Afternoon, and thank you for joining us. My name is Dave Risinger, and I'm responsible for U. S. Pharmaceuticals at Morgan Stanley, including both major and specialty pharmaceuticals. And it's very much my pleasure to welcome the senior leaders of Amneal to join us for the conversation.
I do need to refer you to a disclaimer at www.morganstanley.com/researchdisclosures. And if you're a member of the press, we ask you to disconnect and reach out to Morgan Stanley Public Relations. So with us today, we have both Sharag Patel and also Shintu Patel, who are the original cofounders and co CEOs of the company. They originally founded Amneal in 02/2002. And they returned last summer, in the 2019, as co CEOs.
They also brought in Tassos Conandares, who is the company's CFO. So we're pleased to have Tassos with us as well. I thought I would first turn it over to you, Sharag, just to maybe introduce yourself briefly. I actually think it would be helpful for each of you to just touch on how you, you know, are spending your time. Then, you know, Sharag would also love to hear some opening comments from you as well.
So let me pass it to you.
Great. Thank you. So thank you everyone for joining, and, David, thank you very much. Shirag Patel. I'm a cofounder and coCEO of Emneal.
We founded the company along with my brother and from help from my father who is also pharmacist, scientist. And we and we call it Amneal one point o. That story, we grew Amneal substantially from 02/2002. And when we launched our label in 02/2017, we experienced a remarkable growth for the generic side of the business. And we're very excited to be back on MNII two point o.
And first, let me answer David's question. What I do is my as co CEO structure sometimes sounds confusing, but we are brothers who get along really well, and we have complimentary skills that my liking and what I've add values to M and E is on a business development, self marketing, finance, legal, all those areas I I I look look after. And my brother looks after r and d, operations, quality, and we always team up on all the key decisions. And great to have Tassos on board as well. The second part of the questions on what we are excited, summary of Amneal where we stand after one year coming back.
We feel very strong where we stand. The foundations, We have stabilized the generics business. We have grown our base business, launched new products, reignited and refreshed the entire generics pipeline, including injectables, ophthalmics, castor, pretty much all of the the the the products that are available. We have it. Lots of manufacturing still in The United States, so we're very excited about any government actions that may be for bringing manufacturing back to The United States.
So very excited about generics, which is about $1,400,000,000 of business, and we expect growth in coming years. Second growth engine we have is distribution. That is a good acquisition we did early part of this year, which is growing, and government business is growing as well. We're able to sell Amneal's product through that channel, which improves our margins, and we're excited to launch the unit dose business part of our distribution business called Avcare. And the third part of our business is specialty, which is rightfully so underappreciated in the market at this point.
But we do about 360,000,000 in sales and growing that business as we added. We got IPX two zero three as a pipeline. So existing business is growing. IPX two zero three is in phase three. We expect the top line results in third quarter next year, and k one two seven, which is a treatment for the myasthenia gravis gravis patient, we added that in the pipeline in the first half of this year, which we are very excited about as well.
So we are working on more growth stories within our specialty. So I'll stop there, David. That's just a highlight where we are headed.
Excellent. So that's a great framework. So thank you for that, Shrug. And maybe just add a little bit more for those who aren't familiar with Amneal, and it was helpful for you to start with the revenues. But if you could go into a little bit of the operations, the employee base, just to give a sense for how company is structured and how you also expect to leverage that structure with your pipeline over time.
Fantastic. So that's everybody asked us that why were we successful in MEAN one point o. That is because of our teams, and most of the team is intact. The it's 5,500 people strong, which includes 2,100 employees in The United States. We're very proud of our United States infrastructure.
India, we have a 3,200 plus employees and excellent team. Ireland, we have smaller team, but it's growing. It's inhalation platform there. So generic side side, we are well set with our infrastructure where we don't spend time on closer of the plant or consolidation. We're solely focused on launching products, increasing our pipeline, increasing our baseline business.
So very excited about the team and infrastructure on generic side. The distribution, we had decided to run separately because it's a it's a different cup of tea. And Mhmm. We have the founders of that business that we bought from. They still have a vested interest as they own 35% of the company still.
So they're running it and running it well because they did it for over thirty years, and the the they have a great name in in in central part of the country in Kentucky. So that is well said, and they have about a 150 employees. Then specialty side of the business, we run separately because there is no synergy per se. There's scientific synergy because of CMC and other things, but marketing, market access, we're very proud of leadership provided by our head of commercial there and how he's able to build the specialty business on a commercial side. And now we are looking to strengthen our r and d engine within our specialty business.
So that's very proud of the teams, and they're very excited.
