Q4 2019 Earnings Call

February 26, 2020

For our agenda today and will begin with a discussion on our strategic Direction. I will then review detailed Financial results. Finally we will

Have a question and answer session following the prepared remarks. And with that. I'd like to turn the call over to Shiraz. Thank your dog. Good morning everyone and thank you for joining us today to review and Nils frahm quarter and full-year results mention too and I rejoin them Neil as co-ceos in August. We laid out or plan to put the company back on track and Lead it in next phase of growth. We told you that we would Revitalize our genetics business continue to grow the specialty franchise and improve our margins and cash flow expand into International markets and evaluate strategic and in the last seven months we have taken steps to do just that we have lost fifteen new generic products including high-value. First to Market ones, like luring and Chiropractic have won new awards for our base business. We have seen continued. Yep.

Operator 2: Good day, and welcome to the Amneal Pharmaceuticals Q4 2019 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Todd Branning, CFO. Please go ahead.

Operator: Good day, and welcome to the Amneal Pharmaceuticals Q4 2019 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Todd Branning, CFO. Please go ahead.

Rip growth 40 Specialty Products dietary and unit Droid we have already increased or genetics gross margin by 350 basis.

Des Moines from acute City to Q4 2019 and continue to make progress. We have entered into a collaboration with person Pharma to enter the Chinese market with certain products from what product portfolio and we have executed on the acquisition of a majority stake in abject, which Diversified choices of a channel mix and provides an attractive durable Revenue stream, as you can see our efforts are already bearing fruit our fourth-quarter results off build on the momentum from the third quarter and demonstrate that our strategies are working and these results sets up nicely to enter 2020 with a strong momentum. Now, let me turn to the specifics when we found it. I'm new our goal was to provide access and affordability for prescription drugs phone number.

Todd Branning: Thank you, and good morning, everyone. Welcome to Amneal's Q4 2019 earnings call. Earlier this morning, we issued a press release reporting our quarterly results. The press release, as well as the slides that will be presented on this call, are available on our website at www.amneal.com. We're conducting a live webcast of this call, a replay of which will also be available on our website after its conclusion. Please note that today's call is copyrighted material of Amneal and cannot be rebroadcast without the company's express written consent. I'd also like to remind you that during the course of this call, management will make projections or other forward-looking remarks regarding future events or the future financial performance of the company.

Todd Branning: call, management will make projections or other forward-looking remarks regarding future events or the future financial performance of the company.

Todd Branning: It's important to note that such statements about estimated or anticipated Amneal results, prospects, or other non-historical facts are forward-looking statements and reflect our current perspective of existing trends and information as of today's date. Amneal disclaims any intent or obligation to update these forward-looking statements except as expressly required by the law. Actual results may differ materially from current expectations and projections depending on a number of factors affecting the Amneal business. These factors are detailed in our periodic public filings with the Securities and Exchange Commission, including but not limited to the Amneal Pharmaceuticals, Inc. Form 10-K. Our discussion today also includes certain non-GAAP measures as defined by the SEC. Management uses both GAAP financial measures and discloses non-GAAP financial measures internally to evaluate and manage the company's operations and to better understand the business.

Nearly two decades we have done just that and today is no different the industry is changing quickly and significantly to continue to differentiate them knew we recognize that our Playbook and strategy need to evolve as well as a result. We have made a number of critical operational and strategic decision that we are confident will keep us at the Forefront of our industry em near as well capitalized and this has enabled us to move swiftly and strategically long as we build and we'll 2.0 which will position as for long-term growth regardless of the competitive landscape.

Todd Branning: Commission, including but not limited to the Amneal Pharmaceuticals, Inc. Form 10-K. Our discussion today also includes certain non-GAAP measures as defined by the SEC. Management uses both GAAP financial measures and discloses non-GAAP financial measures internally to evaluate and manage the company's operations and to better understand the business.

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Regal reading the big business began last summer. Let's explore our progress on the core tenets of our programs that are summarized earlier.

Todd Branning: Further, management believes the inclusion of non-GAAP financial measures provides meaningful supplementary information to and facilitates analysis by investors in evaluating the company's financial performance, results of operations, and trends. A reconciliation of GAAP to non-GAAP measures is available in this morning's press release and in the appendix of today's presentation. Joining me on the call this morning are Chirag Patel and Chintu Patel, our co-CEOs. Following the prepared remarks, we will hold a Q&A session. Also on the call and available for Q&A are Andy Boyer, our Executive Vice President of Commercial Operations, Joe Renda, Senior Vice President of Specialty Commercial, and Stephen Manzano, our General Counsel and Corporate Secretary. For our agenda today, Chirag and Chintu will begin with a discussion on our strategic direction. I will then review detailed financial results. Finally, we will have a question-and-answer session following the prepared remarks.

