Hello, and welcome to Amneal's first quarter 2022 conference call. My name is Alex, and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star one on your telephone keypad. If you'd like to withdraw your question, you may press star two. I will now hand over to Amneal's Head of Investor Relations, Tony DiMeo. Over to you, Tony.
Good morning, and thank you for joining Amneal's first quarter 2022 earnings call. Today, we issued a press release reporting our financial results. The press release and presentation are available at amneal.com, and a replay of this call will be posted after the call. 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 review 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. Important information on our use of these measures and reconciliations to U.S. GAAP may be found in the earnings presentation.
Beginning in the first quarter of 2022, the company will no longer exclude R&D milestone expense from non-GAAP financial measures. In our press release, we provide revised prior period results reflecting this change. On the call this morning are Chirag and Chintu Patel, Co-CEOs, Tasos Konidaris, CFO, Andy Boyer, Generics, Joe Todisco, Specialty, and Jason Daly, our Chief Legal Officer and Corporate Secretary. I will now turn the call over to Chirag.
Thank you, Tony, and good morning, everyone. The first quarter was a good start to the year, with revenue of $498 million and adjusted EBITDA of $100 million as expected. We are on track to achieve our full year 2022 guidance commitments of continued top and bottom line growth. Building on our consistent results and continued success in executing our strategy over the last several years, we are expanding in high growth areas, including specialty, injectables, and now biosimilars. As a global essential medicines company, underlying our strategy is our focus on affordability, access, and addressing unmet patient needs. Looking forward, as we continue to execute, we see our growth profile accelerating, our business mix increasingly diversifying, and our impact on global healthcare expanding. Let me now provide a few updates across our businesses.
Starting with generics, our business continues to grow as our productive R&D engine continues to diversify the portfolio with new complex medicines. As a result, Amneal has a low product concentration, with our largest generics product represents only 5% of total company revenues, and our top five generics products are only 17%. With our focus on more complex and higher barrier products, over half of generics revenue today is non-oral solids as compared to 35% a few years ago. The mix shift towards complex medicines is continuing as 86% of our pipeline is non-oral solids. Accordingly, we expect durable growth in this business, and we continue allocating returns into high growth areas. In regards to our injectable business, as we have shared with you in the past, this is a key growth area for Amneal.
We are pleased that injectables will grow approximately 30% this year to more than $160 million in revenue as we are well on our way of achieving $300 million-plus by 2025. We look to scale our business with expanded capabilities, increased capacity, and new products in our portfolio. We believe these initiatives will drive substantial and sustainable growth in injectables for years. In biosimilars, we are very excited to enter the U.S. biosimilar market with the upcoming launch of our first three oncology products. We are pleased with the approvals of Releuko, a filgrastim biosimilar, and ALYMSYS, a bevacizumab biosimilar, which are wonderful achievements by team Amneal and our partners. In addition, we expect approval for a third biosimilar, pegfilgrastim, in the next few weeks.
As we have shared with you in the past, we are positioning Amneal to play a large, critical, and long-term role in the fast-growing $28 billion U.S. biosimilar market. We estimate the market size for these three products based on net revenue is approximately $4 billion, of which about half is biosimilars. Together, we see peak sales for these three U.S. Biosimilars of $200 million. This is the first time we are sharing a biosimilars revenue estimate for us. We are also looking for additional opportunities where we can be early to market as we build our portfolio through in-licensing to start and vertical integration and time to become a meaningful player in biosimilars. In AvKARE, our distribution business, we saw continued nice growth in Q1. We expect sustainable growth driven by strong commercial and operational execution as we expand across multiple distribution channels.
In international, we are leveraging our portfolio of complex generics, injectables, specialty, and biosimilars medicines to meet local needs. We believe this strategy will add considerable revenues in time and be highly profitable as we utilize partners and our existing infrastructure. In China, we are making good progress with our Fosun partnership, and we look to go commercial later this year or early next year. In the $25 billion branded generics India market, we have launched our label there and are expanding our in-market presence. Around the rest of the world, we are pursuing distribution agreements and look forward to sharing with you as we make progress. In specialty, we remain focused on driving strong commercial execution of our key branded products and advancing the pipeline. We expect continued full-year growth from Rytary in Parkinson's and UNITHROID in hypothyroidism.
As our pipeline delivers new branded products, including LYVISPAH and DHE this year, and IPX203 next year, we see our specialty business expanding very meaningfully over the next several years. Before I pass it over to Chintu, I would like to acknowledge Joe Todisco, who is moving on from Amneal to be a CEO of a biopharmaceutical company here in New Jersey. I want to thank Joe for his awesome contribution to Amneal over eleven years and his strong leadership. He has built a great team and has contributed to Amneal in a great way. We wish him all the best. With that, I'll hand it over to Chintu.