Excellent. And so with respect to R opportunities. But if you could put some framework around that and then discuss key developments we should be watching for your R and D organization in coming years.
Sure. So they we we've been investing in the generics for a long time. So there is no need to overinvest in generics. So we have taken certain part of that r and d budget and put it in specialty. So that the two areas where we are focusing is the generics, which includes injectables, which has a certain complex complex injectables, injectables, ophthalmics, that's where we're inhalation, that is where we are spending generics r and d dollars.
And slowly but surely, we're taking thirty, forty, 50% of our r and d budget, not increasing it, and taking it to specialty, our sweet spots are these unmet needs, drug delivery technologies between the peak cells between 100 to $400,000,000, which is ignored by big pharma, and it's not a biotech that play. So we are playing in that sandbox, and the investment there would be 20 to 50,000,000 for product and likely of likelihood of success is higher as well. So this is how we are allocating our r and d dollars in the platform.
Okay. Very good. And then with with respect to the just to go back to the top line. So you mentioned $1,400,000,000 in generics set to grow. Could you talk about the pushes and pulls for that top line and and the opportunity for growth?
Yes. So the baseline, focusing on baseline, which is we have a large portfolio. We have 330 products approved, 250 plus marketed. We're not taking our eyes off those baseline products because we're finding ways to increase business within baseline, which helps us protect against the competition when they show up. The second part is new product launches.
So we've been launching new products since we came back, and we expect to launch even more. Also, we have refreshed the pipelines that every year we expect to launch new products as well. And within that, the the the main advantage would be in the ophthalmics, few more transdermals coming along the even the OTC side of business is growing with Diclo going OTC. The more injectable products coming in. So those are the the on the generic side, which will provide we plan to not lose as much in a baseline.
We have seen the stabilization in the market much better than '18 and '19 this year, and keep launching new products and increase our efficiency throughout the operations because our margins took hit, and we are recovering. And we know how to do that because we we operated at higher margins before, and we are trying to get back in 40s as soon as possible.
Excellent. What are some of the higher value new product launch opportunities in coming years? Some and obviously, you can really only talk about what you've disclosed. But what are some of those and what is the potential timing?
So we expect about eight to 10 high value launches through for the next nine to twelve months. And then every year, we expect five to 10 new high value launches coming in. The areas these launches will be is still in transdermal. Ophthalmics, we have an entire portfolio that will start getting approval. More injectable products, and we hope to launch our first inhalation product next year as well.
And as you disclosed, pipeline has Copaxone and other products which we have disclosed. Many we do not disclose because of the competitive nature of the generics industry.
And so you touched on Copaxone. So what are the lessons learned from Copaxone? So not only Amneal, but other companies expected to launch years ago. But it seems like either it was more difficult for you to do what the FDA asked for or the FDA raised the bar versus where it was three years ago. Could you just help us educate and educate us about that process and the lessons learned?
Sure. I'm gonna pass that to Chintu. He's very close with R and D. Chintu?
Yeah. Hi, David. Good question. I think the first company, Momenta, and then through Sandoz, when they received approval, it took them over ten years to get that approval. So every time complex is a complex fusion protein, it's it's not a easy process, and you are relying mainly to the entire API play.
And FDA is asking for very detailed characterization of the process of every step. So there are a lot of lessons learned, and even the companies that's coming after the first approval, the bar to approval still remains very high. And it's a it's one of the most complex product because in Europe, let's say, for approval, they require clinic. In US, there is a waiver, but higher degree of characterization is required. The lessons learned is that's why Amneal really transition into complex product, and we are first movers on many trial complex product as it's shown in the history from UWACOM launch to NuvaRing to Supralpit.
We work very closely with FDA and kind of create a pathway. Copaxone, for our perspective, was delayed that we work on a partnership because it's not a in house project. Now Amneal, you know, the beauty of our R and D and complex product and our confidence to bring those products to market, We are doing majority or all of the complex dosage from development to manufacturing in house. So a lot of timelines and everything was added. Second thing is very complex product.
A lot of lessons are learned. So for future peptide and more of it's now the biosimilars are also being developed. These are kind of similar nature of the products where companies and, you know, including us. For the future product, it will be much easier than what it needs to be done. And after you also, every time, it's coming out with new and new questions, even though they had one approved, You know, usually, once you get CR, that surprised the queries from FDA.
But they keep adding new and new queries as a part of review process, which is not usually on a lesser complex product. So I think we feel good about launching that product in 2021. If after all the learnings we have done, it is being delayed. We do accept, but, you know, many lessons learned, and I think we are fully text on other products that we'll be launching eight or 10 on next twelve to fourteen months.