First and foremost we are revitalizing our genetics business. We are committed to supporting both our retail and institutional customers and we have been working closely with them to ensure we deliver the high-quality affordable and complex products. They need on this note. I would like to thank all of our customers for their cooperation and support children will cover more of these in detail, but at high level we have already began to better leverage of a strong existing assets with ensuring new product launch preparedness and execution if the second half of 2019 alone, we want new Awards of Thirty based business Products off and have Thirty additional product that puts unit is in works. We have launched 15 new products since returning as CEOs, including to first-to-market launches that

Todd Branning: President of Commercial Operations, Joe Renda, Senior Vice President of Specialty Commercial, and Stephen Manzano, our General Counsel and Corporate Secretary. For our agenda today, Chirag and Chintu will begin with a discussion on our strategic direction. I will then review detailed financial results. Finally, we will have a question-and-answer session following the prepared remarks.

Todd Branning: With that, I'd like to turn the call over to Chirag.

I believe highlight Emily.

Is a differentiated capabilities and underscore our ability to continue winning in the market be on the strength of a genetics business. We have a growing specialty pizza pies that we believe will drive meaningful results in 2020 and Beyond we have a lot of exciting opportunities including continuing to meaningfully grow right area where 2019 Euro year-over-year script growth was over 8% You need throwing with scripts grew by almost 20% in 2019 Civic DX two or three development program of a licensing agreement with cashew biosciences for exclusive use rights for development and commercialization of kc-130j.

Chirag Patel: Thank you, Todd. Good morning, everyone, and thank you for joining us today to review Amneal's Q4 and full year results. When Chintu and I rejoined Amneal as co-CEOs in August, we laid out our plan to put the company back on track and lead it in its next phase of growth. We told you that we would revitalize our generics business, continue to grow the specialty franchise, and improve our margins and cash flow, expand into international markets, and evaluate strategic M&A. In the last seven months, we have taken steps to do just that. We have launched 15 new generic products, including high-value, first-to-market ones like NuvaRing and Carafate, and have won new awards for our base business. We have seen continued script growth for key specialty products, Rytary and Unithroid.

Focus on adding assets to an existing neurology and endocrinology franchise through both m&a and in-licensing opportunities and apps expansion into other therapeutic areas including additional biosimilars.

Chirag Patel: We have already increased our generics gross margin by 350 basis points from Q3 to Q4 2019 and continue to make progress. We have entered into a collaboration with Fosun Pharma to enter the Chinese market with certain products from our core-product portfolio, and we have executed on the acquisition of a majority stake in AvKARE, which diversifies our channel mix and provides an attractive, durable revenue stream. As you can see, our efforts are already bearing fruit. Our Q4 results build on the momentum from the Q3 and demonstrate that our strategies are working. These results sets up nicely to enter 2020 with strong momentum. Now let me turn to the specifics. When we founded Amneal, our goal was to provide access and affordability for prescription drugs. For nearly two decades, we have done just that, and today is no different.

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Simply we are also focused on diversifying the business intelligently when I talk about diversification. We are focused into main areas channels on G overall, please let's talk about the channels first through our acquisition of a majority stake in healthcare which closed on January 31st and operates as an independent subsidiary. We gained a differentiated platform that provides am new and other manufacturers a unique opportunity to diversify our business office and open growth opportunities in the in the large complex and growing federal health care Market this transaction makes particular sense given of a large US manufacturing footprint and recent Court ruling regarding TAA compliance.

Okay, it has already 134 National contracts and we expect the that number to grow that gets light from also provides us an opportunity to sell more unit those products which is in English and a highly profitable business.

Chirag Patel: The industry is changing quickly and significantly. To continue to differentiate Amneal, we recognize that our playbook and strategy need to evolve as well. As a result, we have made a number of critical operational and strategic decisions that we are confident will keep us at the forefront of our industry. Amneal is well capitalized and this has enabled us to move swiftly and strategically as we build Amneal 2.0, which will position us for long-term growth regardless of the competitive landscape. The path to reinvigorating the big business began last summer. Let's explore our progress on the core tenets of our program that I summarized earlier. First and foremost, we are revitalizing our generics business. We are committed to supporting both our retail and institutional customers, and we have been working closely with them to ensure we deliver the high quality, affordable, and complex products they need.