Thank you, Chirag, and good morning, everyone. First, my sincere thanks to 7,000+ members of the Amneal family who work hard every day to make healthy possible. We believe our relentless focus on excellence across operations, supply chain, quality, and science-driven innovation differentiates Amneal. Through our excellence programs, we are constantly reducing cost and improving efficiencies. In R&D, we are directing more spend towards high growth areas, particularly biosimilars, specialty, injectable, and complex generics. Let me now walk through the different aspects of our business. In generics, we feel great about our pipeline and continued innovation in complex categories. So far in 2022, we have 8 new launches. We expect 20-30 new launches this year and each year going forward. Just this past week, we received another CGT approval for baclofen gel. Amneal is the industry leader in CGT approvals.
Overall, we have 111 ANDAs pending across all dosage forms in generics and expect to file approximately 30 more ANDAs this year. In our pipeline of 101 products, 86% are non-oral solids, and most are expected to be first to market, first to file, or 505(b)(2)s. We continue to move towards an increasingly complex differentiated portfolio of over 250 molecules that is driving sustainable growth. One of the key product launches in 2022 is Ritonavir, which is co-administered with Paxlovid. We are excited to be one of the main U.S. supplier for this key COVID-19 treatment. Ritonavir is an already approved ANDA that our team has been working hard to fulfill substantial demand. In addition, we improved supply chain for Adrenaclick our epinephrine auto-injector and expect more revenue in 2022.
As we look to the rest of 2022 and into 2023, we see significant launches on the horizon that will start to materialize later this year and drive growth in 2023 and beyond. We don't disclose many launches for competitive reasons. Let me share a few key upcoming ones among many others, including in ophthalmics and otics, generic Bracford and generic Ciprodex. In oral solids, carvedilol ER and mesalamine. In injectable vasopressin, insulin lispro, multi-dose methylprednisolone acetate and exenatide. In LVP bags, dexmedetomidine, ropivacaine, and magnesium sulfate. In detailed generics, we expect the depth of our pipeline and leading commercial presence to drive consistent financial performance. In ophthalmic otics, we have 8 ANDAs pending and 11 products in the pipeline. In inhalation nasal, there are 4 ANDAs pending and 7 more products under development.
In injectables, we expect substantial growth as we expand our portfolio and add new capacity and capabilities. As a reminder, in January, we acquired the Saol Baclofen franchise, which added LVPs to our institutional bag and additional commercial capabilities. Last November, we acquired Puniska Healthcare, which added state-of-the-art manufacturing capabilities and doubles our capacity to 16 production lines in total. The integration is going very well, and we are preparing for commercial production in 2023. This acquisition and expansion of other sites has enhanced Amneal's ability to do more R&D and supply commercial product from multiple sites. In terms of innovation in injectables, we expect 5-10 new launches in 2022, with 4 already this year. We have 28 ANDAs pending and another 61 pipeline products.
They are in a variety of complex areas, including drug device combination, peptides, long-acting injectables, liposomes, LVP bags, and 505(b)(2) products. Overall, we are on track for over 14 injectable launches from 2022 through 2025. As we have shared in the past, we believe the combination of our robust quality track record, increasing supply capacity, and continued innovation positions us very well to scale our injectables business and be a sustainable long-term supplier globally. We are very excited about the large and growing biosimilars market and how Amneal is well-positioned for near and long-term growth. The recent approvals of our first two U.S. biosimilars and one more approval expected later this month is a watershed mark for Amneal. We are planning for Q3 launch of Releuko and Alymsys.
We expect to be one of a few companies with three U.S. biosimilars on the market in the oncology space. We were pleased that ALYMSYS received a first cycle approval. This is a tremendous accomplishment by the team and demonstrates our core competencies in this space. Combined with our partners, we have substantial science, regulatory, manufacturing, and commercial capabilities needed in biosimilars. We believe the key to success are having the right development path, manufacturing capabilities, and being vertically integrated over time from development to commercialization. We are actively working to enhance our key capabilities and expand our portfolio to drive growth organically and inorganically as we target to add new biosimilar launches in the years ahead. We are very enthusiastic about our future in biopharmaceuticals, particularly biosimilars, as the opportunity is coming to fruition now for us.
