Good morning, everybody. I'm Chris Schott from J.P. Morgan, and it's my pleasure to be introducing Amneal today. From the company, we have Chirag and Chintu Patel, co-founders and Co-CEOs. With that, I'll turn it over to Chirag.
Thank you, Chris. Thank you everyone for joining us today. We're thrilled coming back to Amneal 18 months ago. 18 months ago we left and came back five months ago. It's not a long time that we were away, but very thrilled and excited to rebuild Amneal 2.0, just like how we built Amneal 1.0. Many exciting areas of growth that we have. Let me walk you through. This is what we have done. We're calling it a reinvigoration of Amneal. We had tremendous momentum in 2019 towards the end, entering into 2020. On a 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&D, and we'll talk more about these. We put lot more focus on our pipeline asset, IPX-203, 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 ANDAs submitted only 14. That was on a low side for the first time, but we'll pick that back up. It's not number of ANDAs that we file, it's which ANDAs we file. Growth on our specialty products is on track for RYTARY and UNITHROID. How did we position Amneal for the future growth? What we did is 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. We can sell more unit dose products as well. We're very excited about the AvKARE transaction. We did in-license one of the product for myasthenia gravis, which is again, keep building our movement disorder franchise after RYTARY. We're excited about that opportunity. We're looking at new pipeline asset as well. We boosted our board by adding Jeff George, who was ex-CEO of Sandoz and Alcon, good friend. Shlomo Yanai, he was the CEO of Teva. I guess we didn't leave anybody out. We covered the globe. We have John Kiely, he joins us from PricewaterhouseCoopers. Very excited. Our chairman is excellent as well, has a great background, Mr. Paul Meister. He built Thermo Fisher back in the days 1991 to 2005, turned around Revlon, inVentiv Health.
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. Here are the three things that we're focused on. First is to grow fundamentally strong generics business, the base business as well as new launches. You may be surprised that why would I say grow fundamentally strong generics business. We are still at the right size. We could add on, as we have many shots on goal. We got multiple dosage forms. Ophthalmics is a new category 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, couple of new ones we'll be launching this year. We have topical products. We have liquid products.
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. 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. We've been looking at specialty R&D for several years as part of Amneal being private company. 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. Let's talk little bit more about each of these areas. In generics, as I mentioned earlier, we're focusing on improving our gross margins. Unfortunately, 2019 was a transition year. First de-growth year in Amneal's history since we started the company in 2002. There were many operational inefficiencies, which we have addressed. Increased our business, reduced inventory obsolescence, reduced failure to supply, so it's strengthening supply chain. That is an important factor. We have to be 40-plus% margins in order to keep reinvesting, and Amneal being number one in quality, we have to maintain our quality standards all the time, which we'll do it at any cost.
As I said, we keep looking at the base business and increasing base business. Injectables are our focus, as well as ophthalmics, inhalation. We have a good start this year as well. We've been working at it for the last four years. It's difficult areas. Amneal is benefiting from years of investment that we have done in our own infrastructure as well as pipeline. Here's our pipeline today. We have 97 products waiting for approval at FDA, and you can see that 58% were oral solid dosage. Now look at our development pipeline. It's a smaller number of programs, but 72% all other dosage forms. This gives us ability to keep introducing new products, keep finding niches as we navigate through this difficult U.S. generics market. We also know it's an essential industry, so there will be demand for generics products all the time.
Moving on, 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. This is some of the pipeline I'm sharing with you. There are more to it. Opportunity is magnified when you look at the whole pipeline. We'll be keep adding. This is how we won as Amneal 1.0. This is how we're going to win as Amneal 2.0, in addition to our specialty and distribution business. Our second area of growth is specialty franchise. Our current programs are doing well. We do face the difficult payer and government regulations and donut hole issues. Our scripts are growing for all our products.
IPX-203, I'll share more data, the pyridostigmine, which is for myasthenia gravis, is excellent addition to our pipeline. We are looking at complementary assets. We're highly disciplined how we would acquire or do M&A transaction. We'll be very creative because we do not like high leverage, we can't wait to de-lever ourselves very soon. 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 sales and market access and marketing team. This is where we put our biosimilars. We have three biosimilars in the pipeline, which is Neupogen, Neulasta, and Avastin. We've been investing in biosimilars for quite a bit.
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. We did not put it in generics, we put it in specialty. 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. It gives us more strength to do these things. We've been there, done that. This is almost as generics products, highly valuable, reduces huge amount cost for the healthcare system in 10 years. We always saw biosimilar as a 15 years play. We never got nervous about it. We are going to build it, and it is who stays last.
