So good morning, everybody. I'm Chris Schott from JPMorgan, and it's my pleasure to be introducing Amneal today. From the company, we have Sharag and Shintu Patel, cofounders and co CEOs. And with that, I'll turn it over to Sharag.
Thank you, Chris, and thank you, everyone, for joining us today. We're thrilled coming back to Amneal eighteen months ago. And eighteen months ago, we left and came back five months ago. So it's not a long time that we were away, but very thrilled and excited to rebuild Amneal two point zero just like how we built Amneal one point zero. So many exciting areas of growth that we have.
Let me walk you through. So this is what we have done. We're calling it a reinvigoration of Amneal, and we had tremendous momentum in 2019 towards the end entering into 2020. So on the business evolution front, as you saw, we launched two key products, first to market. We launched almost 15 products after we came back, total 37 products for 2019.
We enhanced our plant utilization. The product optimization. We went after the business from the base portfolio as well. We strengthened our forecast accuracies, took out all the operational inefficiencies, refocused the generics and specialty R and D, and we'll talk more about these. And we put a lot more focus on our pipeline asset IPX-two03, which I'll share some data with you.
On execution side, as I said, we got 38 products launched, probably one of the highest in the nation. Our ANDA submitted only 14 that will is on a low side for the first time, but we'll pick that back up. But it's not number of ANDAs that we file, it's which ANDAs we file. And growth on our specialty products is on track for Rytary and Urethroid. And how did we position Amneal for the future growth?
So what we did is we signed we completed a transaction and bought a distribution company more focused on government sales, VA and DoD. This gives us additional sales channel, and I'll speak more about it. Also, we can sell more unit dose products as well. So we're very excited about AvKARE transaction. We did in license one of the product for myasthenia gravis, which is again keep building our movement disorder franchise after Reitery, and we're excited about that opportunity.
We're looking pipeline asset as well. And we boosted our Board by adding Jeff George, who was ex CEO of Sandoz and Alcon, good friend. Slow mo Yanai from he was the CEO of Teva. I guess we didn't leave anybody out. We covered the globe.
And we have John Keeley, he joins us from PricewaterhouseCoopers. So very excited. Our Chairman is excellent as well, has a great background, Mr. Paul Meister. He built Thermo Fisher back in the days 'ninety one to 02/2005, turned around Revlon, Inventive.
So great Board, very strong Board as we position Amneal to be a growth company and something to write a story about in the coming years. So here are the three things that we're focused on. So first is to grow fundamentally strong generics business, the base business as well as new launches. And you may be surprised that why would I say grow fundamentally strong generics business. So we are still at the right size.
We could add on as we have many shots on goal. We got multiple dosage forms. So ophthalmic is a new categories we'll be launching. We have injectable products already 30 or so in the market. We'll be adding more.
We have transdermal, pretty much all transdermal products, which and a couple of new ones we'll be launching this year. We have topical products. We have liquid products. So we pretty much cover all dosage form. This is why we can still grow in a highly competitive generics market.
We are keenly aware of the competition and the big buying powers. The three buying groups have enormous power to change dynamics. So we have to navigate through and this is why we can navigate through better than others because of multiple shots on goal. The second area we are focused on is our existing specialty franchise. We have great assets currently, great products and we are adding more.
And we've been looking at specialty R and D for several years as part of Amneal being private company. So nothing new for us. We love science. We're in science business and we'll do more. In the last transaction, we're extremely excited as well.
It gives us additional sales channel to sell in government, utilize our U. S. Manufacturing footprint and expand into various other areas such as unit dose marketing as well. So let's talk a little bit more about each of these areas. So in generics, as I mentioned earlier, we're focusing on improving our gross margins.
Unfortunately, 2019 was a transition year, first degrowth year in Amneal's history since we started the company in 02/2002. There were many operational inefficiencies which we have addressed, increased our business, reduced inventory obsolescence, reduced failure to supply, so strengthening supply chain. So that is an important factor. We have to be 40 plus percent margins in order to keep reinvesting and Amneal being one in quality, we have to maintain our quality standards all the time, which we will do it at any cost. As I said, we are keep looking at the base business and increasing base business.