In international, we are advancing our strategies in China and India and the rest of the world. We see global expansion as another vector for long-term sustainable growth. In China, we currently have 5 products filed, with 10-15 expected by the end of 2022 and 20-30 over time. In March, we were pleased to be one of the companies to receive a sub-license to manufacture and commercialize Paxlovid in 95 low and middle-income countries. We are evaluating distribution strategies to drive access to this COVID-19 treatment. In specialty, we are expanding our branded portfolio, and we see a number of growth drivers. Our current specialty pipeline represents $500 million-$1 billion U.S. peak sales. First, we expect to launch LYVISPAH for spasticity in June. Next, we look to launch our DHE auto-injector for migraine and cluster headaches later this year upon approval.
For our IPX203, we completed our pre-NDA meeting with FDA. At the American Academy of Neurology meeting in April, we presented two abstracts sharing top-line clinical efficacy results and post-hoc analysis showing 1.55 hours more good on time for those. We expect to submit our NDA in Q3, and pending FDA approval, remain on track for launch in mid-2023. We see $300 million-$500 million in U.S. peak sales for IPX203. On K127 for myasthenia gravis, we expect to file our NDA by end of 2022 and are pursuing other indications. Also, our other pipeline programs, K114 and K128, are progressing well. We look to share more on our expanding specialty pipeline. We are adding new 505(b)(2) programs that look to repurpose existing molecules utilizing our drug delivery technology platforms, GRANDE and Kronotec.
We believe these technologies differentiates us in specialty. Overall, we are very excited about our specialty growth prospects and expect at least one new launch per year going forward. To summarize, our strategy for accelerated growth is built upon our strong foundation of innovation, superb quality, and operational excellence. Across the business, we remain laser-focused on execution this year. I will now hand it over to Tasos.
Thank you, Chintu. Our first quarter financial performance was in line with our expectations, and thanks to the good work by all our colleagues, we are pleased to reaffirm our full year 2022 guidance for continued top and bottom line growth. For the first quarter, we reported total net revenue of $498 million Adjusted EBITDA over $100 million and adjusted diluted EPS of $0.12. Our results include $5 million of R&D milestone expenses, which we no longer exclude from our non-GAAP results. The annual run rate of these expenses is $15 million-$20 million and represents external collaborations to advance our R&D pipeline. This policy change has no economic or cash impact to our business. Q1 generics net revenue of $318 million grew $5 million or 2%.
Products launched in 2021 and 2022 contributed $14 million of growth, offsetting the typical declines in the remaining portfolio. As we have said in the past, our focus on innovation and strong commercial execution is a key differentiating factor that enables our sustainable top line growth. Consequently, products launched prior to 2019 now account for about 65% of generic net revenue and declining fast. This reduced reliance on older, more prone to competition products bodes well for continued growth and profitability. In specialty, Q1 net revenue of $85 million declined $11 million or 11% and represents the low point of quarterly revenue for the year. This performance reflects Zomig's loss of exclusivity as well as higher than typical quarterly reimbursement costs related to Rytary.
We continue to be excited by the total prescription growth of Rytary and UNITHROID, up 6% and 13% respectively, as well as the upcoming launches of LYVISPAH and DHE auto-injector. Our AvKARE net revenue of $95 million grew $10 million or 12%, reflecting strong customer acquisition success in the non-federal distribution channel. Q1 2022 adjusted gross margin of 43.5% was in line with prior quarter and reflects three dynamics. First, generics gross margin of 42%, a 300 basis points improvement from prior quarter. Second, AvKARE gross margin of 15%, 500 basis points decline from prior quarter due to mix of business. Finally, $15 million of costs related to timing of our manufacturing production schedule. The last item is a timing issue and will improve in future quarters, providing substantial additional gross margin and profitability.
Q1 adjusted EBITDA of $100 million was actually a few million higher than the expectations we shared with you during our February earnings call. As I mentioned earlier, it also includes $5 million related to our reporting policy change and $15 million of manufacturing overhead allocation. From an operating cash flow perspective, we generated $120 million of cash, which we'll continue to deploy in driving sustainable long-term growth. Consequently, in the first quarter, we invested $131 million to fully fund the previously announced acquisitions of Saol, Kashiv, and Puniska Healthcare. Looking ahead and consistent with our discussion in our February earnings call, we expect substantial acceleration of top and bottom line growth over the course of this year. This growth will be driven by four factors. First, multiple new product introductions such as Ritonavir, LYVISPAH, Lioresal, and our new biosimilars.
Second, strong underlying demand of key growth brands such as Adrenaclick, ONGENTYS, Rytary, and UNITHROID. Third, favorable fixed overhead manufacturing absorption. Finally, stability in our operating expenses. The fact that the above growth drivers are well understood and within our control gives us confidence in delivering the 2022 financial guidance. Let me hand the call back to Chirag now.