That's very helpful. So that that's interesting. So you see those learnings as an opportunity to do more, not to to back away. Meaning, it sounds like as you mentioned, you've always worked on complex generics. Could you just talk about opportunities for other very complex branded drugs for which there are no generics?
You mentioned fusion, you know, proteins broadly, but and and I'm not asking you to give specific drug names, but is that a big opportunity for you outside of biosimilars?
Absolutely. Our portfolio, first of all, our pipeline is 80% nonoral solid. So oral solid, there are less product, but in a nonoral solid space, we are working in a microsphere depot technology, long acting injectable. Inhalation is a big endeavor. You know, still, you know, generics have not penetrated.
There's a liposomal product in there's ophthalmic portfolio. So there are many areas where generic hasn't been we have many product, and Emil historically been known for first to market products for last many years, for last ten years, whether it was liquid, whether it was even oral solid or now in the non oral solid and other space. So plenty of opportunity. That's why we are focused on a first to market. FTF times are gone.
So it's more about innovations and science and working and staying working with FDA. And we have a solid quality track record, which also helps to work with FDA to develop pathways or new regulatory guidances, especially on local acting products. FDA is opening up. On a topical side, also, there are good products where before it was, you know, required heavy duty clinical studies. Now it's more of a a scheme study in vitro characterization.
So FDA is moving, but somebody has to take a lead. So we took our lessons from some of the delays and learning on other complex product, applied them on many of the other categories. We are, first, more working with FDA very closely. We have 750 people team in house in every dosage complex from development to manufacturing. So we we are very excited in how we are transitioning from a common, simple, generic product as we have a large portfolio of about 400 products.
Our focus is heavily on the complex product.
That's very helpful. Great. So maybe transition to Tassos. So Tassos, you have an interesting background. Could you just discuss your career and what brought you to Amneal and the opportunities you see?
Sure. I'll I'll I'll condense thirty five years into into sixty seconds. So I speak funny because I came off the boat in Greece from Greece in 1984. And after spending went to school here, I spent seventeen years with a number of companies, Bristol Myers Squibb, Novartis, Pharmacia. Then after spending seventeen years with Big Pharma, I was recruited to Dun and Bradstreet.
So I was their corporate CFO for seven years and those were interesting times between when through the financial crisis of two thousand and seven. And then I spent the last eight years four as a CFO of IKEA, which we end up selling to Malin Kraad for $2,400,000,000 and then the other four just doing something more entrepreneurship, which is just small biotech with a drug device combination. And then last few months ago, Shirak and Jinpu gave me a call and that's where we began kind of learning about each other. So for me, I just saw a great opportunity to create a lot of value for our shareholders, our employees and our patients. And there were three things that I saw and why I'm excited every day that I go to work.
Number one, I just saw a company with a lot of substance infrastructure that can benefit from excellent management, right? That's number one. Number two, I show a passion for innovation, right? And I think that comes across when you talk to Shirak, Chengdu, our R and D organization because we need to transition over time to just much more of an innovative company with a lot more runway, right, behind our products. And number three, I just saw it through alignment of interests.
So it's the one thing I look at between the management team, right, that has voided through their own wallet that they truly and the shareholders, right? There is a difference between management teams that are getting compensated based on stock options as opposed to people that truly have an equity stake. And that way, that cuts through a lot of things that have caused destruction of shareholder value. Right? Because you really cut through the politics.
So everyone can see things, but the management team and the investor can look at the same thing and really come up with the same desired outcome. So that's a little bit about me, David.
Excellent. Thank you very much. That's very, very helpful. And so maybe you could talk about the financials. So just remind us the prospects for the second half, how you're talking about the financials longer term even though you haven't given explicit guidance?
And then also discuss the balance sheet and debt paydown plan. So just a couple of things. So for us,
this year is a turnaround year, right? And I think all of us internally at the company, we are just proud of how well everyone has executed. So there is and even in the midst of COVID, right, in a pandemic, revenues are up, EBITDA is up, EPS is up 40% first half versus prior first half of last year. There has been a substantial amount of cash flow generation because we're maniacally focused on cash flow generation, right? So we feel great about the way the team has executed the first half of the year.
We kind of look at the second half, we feel great where we are. We feel great how the company is positioned. I think the macro dynamics in the generic marketplace, price pressure, we don't see as much price pressure as we saw in the second half of last year, number one. Number two, we're coming in with a stronger pipeline of products. So as we think about generics, we look at the second half versus the second half of last year to just be organically up, number one.
Number two, AvKARE has been integrated greatly. So my gut feel is AvKARE should do about $300,000,000 of revenue this year. And the specialty business should have a very solid second half. So we feel very good about the second half trajectory of the business. From an operating expense, the margins have been solid.