Injectables, our focus as well as ophthalmics inhalation, we have a good start this year as well. We've been working at it for last four years. It's a difficult areas. So Amneal is benefiting from years of investment that we have done in our own infrastructure as well as pipeline. So here's our pipeline today.
We have 97 products waiting for approval at FDA. And you can see the 58% were oral solid dosage. And now look at our development pipeline, it's smaller number of programs, but 72% all other dosage forms. So this is this gives us ability to keep introducing new products, keep finding niches as we navigate through these difficult U. S.
Generics market. But we also know it's an essential industry, so there will be demand for generics products all the time. Moving on, and here is the it's if you would say what gives us confidence because what we have done. We have the team look at the products in each areas on the left that we have approval already and launched, many first to market, many in different dosage forms. And this is some of the pipeline I'm sharing with you.
There are more to it. So opportunity is magnified when you look at the whole pipeline, and we'll be keep adding. This is how we won as one point zero. This is how we're going to win as Amneal two point zero in addition to our specialty and distribution business. Now our second area of growth is specialty franchise.
Our current programs are doing well, and we do face the difficult payer and government regulations and donut hole issues, but our scripts are growing for all our products. IPX-two zero three, I'll share more data and pyrodostigmine, which is for myasthenia gravis is excellent addition to our pipeline. We are looking at complementary assets. We're highly disciplined how transaction. We'll be very creative because we do not like high leverage.
So we can't wait to delever ourselves very soon. But we are looking into neurology and endocrinology if there are fits because there are companies with one or two products cannot survive on their own. We can bring them with us since we have the infrastructure for movement disorder. We have about 170 people in specialty with cells and market access and marketing team. And this is where we put our biosimilars.
So we have three biosimilars in the pipeline, which is Neupogen, Neulasta and Avastin. We've been investing in biosimilars for quite a bit. So again, the area we are familiar with, working with FDA proactively to reduce the requirements of clinical. And we believe it fits in specialty because of the market access, customer service that is required, patient support that is required. So we did not put it in generics, we put it in specialty.
And good thing is we already have the infrastructures that we can leverage on. We would become one of the key biosimilar players in the market and it gives us more strength to do these things. We've been there, done there. This is almost as generics products, highly valuable, reduces huge amount cost for the health care system in ten years. We always saw biosimilar as a fifteen years play.
We never got nervous about it, and we're going to build it. And it's who stays last. And since we have the generics business, distribution business, specialty business, it gives us more strength, and we can last longer building the biosimilar franchise. It will continue to have more competition. It will be competitive pricing.
But if you can double up your programs at the right price, you can make a good amount of money. On neurology, I mentioned the K127 and IPX-two zero three. We're also looking at thyroid franchise pipeline as well. So here's some data on IPX-two zero three first time I'm sharing with you. So the chart on your left shows the symptoms management.
It in green is IPX-two zero three. It's instead of IR fluctuating and symptoms coming back in two to three hours, IPX-two zero three takes it all the way up to seven, eight hours. Same thing on the chart on right, the number of fluctuations the patient suffers are almost half with IPX-two zero three and also the good on time, which is the biggest measure for the Parkinson patient is they count on. This is how they live their life. It's good on time.
They can do activities. They can go up and down, play with grandkids. And this product provides six point five hours almost IPX-two zero three versus currently three hours. So very excited about this course, the new movement disorder experts we talk to, everybody is excited, and it can be managed really well, Parkinson disease, with our product. Moving on to third area of our growth, which is the Avcare transaction.
We did receive the FTC clearance right away, and we expect the close in February 2020. So let me explain you what this business is. So VA and DoD, at least somebody cares about made in United States products. So they buy products that are TAA compliance and Amneal being a large U. S.
Company, large U. S. Manufacturing footprint, we constantly like to make products in America. So we would increase our business. They have national contracts, which are five years they're awarded.