Thank you, Tasos. In summary, we are on track for another great year in 2022. We see momentum across our business, including our first U.S. biosimilar approvals. We see these growth drivers building and accelerating our company performance this year, next year and beyond. I'll now open the call to questions.
Thank you. If you'd like to ask a question, you can press star one on your telephone keypad. If you'd like to withdraw your question, you may press star two. Please ensure you're unmuted locally when asking your question. Our first question for today comes from Gary Nachman of BMO Capital Markets. Gary, your line is now open. Oh, sorry, Gary, you might be muted. Sorry, Gary, I'm still not receiving any audio. My apologies. If you'd like to ask a question, you can press star one on your telephone keypad. If you'd like to withdraw your question, you may press star two.
Operator, next question.
As a reminder, if you'd like to ask a question, you can press star one on your telephone keypad. Our next question comes from Mikaela Franceschina from Barclays. Mikaela, your line is now open.
Hi, I'm Mikaela. I'm from Barclays on for Balaji Prasad. Just wondering, by when can you realize your U.S. peak sales guidance of $200 million+ for your three biosimilars? When thinking about your biosimilars, how do you plan to get vertically integrated and over what time frame?
Mikaela, thank you and good morning. The peak sales, as you know, we are working with getting our reimbursement in place, which should be in place by January 1, 2023. Our commercial infrastructure is in place, so we expect contributions this year, adding up to more contribution in 2023. Peak sales, I would say somewhere between 2023-2024, we should be able to achieve that. You had a second question on vertical integration. As we are committed in biosimilar for long term, as we have previously stated that our strategy is dual. One is to in-license from key partners, trusted partners, and build our own capabilities.
We are exploring different options and should be able to be vertically integrated by end of this year or beginning of next year.
Thank you.
Thank you. Our next question comes from David Amsellem from Piper Sandler. David, your line is now open.
Hey, thanks. I joined late, so I apologize if I missed this. On the margins, I know you talked about you know, the AvKARE being a bigger part of the mix. I just had a bigger picture question about the role of AvKARE in the organization and to the extent that you have periods where it's a bigger part of the mix and there's some margin compression, you know, do you see that you know, as problematic? I'm just trying to get a better sense of you know, where AvKARE fits and you know, is the margin profile, given where you're taking the business, I guess, acceptable. That's number one. Number two is on biosimilars. I think you laid out some assumptions about peak sales.
You know, I wanted to get your thoughts on just your view on share, volume share, and ultimately, you know, how you're seeing overall penetration in the filgrastim, pegfilgrastim, and bevacizumab markets playing out for biosimilars. You know, what your underlying assumptions are regarding pricing erosion, share, and your penetration. That would be really helpful. Thank you.
David, good morning. I'll start with the big picture on AvKARE. AvKARE is excellent cash flow business for us and also allows us to put more products in federal healthcare market, which is VA, DoD. As you know, we are one of the top two there. Margin could fluctuate in that business. There are three businesses within AvKARE. One is the federal government, which is steady and margins. Then they have a unit dose business, which is growing. The third business is pure distribution business for City of Philadelphia, and they have added few more cities. It's a great business. It will fluctuate between 15%-20% of gross margin, and we'll keep adding the top line. We should be focused on top line as well.
Anything else on AvKARE, Tasos?
Yeah. No, I think you have spot on. It's a sustainable business. It is growing both top line and bottom line. David is correct. The overall, you know, margin of that business is less so than the rest of our business, but we're really focused on total absolute dollars.
Yeah.
Return there. Yeah. Whether or not, you know, one quarter AvKARE is, you know, in this situation, you know, 15% gross margin versus 18%, that's where it's gonna fluctuate, and doesn't really move the needle that much from a total company perspective.
Yeah.
The key driver there is specialty, which continues to be, you know, almost 80% in our generics, which as you know, over the last three years, we've grown it from mid-thirties to substantially more than 40%. That will be.
Yeah. Our second question. Thank you, Tasos. On biosimilars, the excellent part is the commercial team is in place, led by Harsher Singh and excellent team with a couple other people added from AmerisourceBergen and Pfizer and the Saol team, which added 21 people in institutional sales plus contracting sales force. As we have always done a great job in commercialization, we will do a great job in commercialization here as well. We have understood the market. As you know, these are quasi-branded products. We gotta get the reimbursement code in place. We'll do so. The bevacizumab, we are competing with Amgen and Pfizer and obviously the innovator, and we would try and maximize our market share to about 15%-20%.
