.
Yeah.
I mean, 'cause I think it flows through at mo-.
Yeah.
Almost the 2x probably what the corp average is.
Um-
Almost.
Not 2X, but it is much higher, and should remain higher once we get these pricing issues behind us. We do anticipate growth in that product, in, over the long term, especially with our goal of $250 million-$275 million in sales.
How should investors think about maybe more steady state gross margins for the business?
We haven't given long-term goals, forecast for that, but I will say that we, like I said, a minute ago, I think we, you know, right now, the first quarter, that is, that is the low point that we anticipate for the year and for a long time. We expect it to come back significantly, and that most of the products that we plan to launch in the future will have higher than average gross profits. The growth of products like BAQSIMI and Primatene MIST are will be at gross margins that are higher than the corporate average as well.
Okay. I guess, you know, another growth lever here is AMP-007 in 2026, and just trying to get a sense of how much visibility you ultimately have into how that product can ramp. Can that kinda flow through at a healthy gross margin relative to the rest of the business?
We do have some visibility. We launched that mid-April, and we've been able to see some strong factory sales so far. Also, as we said on our last conference call, it's, right now there, we are the only generic on the market. When we gave our forecast at the beginning of the year, we were assuming that there would be one generic competitor for the year, so far there's not. We have Hatch-Waxman six-month exclusivity until mid-October, there won't be another generic unless there's an authorized generic launched until then.
The margin on that product is going to be relatively high compared to the rest of our business, and also the sales are going to be stronger than we thought that they would be when we gave our guidance at the beginning of the year, which is one of the reasons why on the last call we mentioned that we were keeping our revenue guidance the same for this year, even though we had the lower sales than expected of BAQSIMI. Just to reiterate that revenue guidance, we're saying that this year revenues will increase in mid-to-high single-digits.
Okay. Is this a product that could, you know, rise to the top of your top product disclosure list?
It's one that we will break out because the sales will be meaningful enough for us.
Okay. I guess if there is no AG launch, these things are probably hard to answer, but it's, it's a nichier brand, right? I think it was like sub $200 million.
Yes.
It's an inhalation product, you guys have played in these spaces before. Do you think this is unlikely that we're gonna see some generic competition if an AG never surfaces?
You never know, because it's something where we think it's not as obvious a target as other products. It is something that still could be meaningful. If there is competition, and we don't expect a lot of competition, but so it's always possible, and so our assumption is always that there's going to be some competition, then that way, if we have a surprise, then, it's on the upside.
Yep. Okay. How do you see the appetite for risk evolving in your pipeline right now? Be it either specialty brand, biosimilar, complex generic, across the spectrum, or even Paragraph IV.
Yeah.
A litigation.
I'll answer that, and maybe Tony can add to that. That's, you know, we see, we have an increase in desire to participate in the proprietary space, biosimilar space, and some of the other spaces where we haven't participated in the past where we've been mostly, injectable player and a complex generic company. I wouldn't say that that's necessarily an increased risk appetite because we think it's an expansion of our business. It's something that we can build upon a base business and expand to something that has potentially higher returns, if they succeed. To one extent you might say, yeah, it we're taking some individual, you know, we recently in licensed four products. Any one of those individually could be risky.
We think that the group of them together is less risky. Also because we plan to focus more on these proprietary products, we think that as a portfolio of products, that it actually lessens the risk in the overall company because of the diversification away from some of the products where we see more competition potential in the future. Tony, did you want to add anything to that?
Yeah. I'll say in some ways, the more risk, the more reward. As Bill mentioned, the natural progression for us to expand some of these areas to be able to develop products in some of these areas is a natural progression for us. To think about it, maybe just set the context of the history of our development as some of these. The founders of our company, one of the first things they did was purchase an aseptic manufacturing facility, and they wanted to learn the business, learn the manufacturing, and they did. It was primarily manufacturing generic injectable products. They learned that business. One of the first products they developed on their own was, at the time, a complex generic, it wasn't called that at the time, enoxaparin.
During the development process there, Paragraph IV, that they were challenged and successful. Also during the development of that, we had to learn immunogenicity. The FDA came and said, "For the first time on a generic, you had to do that." Rather than outsource it, we took it in, we learned it, we created a bio group that was able to internally perform those studies.
With some other proprietary products that we purchased or developed, they were a 505, like we have our Primatene Mist. Again, we had to learn how to do clinical trials, so we ran clinical trials essentially internally. We ran them with our biostatisticians, we wrote the protocols, we performed them at sites, but we monitored it. We did it all internally. Through years of doing that, progressively getting these new disciplines, these new tools, it's allowed us to be in a position where we can take the risk on some of these more complicated products like complex generics and even new proprietary products just from a new chemical.
On biosimilars, right? Like there's a lot of flavors of biosimilars, right? There's a PD-1, right? That we don't know if 2028 is when the IP will run off or if there'll be IP that goes into the early to mid 2030s, and there's follow-on subcutaneous offerings, right? There's risk that what you're going after, will it be there when you think it'll be there as an opportunity? You know, a lot of biosimilars, I don't know if these metrics are dated, right? $100 million - $150 million of development cost. I imagine these aren't maybe the types of development programs that you're going after, but maybe if you can kind of like talk a little bit more. I know you have the basal or the rapid-acting insulin, right?
We have insulin aspart that we're developing, and certainly we've invested quite a lot into that. One of the things when you look at the investment of that is the API, and we've looked at other companies that were developing biosimilars, and the cost that they have to co-develop that with another API manufacturer. The costs that they have there sometimes are born later in the process. We did that on our own, and that helped us to reduce the cost not only up front, but also later on as we could control some of those. If we look at the market there, I mean, IQVIA is a $1 billion product. We think there's plenty of room for multiple players in that. We manufacture our finished product in the U.S.