We have 31 of them. We will win more. And there is a relationship with 100 plus manufacturer partners. So it is good for the partners as well to have additional sales channel than relying on which we have to rely on the big three, but this is additional government channel. Also, the unit dose business is very niche and lucrative, highly profitable business, which we are well positioned to increase the business.
And financial benefits are awesome as well. Here is some of the stats. It's a $2,500,000,000 market, which does not include biosimilars. Biosimilars will be added in government contracts for VA and DoD. National contracts, we'll keep winning more.
Relationship with 132 manufacturers, which is excellent. And Amneal also gets to utilize its own manufacturing network as well. It was $63,000,000 LTM EBITDA and 5.4x enterprise value we paid. So it's excellent deal, accretive, de levers our overall balance sheet as well and excellent growth platform. So we're very excited.
These are the three things we are heads down executing. That is what generic business is, any business is, but we have to work very hard, keep coming up with new products, maintain our status on a quality, which has been superb. We have 76 inspection over the last fifteen years. We have passed all of them. So really great rapport with FDA and reputation.
And quality will matter. FDA is going to come with quality metrics. The more educated consumers will start asking where the product is made, who made it, and Amneal is well positioned to capitalize on that. The specialty franchise, we're very excited, very focused in only two areas, movement disorder and endocrinology. And the distribution just gives us new channels, new ways to grow business and expand.
There could be disruptions coming up. We are well positioned to capitalize if that happens ahead of the time. So all three areas, it's an exciting time at Amneal. The enthusiasm is back. We have 6,000 or so employees.
Everybody is fired up like old days building the company. We're calling it Amneal two point zero. And we'll look forward to talking to you all the time and deliver the good results and good news. So very excited about it. And thank you very much for joining.
The one thing I did not mention, but I would mention within the generics business, we're also looking at international expansion, but very specific in one large market. We've been working on it for the last several months and we will announce it when it's completed. But it adds we have such great assets in The United States. We will be able to leverage those, some of them taking take those assets into international markets, so additional growth driver in generics. So thank you very much.
Really appreciate you coming.
Given the thumbs up, we can start here. So we're start I'm going start with some questions, and then we'll open up the audience from there. Maybe the first one, just on some of the December approvals. Can you talk a little bit about maybe first the generic NuvaRing opportunity? How we should think about the company's capacity?
How do think about the market dynamics? And as we just consider that for 2020, just any color would be appreciated.
Excellent. So we were extremely pleased and excited with both approvals. Catafety was first. Our teams have worked on it for several years and had to work with FDA to create a guidance and approval pathway. So we're very happy to bring generic options, the option for patient.
And the GI patient, we're in getting complete access. So this will give more access to sucralfate for patients. So very excited. NuvaRing, we worked on it for several years. It's a complicated product with a device and drug combination.
So we always build the capacity based on knowing that there will be authorized generics and a few other competitors coming. So we are ramping up our market share and about 25% to 30% market share. So even when Teva comes, whenever they come, we still have a we can maintain our market share.
To the extent we don't see additional competition, where do you think you could move share based on your capacity currently?
I think, look, many people have filed the products. I do expect competition, but we like to go up to 30%
But market as far as the capacity is concerned, it's the as you get into a complex manufacturing, you always get efficiencies as you go along. So each every day, our efficiency and productivity will go up. And there are actions which we have taken, and we have filed certain amendments with FDA that would even ramp up more. So I don't think we'll be hindered by their capacity going forward on lowering.
And your baseline assumption, though, is that you'll see additional competitors come in as we Yes, we do. Okay. Maybe some more comment on Carafay. I know it was AG coming, but just how do you think about that competitive landscape over time?
That, we don't see competitors accept authorized generics for this year. Yes. It's an excellent product.
Great. Second one is on the distribution business. Can you just talk a little bit about the structure that was created there and why take that structure versus just an outright acquisition of the company?
It is a wholly owned subsidiary of Amneal. 65% ownership would be Amneal, 35% is the family that we know from Kentucky. So for fifteen years, we bought first business from them in 02/2007. This is the second business. We want the family to be incentivized and run the business because it's not our core competencies.