Is our focus on Geographic diversification at the GPM JP Morgan Healthcare conference in January 2020. I mentioned that we we were looking at International expansion of puts you at ease in the late 2019. We entered into a license and Supply agreement with full soon, who is a leading player in pharmaceutical manufacturing and distribution in China our partnership with frozen farmer represents a significant opportunity for em need to leverage certain products from our portfolio and efficient manufacturing Network. We are gaining access to a rapidly growing genetics Market as China transitions to competitive bidding for brand-name and generic pharmaceutical products. Finally. We remain committed to best-in-class governance.

Recently stand in our board of directors with the additions of three new independent directors who served as the CEO of Sanders and Al Cohn, that's normally on my for mercy of Tampa John kehle a former sick former senior and Assurance partner at pricewaterhousecoopers, very focused on a pharmaceutical chemical and medical device selected our ability to attract leaders of this caliber to our board. Is it terrific reflection of em Neil and our future prospects. We have been Relentless in our execution over the last several months. We are pleased that we begin to see results in the fourth quarter am looking forward to building on our momentum in 2020 and Beyond let me now turn it over to children. Thank you. I would like to start by reiterating wage.

Chirag Patel: On this note, I would like to thank all our customers for their collaboration and support. Chintu will cover more of these in detail, but at a high level, we have already begun to better leverage our strong existing assets, ensuring new product launch preparedness and execution. In H2 2019 alone, we won new awards of 30 base business products and have 30 additional product opportunities in the works. We have launched 15 new products since returning as CEOs, including 2 first to market launches that I believe highlight Amneal's differentiated capabilities and underscore our ability to continue winning in the market. Beyond the strength of our generics business, we have a growing specialty franchise that we believe will drive meaningful results in 2020 and beyond.

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Of them about the direction of our business. We started to see improvements at the end of the year and we are excited about the opportunities to grow and build on handle strong Foundation month obviously stalked by repeating the point. We have made since August of a generic business is fundamentally strong. We have over 225 marketed products and a deep V, you know file products and once we are still developing we have worked hard to earn our reputation of producing high-quality products across a variety of complex dosage forms, including injectables transdermal topicals and liquids and we are extremely proud of our impeccable track record in quality and customer service, which has always been a month ready for us while the industry-wide headwinds of increased competition and concentration in buying power contributed to Major gross margin declines across

Chirag Patel: We have a lot of exciting opportunities, including continuing to meaningfully grow Rytary, where 2019 year-over-year script growth was over 8%. Unithroid, where scripts grew by almost 20% in 2019. Our IPX203 development program. Our licensing agreement with Kashiv BioSciences for exclusive US rights for development and commercialization of K-127. Our focus on adding assets to our existing neurology and endocrinology franchise through both M&A and in licensing opportunities, and opportunistic expansion into other therapeutic areas, including additional biosimilars. Importantly, we are also focused on diversifying the business intelligently. When I talk about diversification, we are focused in two main areas, channels and geographies. Let's talk about the channels first.

Let's see over the last few years.

The level of compression we saw it. I'm Neil when we took over as co-ceos was unacceptable. We have been laser-focused in our efforts to improve our margin structure off automatically reach our Target of 40-plus percent gross margin in the generic segment as soon as possible. We have already begun executing on these initiatives first month. We have improved plant utilization across our manufacturing infrastructure. We oversaw the transfer of many lower value or a solid product store sites in India wage are more competitive cost structures. We have already increased volume for our complex products including Transformers liquids rings and injectables, which would improve absorption at the plant level. And as I mentioned we have proactively one additional incremental awards for base business products 30 in the south.

Chirag Patel: Through our acquisition of a majority stake in AvKARE, which closed on 31 January and operates as an independent subsidiary, we gained a differentiated platform that provides Amneal and other manufacturers a unique opportunity to diversify our business and open growth opportunities in the large, complex, and growing federal healthcare market. This transaction makes particular sense given our large US manufacturing footprint and recent court ruling regarding TAA compliance. AvKARE has already won 34 national contracts, and we expect that number to grow. The AvKARE platform also provides us an opportunity to sell more unit dose products, which is a niche and a highly profitable business. Next is our focus on geographic diversification. At the J.P. Morgan Healthcare Conference in January 2020, I mentioned that we were looking at international expansion opportunities.

half of last year alone, which will have a material impact on our utilization this year second we have taken steps to

And then our supply chain and manage costs across the organization. We have addressed operational efficiencies and are working diligently with our customers to ensure I delivering the right mix of products to meet their needs which we which we expect to lower our rates of inventory obsolescence and we are already seeing results our faith to supply penalties in quarter for quite significantly lower than quarters 3 these efforts affects the entire supply chain and will help ensure our competitive position going forward. We continue to successfully get high value high-margin products approved and launched. We previously told you we would launch at least 15 high-value products for the next eighteen to twenty-four months since rejoining in August. We have already launched for including generic version of knowing and caring. Which are yep.