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. If you can develop your programs at the right price, you can make a good amount of money. On neurology, I mentioned the K127 and IPX-203. We're also looking at a thyroid franchise pipeline as well. Here's some data on IPX-203. First time I'm sharing with you. The chart on your left shows the symptoms management. In the green is IPX-203. It's instead of IR fluctuating and symptoms coming back in two to three hours, IPX-203 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-203. Also, the good on time, which is the biggest measure for the Parkinson's 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. This product provides six and a half hours almost, IPX-203 versus currently three hours. Very excited about these scores. The movement disorder experts we talked to, everybody's excited, and it can be managed really well, Parkinson's disease, with our product. Moving on to third area of our growth, which is the AvKARE transaction. We did receive the FTC clearance right away, and we expect to close in February 2020. Let me explain to you what this business is.
VA and DOD, at least somebody cares about made in United States products. They buy products that are TAA compliant, and Amneal being a large U.S. company, large U.S. manufacturing footprint, we constantly like to make products in America. 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. There is a relationship with 100 plus manufacturer partners. 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. The unit dose business is very niche and lucrative, highly profitable business, which we are well-positioned to increase the business. Financial benefits are awesome as well. Here's some of the stats.
It's a $2.5 billion market, which does not include biosimilars. Biosimilars would be added in government contracts for VA and DOD. National contracts, we'll keep winning more. Relationship with 132 manufacturers, which is excellent. Amneal also gets to utilize its own manufacturing network as well. It was $63 million LTM EBITDA and 5.4 times enterprise value we paid. It's excellent deal, accretive, de-levers our overall balance sheet as well. Excellent growth platform. We're very excited. These are the three things we're 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 quality, which has been superb. We have 76 inspection over the last 15 years. We have passed all of them. Really great rapport with FDA and reputation. Quality will matter.
FDA is going to come with a quality metrics. The more educated consumers will start asking where the product is made, who made it, 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. 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 it. That happens ahead of the time. All three areas, it's exciting time at Amneal. The enthusiasm is back. We have 6,000 or so employees. Everybody's fired up like old days, building the company. We're calling it Amneal 2.0, and we'll look forward to talking to you all the time and deliver the good results and good news. Very excited about it. 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 last several months, and we will announce it when it's completed. We have such great assets in the U.S., we'll be able to leverage those, some of them, take those assets into international markets. Additional growth driver in generics. Thank you very much. Really appreciate you coming.
Given the thumbs up, we can start here. I'm going to start with some questions, then we'll open up to the audience from there. Maybe the first one, just on some of the December approvals. Talk a little bit about maybe first the generic NuvaRing opportunity, how we should think about the company's capacity, how you think about the market dynamics and as we just consider that for 2020, just any color would be appreciated there.
Excellent. We were extremely pleased and excited with both approvals. Carafate was first. Our teams have worked on it for several years and had to work with FDA to create a guidance and approval pathway. We're very happy to bring generic options, the option for patient and the GI patient weren't getting complete access. This will give more access to sucralfate for patients. Very excited. NuvaRing, we worked on it for several years. It's a complicated product with a device and drug combination. We always build the capacity based on knowing that there will be authorized generics and a few other competitors coming. We're ramping up our market share and about 25%-30% market share. Even when Teva comes, whenever they come, 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%.
Okay
market share.
As far as the capacity is concerned, as you get into a complex manufacturing, you always get efficiencies as you go along.
Each and every day, our efficiency and productivity will go up. There are actions which we have taken, and we have filed certain amendments with FDA that will ramp up more.
Okay.
I don't think we'll be hindered by the capacity going forward on NuvaRing.
Your baseline assumption, though, is that you'll see additional competitors come in as we go through this year?
Yeah, we do.
Yeah. Okay. Maybe some more comment on Carafate. I know there's AG coming, just how do you think about that competitive landscape over time?
That we don't see competitors except authorized generics.
Okay
for this year.
Okay.
Yeah. Excellent product.
Great. Second question 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.
Yeah.
65% ownership would be Amneal, 35% is the family that we know from Kentucky. Over 15 years, we bought first business from them in 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. If they're incentivized, they can run it. It's completely independent. It's a distribution business, they have relationship with 100 manufacturers and more. They do unit dose business, government business, VA and DOD, they have government contracting offices. 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. We took a debt on that sub, so not impacting the parent. Overall, it de-levers the company as well as it's accretive.
How do we think about the margin structure of the business? Is that margin structure something that there's opportunity to improve or is that a pretty stable structure over time?
It improves actually because of the number of products and launching and obviously, if it's in-house manufactured by Amneal, it's more margins as well. It's a good business, a good niche that they have found. 10 years or so they've been doing it. Excellent opportunity for growth.
Is there more opportunity to, I guess, increase Amneal's share of the business that that company distributes? Is that part of the synergy with the deal or?