It's their core competencies. So if they're incentivized, they can run it. And it's completely independent. So they it's a distribution business, they have a relationship with 100 manufacturers and more. They do unit dose business, government business, VA and DoD.
They have government contracting offices. So we kept it independent, and we'll provide the support that they need in IT and other outside areas, but they're completely capable of running it. And we took a debt on that sub, so not impacting the parent. But overall, it de levers the company as well as is accretive.
And how do we think about the margin structure of the business? And is that margin structure something that does opportunity improve? Or is that a pretty stable structure over time?
It improves actually because of the number of products and launching. And if obviously, if it's in house manufactured by Amneal, it's more margins as well. But it's a good business, a good niche that they have found. Ten years or so, they've been doing it. So excellent opportunity for growth.
And is there more opportunity to, I guess, increase annual share of the business that, that company distributes? Is that part of the synergy with the deal?
No. We have our capacity, and we will supply our products, but we have great partners. The other manufacturers. There are about 100 of them, so which is and we're getting great support from them as well. So I think we'll do both.
In other words, on the leverage situation, you talked in the main session about wanting to take that leverage down. Just help us get our hands around how you where is an ideal leverage level for the company and how you see bridging from where we are today to those levels?
Well, the leverage does bother us, and we are extremely disciplined. Cash flow is strong. So net leverage, we like to bring it in five ranges first as soon as we can. And we are comfortable running the company around four, four point five. That's what we have done as Amneal as a private company over ten years, and that's where we feel comfortable.
Is there a time horizon that you can see getting to that level? Or is it too early to say?
Too early to say. We may give more details on earnings call.
You might open it up to the audience. You mentioned in your last opportunity in the slide deck, where are you guys with that? Is that a 2020 opportunity?
No. Neupogen could be 2020. Neulasta would be the following year.
And to build on that biosimilar question, help us understand how much infrastructure you could leverage from the existing specialty business to ramp those products? Or are these things that you could look to when you find a partner to even further maximize the opportunity?
No, no. We believe in commodities. That is going to be one of the two key things in biosimilars. One is regulatory mastery, which our team has been doing it for over five years. So convincing FDA to have a reduced Phase III or no Phase III, that saves tremendous time and cost.
Your investment is lower. And on a distribution, the commercial is very complex. You have clinics. You have hospitals. You have other buy and bill facilities.
So you have to be very smart. You have to negotiate with payers. You have to negotiate with PBMs and also provide support because if they don't provide support to doctors, they're going to they're not incentivized and patient support as well. And you can be creative as well with biosimilars on the you can improve the delivery system. So we're looking at all that.
So regulatory and commercial, that is where Amneal would like to lead. And it's a long game. So if anybody thinks it's just one or two years and it's going to mature, mature well, it will not have erosions like obviously like generics because the cost is so high to getting it in. Too many players we're seeing, something market would have to adjust. And in my mind is how long the big brand companies will continue to play if margins are not that attractive.
And should we expect some SG and A ramp supporting those launches? Or do you think you could handle that within your existing specialty infrastructure?
It would have some ramp, but we would offset by the revenues that it will bring in with the launches.
Could you just talk about the overall generics environment, how you see it shaping up in 2020 relative to 2019?
Oh, it's definitely improving than 'nineteen because whatever the value they can extract, the big buyers, they have done it. There is obviously there'll be competitions coming in. So it's still an extremely competitive business, but much better than last three years going into 2020. And what would be important is to keep launching these different dosage forms in both retail and institutional hospital side, injectables.
Just another one. In terms of gross margins, like you mentioned, you needed to get margins in the 40% range to be able to invest in the business. Just help us understand the dynamics around margins beyond just the new product launches that you can the levers you can pull to improve that margin structure?
Fantastic. So we looked at the manufacturing utilization, which gone down. So we increased our own utilization on transdermal, Indian manufacturing sites, we transfer the products from Long Island U. S. To India.
We lowered the inventory obsolescence cost because we're monitoring we strengthened supply chain. So these are internally controlled by us, which we used to do. So we're back and we would lead. And then FTS as well, we would we are lowering failure to supply penalties. So these plays a big role in utilization along with increasing base business.