We're more focusing on oncologic clinics, integrated regional systems. Many avenues to get there as well. We will have the 340B pass-through status, which is always helpful. For the G-CSF, we have the pass-through status as well, filgrastim. It's a little bit more competitive with the three active players. We'll try to with our 340B unique position, we may be able to get again, 15%-20% market share or more. For pegfilgrastim would be a little bit more competitive since there are five active players. We will try to penetrate different channels and it should be very helpful to have bevacizumab with pegfilgrastim. That would be a nice launch as well. All three, very excited, and the future of biosimilars, we're very excited as well.
Okay. That's helpful. Just if I may follow up, just to be clear on the shared economics, can you just remind me the margin profile of the biosimilars. I mean, that's not gonna be net margins that are gonna be higher than your corporate operating margins, right? Is that a fair way to think about it?
Yes. It would be bevacizumab would be higher because it's a bigger market, and PAG and G would be in line with corporate margins.
Got it. Okay. Thank you.
Thank you. Our final question for today comes from Gary Nachman from BMO Capital Markets. Gary, your line is now open.
Okay, great. Sorry I missed you guys before, just jumping around a couple of calls. I don't know if you touched on this. I obviously jumped on late. Could you talk about how you expect gross margins to trend for the remainder of this year and sort of what additional initiatives you're taking to improve the gross margin further beyond this year? Just, you know, what sort of levers you think you have at this point? How much more there is to do on that front?
Yeah, yeah.
Just, you know, with respect to the specialty. Yeah, just one more. With respect to the specialty business, just how comfortable you are with the commercial infrastructure, and how much more you wanna leverage that in terms of bringing new products in and, you know, is that gonna become a much bigger part of your business, do you think, over the next few years, or will it be relatively modest when you think of the overall company? Thanks.
Hey, Gary. I'll take the first one. Good morning. As you know, our Q1 gross margin was 43%. We're looking to increase for the rest of the year. My gut feel is we'll finish the full year probably about 45%, which is in line where we were last year. That's number one. Now, if you think about the growth drivers, how do we go from Q1 of 43% to, let's say, rest of the year of about 45%? There are a couple things. Number one is the first piece is just our internal manufacturing production plan. So better fixed overhead absorption, and we're in control of that. It just reflects the demand and our manufacturing operations, so high confidence on getting that benefit.
Second is NPLs, new product launches. You know, as we had shared with you a few months ago, this year, you know, we expect new product launches to be more on the back end of the year than the front end. As you know, by nature of the complexity of those products, they have substantial greater gross margin than the rest of the portfolio. And then, that's the third is when you look at our specialty business, you know, as I said, in Q1, that's the low point in terms of revenue. Rytary and Unithroid are expected to accelerate the growth in those products higher, have higher gross margins. Those are the three levers.
Thank you, Tasos. Gary, on specialty, as you know, we had committed, we acquired Impax back in 2018. That formed our specialty platform. Excellent commercial capabilities already in place for Parkinson's and hormone disorders as well as endocrinology. Very excited to have a great team in place, relationship for market access in place, marketing teams are in place. Penetration, as you can see, will continue to grow Rytary by 6%-8% every year, UNITHROID by 10%-12%. We have excellent organic pipeline. We got LYVISPAH being launched on June 1. We have DHE auto-injector based on the outcome at our partner's site from the FDA. Should be launched this year. IPX203 next year with a much higher peak sales because of the product profile and results what we have seen.
K127, myasthenia gravis product, which we're filing this year. We also have government programs for that as well. That is also expected to launch in 2024. Then we have two additional, and these we acquired from Kashiv Specialty, K114, K128, along with K127, and we're adding a couple more pipeline assets in specialty. We have a separate team focusing on specialty R&D. We have two technology platforms which have been well tested over last 10 years. With that, today our business is about $400 million in specialty. These organic pipeline will add substantial revenue to it, and we are open to certain tuck-in deals for adding within these two specialty.
We are constantly evaluating those opportunities, and I think more are being available with this biotech pool in the market and other conditions which are driving companies like us in a bit of a driver's seat because of the constant cash flow from our generics business, injectable business. Specialty business allows us to sustain our growth and keep adding these assets. Very excited. If you ask me a goal on numbers, yes, we like to get to $1 billion in specialty sales. How long it will take? Maybe a few more years, but excellent growth drivers. You're absolutely right that part of the business is becoming very significant and much higher contribution than the generics.
That's very helpful. Thank you.
Thank you. We have no further questions for today, so I'll hand back to Chirag Patel for any closing remarks.
Well, thank you everyone. I know it's a busy morning, so, many people could not join, but everybody who joined, thank you very much and have a great day.
Thank you for joining today's call. You may now disconnect.