We think that there's a very big advantage to being able to do that. With the GLP-1, you know, we, when we looked at this, we have a diabetes portfolio, and we thought a GLP-1 would be kind of a natural fit for one of those. We developed that, and we never know what the market dynamic of a GLP-1, with the way it's evolving, we're not quite sure how it's going to end up. We see that that risk, potentially the cards fall one direction, and suddenly there's a high demand for it. I think we're willing to take a little bit of risk in some of these because we see a potential, for it, and it also kind of adds to our portfolio.
Just to add onto that, when we take a look at the, right now we're working on three biosimilars, two of them are insulins, and I think we have expertise in that area. The third one is one where we don't think we'll have to spend as much money as that, the numbers you were throwing out there because we feel that we have a substantial advantage in the API manufacturing for that product.
Based on some of the other things that we can manufacture in our at our facility where we plan to make it. We think that it's something where if we have a competitive advantage, then that's something that we're willing to take. Are we willing to do You know, we didn't go after most of the large biologics where we thought they might be crowded, where we didn't have a strategic advantage. We wanted to go after the ones where we thought we did have a strategic advantage, that's why we're only going after a handful right now.
Okay. Maybe Tony, can you talk a little bit about insulin, why it's been so hard for generics to crack this nut? I mean, I'm thinking of basal insulin and pricing came down a lot before generic entries, and it's a scale game, and there's a lot of investment that needs to be made. What makes you guys think you can win in a space like this, high volume? I imagine that the pricing has come down.
Yeah. The way I look at it is you have biotech firms that can manufacture these biosimilar products, then you have generic firms that are used to generics and are starting to get into complex generics. I think insulin's kind of a middle ground where it's not quite complicated enough for the biotech firms to go after it. There are other fish for them to go after. For the generic, I think most of them struggle with it. It's a biologic product, there's a lot to go with the biologic product. For us, when we produced glucagon, we learned quite a lot. Glucagon's a peptide. It acts very similar to a protein like insulin.
The receptor, the cell receptors are critical in the way that plays, and it's very difficult to understand that, to categorize that so that you can characterize it properly with the FDA. I think it's quite in the middle, insulin's quite in the middle between the generic and the biotech companies where, you know, they haven't quite found that spot. For us, because of the history that I explained a little bit, it's put us in a position to naturally progress towards that.
Mm-hmm. Bill, do you think the pricing's still attractive enough for you as you look ahead?
Yeah. For insulin?
Yeah.
Well, for insulin, it's certainly lower than the assumption that we had when we started these programs. It is not as attractive as it was, but it's something where we've already put in a significant CapEx to build both the API facility and the finished product line. We've already made that investment, so the incremental investment we have isn't that big. While it might be something that's either at or slightly below our corporate average, and we think it's, you know, the incremental spending that we have from now to get these things over the line, the finish line is not that great.
Yep. On the inhalation side, is the thinking there that could be a meaningful part of your pipeline strategy or even leverage the in-house expertise to develop specialty brands?
Yeah. We definitely, you know, when we take a look at specialty brands, that is something that we are certainly considering in the inhalation. When you take a look at Primatene MIST, that is a brand, but we also are working on a next generation Primatene MIST with a new green propellant that does not not as disadvantageous to the ozone layer. It's something we have worked on, and we are considering working on others as well. It is certainly a key technology that we could do.
Yeah.
I think with inhalation products, we have a manufacturing facility in the Boston area that has plenty of capacity, plenty of room for expansion, so we're committed to the inhalation products. We know it well. It's a technology we understand quite well from developing new products for it, so we're committed to the product category.
How should I take the commentary earlier about GLP-1s and license semaglutide in 2031 is, like, the big thing that everybody would focus on in the US as an opportunity. A lot of investors on the brand side envision there's going to be some generics available in 2031 for the injectable semaglutide. Is it that it's worth taking some of the risk in developing this, or do you go all in and is that gonna be a high upfront cost?
Our thought on that one is it's going to be a pretty crowded market. We're, you know, we won't say that we are or are not playing on it, but our, our assumption going into whatever we might spend on products that are that far out is that that's going to be a crowded market. We have decided that we, again, do have some capabilities on the API side, so that we're going to be selling at least two different APIs this year that are GLP-1s out of the China facility that we have. One of those products is going to be a proprietary product or selling it to a company that's selling this product as a proprietary product, and the other one is going to be more of a generic API.
Okay. Lastly, just on, you know, capital allocation and deployment, how are you thinking about buybacks versus BD and CapEx?
So, our first thing is that we always wanna make sure that we cover our R&D program. Our R&D program is growing this year and will continue to grow into the future. That's the first thing. We can completely do that with the cash that we're generating, that's the first thing. Second thing, we do have some CapEx we're taking care of, and that's easily covered. The next thing is business development. If we have some business development, that would be the priority for us. However, recently the stock has been lower than we would normally think it should be, and we think it's an attractive value right now.
We have, as you saw from the first quarter, we accelerated our buying into the first quarter, and we spent nearly $30 million buying back shares that accounted for almost 3% of the outstanding shares. With the stock price in a similar position right now from where it was in March, you'd expect that we would also accelerate that share purchases this time.
Okay. Okay. Well, we're out of time. Gentlemen, thanks so much for joining us.
Great. Thanks for having us again.