We have two twenty five plus products who keep looking at new opportunities within those products. And there are players in and out as the rationalization happens. And we have tremendous relationship with these three big buying groups. So we and they know that they can rely on Amneal. Amneal has supplied consistently high quality products.
So with all that leverage, we do need to operate in mid-40s, high-40s in generics. We used to operate in 50s because of the investment that is required. The quality expectations by FDA is always higher and going more and more, they're putting which is rightfully so. And we like it because we need the quality metrics. Then also the R and D investment.
We have to constantly come up with new products. So if we don't have certain margins, then there's selling cost.
So And sorry, Chris, if I could just add to Sharag's comment there to provide a little frame of reference sort I of mean those operational issues that we've talked about, we estimate that they have probably cost us somewhere 400 to maybe four fifty basis points of margin that is incremental margin deterioration because you're always going to have some element of failure to supply. You're going have some element of inventory obsolescence. That's in our base numbers. But what has been in excess of what we've historically seen has probably impacted us somewhere in that order of magnitude. So as we work through and make progress in addressing those and getting on the other side of those issues, that's the sort of magnitude of margin improvement that we're hoping to achieve and we think is achievable and within our grasp.
And the time lines on that, just a sense of like when could we see that? Is that going to be kind of gradual occurring? Or is that kind of step function increase as that gets all played out?
I think you'll see more of a gradual progression in that because some of the issues don't resolve themselves completely overnight. So we're working aggressively on it. We haven't time bound ourselves to say we need to have it by this date, but we're working on addressing all the underlying root causes of these issues. And as quickly as we can capture the improvement is what we're going to strive to achieve.
Is that and maybe not to push too much of the time, is this we're talking about this is like months? Is it quarters? Is it years? Just trying to get some sense of like is this a very long term process or something that you can act on reasonably quickly?
No. It's more months and quarters, nearer term to be able to address those, not years.
We started since we came back. So it's the progress has been thank you, Todd has been made really well. And we're also bringing some products in house from CMOs. Impacts had many CMO products, and our cost is half of the CMO cost. So that really helps.
Yes. So the question is, I've been told to repeat questions because of webcast, is we what's our appetite for M and A and transformational M and A. So we are heads down executing and growing business. We got enough to do with growth. We are looking, as I said, some singles on building pipeline in biosimilars as well as specialty products.
We would, if anything complementary, we can add on to our neurology franchise, we will, and we'll do a creative transaction. We are very careful about the leverage, and we want to not jeopardize that at all. So highly disciplined. Transformative, we'll look at it, but right now, we just want to grow the business. We would definitely, at right time, we look at everything.
And now I guess being public, we are on a limelight as well, so we get people know us more. I think that's the one advantage I can think of. So I hope that answered your question. Thank you. Yes.
Most of the question is Amneal and impacts integrations completed. Most of the area has been completed. We are working on a couple of financial modules in gross to net to consolidate completely, and that will be done soon as well.
But there are some product level integration as we bring in lot more products from impact side in house. So those things are in process, and that will give us some positive margins in 2020.
Thank you. The question is the growth in 2020, how much will come from existing products and operational efficiencies versus new launches? So if I may part that question until the earnings call because I don't want to give out the earnings call details right now, but both areas will provide growth in 2020.
In general, this is your chance to kind of set guidance, etcetera. How what's your approach now as a public company CEO down towards how you just given a business that's got a lot of volatility and some uncertainties that you can have some big upsides and downsides, how do you think about kind of approaching us with guidance as we think about the updates?
Well, being entrepreneur, we are always going to be upbeat, but our guidance is going to be very conservative going forward. I guess we learned from the last six guidances, and it's we're going to be conservative, extremely conservative. And we don't I mean, I yes, you all of you are always interested in quarterly updates, which we'll provide it. But we build business the only way we know to build business is over time. That's how we have our minds are wired to build a sustainable business.
So nothing we can do just to make a quarter. So just be patient with us, but we'll be providing. We're building the company for 2020, 'twenty one, 'twenty two, 'twenty three. So we're here to stay and build it. Thank you.