The margin has been solid. The Q1 gross margin, it was just we blew it out of the water. As we told people, Q2 was not going to be as strong just because mix of products, COVID and just the fixed overhead absorption just because of the COVID challenges. But there is nothing fundamentally wrong with the margins. So we should see some pickup in the second half.
The team has done a great job on an operating expense perspective. So we kept a lid on operating expenses and we continue to drive efficiencies. So for example, Cintu and his team are really focused on insourcing and a lot of third party manufacturer products. I think that's going to bode well for gross margin over a period of time, right? R and D, we're focused on shifting resources from over time in a thoughtful way from our generics products, more so to some of our pipeline.
So IPX-two zero three, IK-one 127. And then again, flow generation, we expect it to be very solid. So we feel great about our guidance. Now I know after the second quarter, people were trying to look at the guidance compared to where we were in the first half. And when you do the math, you say, Hey, Taso, what you're telling me now doesn't necessarily jive with the guidance you guys issued.
And as I mentioned on the call, what goes into guidance is a lot of things, right? It's a pandemic, which no one really knows exactly how it's going to play out. It's about reestablishing credibility, right, in the organization. But we feel great about achieving our guidance. Longer term, we're looking to create a sustainable business that's based on innovation, right?
Innovation around generics, innovation around expansion of the specialty business. We're very focused on reducing our leverage, right? So we were successful. We reduced leverage from seven times net debt to EBITDA from December. In June, we were at six times.
When you extrapolate that based on the implied EBITDA guidance, we're going to be at 5.5 times by the end of this year. And with continued growth, we expect that level of debt to decline. So we're looking for growing EBITDA over time, reducing our reliance of debt and utilizing our cash generation, David, to a, continue to organically drive growth and do some smart acquisitions around the specialty area. So let me stop here and see if that was helpful.
Yes, that is extremely helpful. I'd like to go back to Sharag and we actually are going to be running out of time in a few minutes here but I'd like to extend it an extra five minutes, if that's okay. Sherag, you mentioned the opportunity in The U. S. To potentially capitalize on government business opportunities.
Could you provide provide some additional color on that?
So the one part we are already doing quite a bit of government business as part of AvKARE acquisition and Amneal having a large US manufacturing base, we've been supplying to US government for a long time.
Mhmm.
The new initiatives which administration, congress, and both parties are very interested in securing pharmaceutical supply chain in case of pandemics, in case of any other emergencies which are not in our hands, especially for the essential products, especially to get at least 35 to 40% capacity in The United States, so which will provide for the search capacity and creating a real industry. And that is what we are also advocating that, hey. You cannot just have a one offer deal or things that the the industry will not be sustainable in The United States. You have to have a market for United States made products. We know we cannot compete with China and India in cost.
We'll bring the technologies here. We we probably is one of only generics company have maintained large scale of manufacturing. So we know how tough it is in the competition with the Indian players and Chinese could cut the prices because their operating costs are lower. So all these is aligning really well with what administration's thinking, congress is thinking, the both sides of presidential campaigns thinking. And they really want to bring the infrastructure, create jobs, and we feel like there's a lot of movement in them for bringing the production back to United States, including API and finished products.
Excellent. That's very helpful. And then before we go, I was hoping that you or Shintu can talk about IPX-two zero three and your level of confidence in potential differentiation?
A very good question. So let's start with Reiteri. Reiteri is picking momentum because it took time to educate the doctors and and then patient benefit, the good on time. It's really we're trying to when it was launched, it was used for more advanced patient. Now it's being used a little bit lesser.
This when you start out with Parkinson disease, this is where it is we're trying to push to use early, and which has a huge great advantage. IPX two zero three, e one increases more more good on time, and symptom controls are better as we have seen in phase two. We do not have phase three readout until third quarter next year, and and we have learned what is being required. The payer coverage is good as well now. Almost everybody's covering the product.
And if we are successful in in educating the providers, the the the the physicians that, hey. Start using early, and that could have a great outcome and longer lasting impact with the which this lesser dyskinesia and other side effects and and lower CDLD level, that would be very helpful. So IPX two zero three, we see when we launch in 02/2023, right, goes up to twenty five, that more of IR patient going into IPX two zero three right away. And that's what we will be pushing for. Because it's a it's a great what we have seen so far is a good results on good on time.
Wonderful. Well, I think we should close it out there. Thank you so much all three of you for sharing your thoughts and insights and being with us today. And we'll look forward to speaking to you again soon.
Always a pleasure, David. Thank you.
All Alright. Thanks for your help.
David. Thanks. Bye bye.
Bye bye.