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. We're getting great support from them as well. I think we'll do both.
Okay. 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 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. Net leverage, we like to bring it in five ranges first as soon as we can.
Okay.
We are comfortable running the company around four and a half. That's what we have done as Amneal as a private company over 10 years.
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 talk about?
Too early to say. We may give more details on earnings call.
Okay. I might open it up to the audience.
You mentioned, in your last opportunity slide deck, where are you guys with that? Is that a 2020 opportunity?
Neupogen could be 2020. Neulasta would be the following year.
Just building 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 maybe find a partner to even further maximize the opportunity?
We believe in commercial. That is going to be one of the two key things in biosimilars. One is regulatory mastery, which our team's been doing it for over five years. Convincing FDA to have a reduced phase III or no phase III.
That saves tremendous time and cost. Your investment is lower.
On distribution, the commercial is very complex. You have clinics, you have hospitals, you have other buy and bill facilities. You have to be very smart. You have to negotiate with payers, you have to negotiate with PBMs, and also provide support. Because if you don't provide support to doctors, they're not incentivized, and patient support as well. You can be creative as well with biosimilars and you can improve the delivery system. We're looking at all that. Regulatory and commercial, that is where Amneal would like to lead. It's a long game. If anybody thinks it's just one or two years, and it's going to mature well. It will not have erosions, 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.
In my mind is how long the big brand companies will continue to play if margins are not that attractive.
Should we expect some SG&A ramp supporting those launches? Or do you think you can 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.
Other questions.
Could you just talk about the overall generics environment, how you see it shaping up in 2020 relative to 2019?
It's definitely improving than 2019 because whatever the value they can extract, the big buyers, they have done it. There'll be competitions coming in, so it's still extremely competitive business, but much better than last three years in going into 2020. What would be important is to keep launching these different dosage forms in both retail and institutional hospital site, injectables. Thank you.
Other questions. In terms of gross margins, like you mentioned, you need 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, the levers you can pull to improve that margin structure.
Fantastic. We looked at the manufacturing utilization, which has gone down. We increased our own utilization on transdermal Indian manufacturing sites. We transferred the products from Long Island, U.S. to India.
We lowered the inventory obsolescence cost because we're monitoring, we strengthen supply chain. These are internally controlled by us, which we used to do.
Okay.
We're back, and we would lead. FTS as well, we're lowering failure-to-supply penalties.
Yep.
These plays a big role.
Yeah
in utilization, along with increasing base business. We have 225-plus products. We keep looking at new opportunities within those products.
There are players in and out as the rationalization happens. We have tremendous relationship with these three big buying groups. They know that they can rely on Amneal, and Amneal has supplied consistently high-quality products. With all that leverage, we do need to operate in mid-40s, high-40s in generics. We used to operate in 50s.
Yeah
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 lead the quality metrics. Also the R&D investment, we have to constantly come up with new products. If we don't have certain margins, then there's selling cost.
Yeah.
So, and-
Sorry, Chris, if I could just add to Chirag's comment there to provide a little frame of reference or magnitude. Those operational issues that we've talked about-
Yeah
Our estimate is that they have probably cost us somewhere 400 to maybe 450 basis points of margin. That is incremental margin deterioration because you're always going to have some element of failure to supply, or you're going to have some element of inventory obsolescence that's in our base numbers. What has been in excess of what we've historically seen has probably impacted us somewhere in that order of magnitudes. 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.
The timelines on that, just sense of when could we see that? Is that going to be gradual occurring, or is there 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. 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.
Maybe not to push Chirag for the time, is this we're talking about, is this months? Is it quarters? Is it years? Just trying to get some sense of is this a very long-term process or something you can act on reasonably quickly?
No, it's more months and quarters, nearer term to be able to address those.
Great.
Not years.
We started since we came back.
Yeah.
Progress Thank you, Todd has been made really well.
Okay.
We're also bringing some products in-house from CMOs. Impax had many CMO products, and our cost is half of the CMO cost, so that really helps.
Okay, great.
I think on your last earnings call you mentioned some M&A and maybe pursuing some transformative acquisitions, and you're about to close one out here, but what is your kind of appetite for M&A or acquisitions?
The question is, I've been told to repeat questions because of webcast, what's our appetite for M&A and transformational M&A? We are heads down executing and growing the 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. Highly disciplined. Transformative, we'll look at it, but right now we just want to grow the business. We would definitely at right time. Well, we look at everything. 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. I hope that answered your question. Thank you.
Just have one question.
Yeah.
In terms of the Impax and Amneal combination, are you at a point where you feel like they're as integrated as they could be or as complementary as they could be? Do you still feel good about it?