On that issue of sustainability, guess, question I look at is when I look at the restructuring that the company has done and I look at the level of investment, I guess, the question I have just from outsiders is, Are you investing enough in the franchise to be able to sustain this kind of the high level of R and D that you had historically? Help me get comfortable that the company hasn't cut too far in an effort just to keep its EBITDA supported and to address some of leverage concerns?
No. Actually, we haven't cut in that far. R and D is surprisingly, it's a lower number than we used to spend as a private company, but all those infrastructure and pipeline is helping. But we still we're not letting go any projects. We have cut down our oral solids commodity R and D, but we have R and D in complex generic products.
We have five zero five(two) R and D. So obviously, we don't have room for any NCE type of things, but we can do these singles, doubles. And biosimilars also smartly, we are not investing in R and D. We're investing more on regulatory and commercial. So there are many players where we can take their products and pay as we they make progress and we launch the product.
So we're not and SG and A has actually increased because we have the specialty franchise, so which is doing great. Just to elaborate a
little bit. R and D, I mean, as a company, we are very passionate. Organization. And Amneal historically, even in generic space, has brought many first to market products. So we have not taken our eyes off or cut any budgets that would ever jeopardize any of our lucrative.
But as over the last five, seven years, we also have learned in specialty and the complex, wherever R and D efficiency has also improved a lot. FDA is changing, and we have downsized just the commodity side of it, which we don't need. We have plenty. So we'll continue to be aggressive. We're still spending 9% to 10% of R and D I mean, the our budget is 9% to 10%, and we'll continue to do so.
And we're very
efficient in R and D. My brother is all over R and D. Breathes R and D.
On the specialty side, on the two zero three opportunity, is there the profile obviously seems to improve nicely on
Extruded.
How much more room is there do you think to go in terms of dislodging some of kind of the older, guess, generic products in the space? So is this how much of this is just replacing Rytarya out of the patent expiration versus an opportunity to actually expand
can pursue? Actually, it's later. It's expand the franchise for right reason. Really can change the management of the disease. So we would be we have learned a lot in marketing right away.
So it's not actually a replacement strategy. It is to make it much better because this was asked in the market, can you make it seven, eight hours so we don't need to every two, three hours keep taking a lot of drugs. So we could expand. We would be strategizing. And if we can start off new patients just on IPX-two zero three, it would be great.
It's a large unmet need. And nobody likes IR, but the cost prohibits them. So if we can figure out something there, the coverage, it we're very smart. We like to provide access. We are in affordable medicine business.
And IPX-two zero three is absolutely a great product and will bring a lot of value to patient. It's a very severe disease. And sooner they start on a long acting product, I think patient will see a lot more benefits. And even one more hour or two more hours of on time compared to the existing therapy brings a lot of value to patient. So I think we'll be expanding our franchise with two or three.
It has been stable. It's the issues are it's still the facility that Pfizer manages, the hospital facility, so which has continued to have FDA issues. But we're managing our inventory very proactively. We've been working with them. So last few months have been stable.
So I hope and I think it's going to stay pretty stable going forward in 2020. And we're also working on bringing some of the work in house, so which would be will give us more control.
So just going back to the generics gross margin, think you said that maybe internally you can see maybe 400 bps, four fifty bps of impact there. And so that kind of gets you to the 34 to 35 range from the Q3. And then the other kind of 500 bps, how do we think about that timing? Is this you talked about this new launch that's driving that other 400 to 500. Is that something okay, so say the 400, 500 internal was like this long term project, is that other piece, is that something we could possibly see in 2020 with
Well, as Todd said, months. So we have already launched new products and lucrative ones in December. So hope to see the annual impact. And also, the full 2019, we launched 38 products that are getting annualized as well. So that should be very helpful in increasing gross margins.
Time for maybe one last question. Mr. Mee, just update on Copaxone and time lines we can think about for that.
I'll let my brother
So Copaxone is not in our forecast for 2020. We expect Capaxone to materialize in early twenty twenty one.
Thank you. Other questions? I appreciate the time today. Thank you.
Thank you. Thank you.