Yeah. Most of the question is Amneal and Impax integration is completed. Most of the area has been completed. We're working on couple of financial modules and gross to net to consolidate completely, and that'll be done soon as well.
There are some product level integration as we bring in lot more products from Impax site in-house. Those things are in process, and that will give us some positive margins in 2020.
When you last earned, you talked about being very confident in growing through the end of 2020. How much of that growth will come from top line versus the operating efficiencies you just discussed?
Thank you. The question is, the growth in 2020, how much will come from existing products and operational efficiencies versus new launches? If I may, park 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.
Just on in general, this is your chance to kind of set guidance, et cetera. What's your approach now as a public company CEO now towards how you just given a business that's had 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 we're going to be conservative, extremely conservative. Yes, all of you are always interested in quarterly updates, which we'll provide, but the only way we know to build business is over time.
Our minds are wired to build a sustainable business, so nothing we can do just to make a quarter. Just be patient with us, but we'll be providing. We're building the company for 2020, 2021, 2022, 2023. We're here to stay and build it.
Okay.
Thank you.
On that issue of sustainability, I guess the 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 an outsider is, are you investing enough in the franchise to be able to sustain this kind of the high level of R&D that you had historically? Just 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 the leverage concerns.
No, actually, we haven't cut in that far. R&D surprisingly, it's a lower number than we used to spend that as a private company.
Yeah.
All those infrastructure and pipeline is helping.
Yep.
We still, we're not letting go any projects. We have cut down our oral solids commodity R&D, but we have R&D in complex generic products. We have 505(b)(2) R&D. Obviously we don't have room for any NCE type of things.
Yeah.
We can do these singles, doubles. In biosimilars also, smartly, we're not investing in R&D. We're investing more on regulatory and commercial. There are many players where we can take their products and pay as they make progress, and we launch the product. As you know, it's actually increased because we have the specialty franchise, which is doing great.
Just to elaborate a little bit. R&D, as a company, we are very passionate. We are science-driven organization. Amneal historically, even in generic space, has brought many first to market products. We have not taken our eyes off or cut any budgets that would ever jeopardize any of our lucrative. As over last five, seven years, we also have learned in specialty and the complex, wherever R&D efficiency has also improved a lot. FDA is changing. We have downsized just the commodity side of it, which we don't need. We have plenty. We'll continue to be aggressive. We're still spending 9%-10% of R&D. Our budget is 9%-10%, and we'll continue to do so.
We're very efficient in R&D.
Yeah.
My brother is all over R&D. He leads R&D.
Other questions. Maybe just on the specialty side on the IPX203 opportunity, the profile obviously seems to improve nicely on.
It's tremendous.
Yeah. How much more room is there, do you think, to go in terms of dislodging some of kind of the older, I guess, generic products in the space? How much of this is just replacing, retiring of the patent expiration versus an opportunity to actually expand the TAM you can pursue?
Actually, it's later. It's expand the franchise for right reason. It really can change the management of the disease.
We have learned a lot in marketing, right, to reach. It's not actually a replacement strategy. It is to make it much better because this was the ask 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? We could expand. We would be strategizing, and if we can start off new patients just on IPX-203 would be great. It's a large unmet need, and nobody likes IR, but the cost prohibits them. If we can figure out something there, the coverage, it will be very smart. We like to provide access. We're in affordable medicine business.
IPX-203 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. Even one more hour or two more hours of on time compared to the existing therapy brings a lot of value to patient. I think we'll be expanding our franchise with 203.
Any other questions? Front.
Can you give us an update on Adrenaclick? Have all the supply issues been resolved, and is it in a stable state?
It has been stable. The issues are it's still a facility that Pfizer manages, hospital facility, which has continued to have FDA issues. We're managing our inventory very proactively. We've been working with them. Last few months have been stable. I hope and I think it's going to stay pretty stable going forward in 2020. We're also working on bringing some of the work in-house, which would give us more control.
Just going back to the generics gross margin heading up for you, but you said that maybe internally you can see maybe 400, 450 basis points of impact there. That kind of gets you to the 34%-35% range from the Q3. Then the other kind of 500 basis points, how do we think about that timing? You talk about this new launch that's driving that other 400, 500. 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 these new launches?
As Todd said, we have already launched new products and lucrative ones in December. Hope to see the annual impact. Excuse me. Also full 2019, we launched 38 products. They are getting annualized as well. That should be very helpful in increasing gross margins.
Time for maybe one last question if there's one out there.
Just for me, just an update on Copaxone and timelines we can think about for that.
I'll let my brother.
Copaxone is not in our forecast for 2020. We expect Copaxone to materialize in early 2021.
Okay. Thank you.
Other questions? I appreciate the time today. Thank you.
Thank you.