Chirag Patel: In late 2019, we entered into a license and supply agreement with Fosun Pharma, who is a leading player in pharmaceutical manufacturing and distribution in China. Our partnership with Fosun Pharma represents a significant opportunity for Amneal to leverage certain products from our US portfolio and efficient manufacturing network. We are gaining access to a rapidly growing generics market as China transitions to competitive bidding for branded and generic pharmaceutical products. Finally, we remain committed to best-in-class governance. We recently strengthened our board of directors with the additions of three new independent directors, Jeff George, who served as the CEO of Sandoz and Alcon, Shlomo Yanai, former CEO of Teva, John Kiely, a former senior and assurance partner at PricewaterhouseCoopers, where he focused on the pharmaceutical, chemical, and medical device sector.

To Market opportunities as we launch more products with limited competition.

For margins will naturally increase as well. Finally. We have a renewed focus on operational excellence when we previously random deal. We had some of the highest office in the industry. We accomplish this through a Relentless pursuit of cost reduction in all areas of our business including bringing Manufacturing in house and reducing Reliance on Thursday. So far. We are pleased with the results which includes strengthening our forecasting improving coordination and cross Finance operations supply chain and our customers and also leveraging our scalability and network of reliable suppliers. And this is this isn't an initiative with end date. It is a consultation process and one we look forward to building a phone since we took over in August and has weakened a direct result of the four buckets. I just outlined we are pleased to have achieved.

Chirag Patel: Our ability to attract leaders of this caliber to our board is a terrific reflection of Amneal and our future prospects. We have been relentless in our execution over the last several months. We are pleased that we began to see results in Q4, and looking forward to building on our momentum in 2020 and beyond. Let me now turn it over to Chintu.

Chintu Patel: Thank you, Chirag. I would like to start by reiterating my brother's enthusiasm about the direction of our business. We started to see improvements at the end of the year, and we are excited about the opportunities to grow and build on Amneal's strong foundation. I will start by repeating a point we have made since August. Our generic business is fundamentally strong. We have over 225 marketed products and a deep pipeline of five products and ones we are still developing. We have worked hard to earn our reputation of producing high quality products across a variety of complex dosage forms, including injectables, transdermals, topicals, and liquids. We are extremely proud of our impeccable track record in quality and customer service, which has always been a priority for us.

Very gross margin expansion of 350 basis points from quarter-to-quarter for 2019 and we believe this is just the beginning.

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Turning to our ND as with any pharmaceutical company. This is the engine for our growth and given the ever-changing landscape of the industry. We have to be specially thoughts are in Despair and we acknowledge that the r y for small molecule generic is not what it used to be. The focus needs to be on quality of pipeline not worth of products within it as well as the product selection and the ability to execute and successfully launched high-value genetics.

Chintu Patel: While the industry-wide headwinds of increased competition and concentration in buying power contributed to major gross margin declines across the industry over the last few years, the level of compression we saw at Amneal when we took over as co-CEOs was unacceptable. We have been laser focused in our efforts to improve our margin structure and ultimately reach our target of 40+% gross margin in the generics segment as soon as possible. We have already begun executing on these initiatives. First, we have improved plant utilization across our manufacturing infrastructure. We oversaw the transfer of many lower value oral solid products to our sites in India, which have more competitive cost structures. We have already increased volume for our complex products, including transdermals, liquids, rings, and injectables, which has improved absorption at the plant level.

We expect to file 2225 products in twenty-twenty and many of these are potential first to Market opportunities as well. We have ninety-seven products in the fiber line waiting for FDA approval and eighty products in the development Pipeline and unlike many of our competitors. We have expertise in both complex product development mean and Manufacturing which reduces our Reliance on third parties and gives us better economics on high-value products and we have just begun to utilize excellent our Indian regulatory infrastructure to pursue X us opportunities, as you can imagine a large order of launching drugs internationally is getting a regulatory process, right? We recognize that many of our products have Global opportunity and the process of expanding geographically starts with r and d we have already be dead.

Chintu Patel: As Chirag mentioned, we have proactively won additional incremental awards for base business products, 30 in the H2 of last year alone, which will have a material impact on our utilization this year. Second, we have taken steps to strengthen our supply chain and manage cost across the organization. We have addressed operational inefficiencies and are working diligently with our customers to ensure we are delivering the right mix of products to meet their needs, which we expect to lower our rates of inventory obsolescence, and we are already seeing results. Our failure to supply penalties in Q4 were significantly lower than Q3. These efforts affect the entire supply chain and will help ensure our competitive position going forward. Third, we continue to successfully get high value, high margin products approved and launched.

mhm ending our existing team as we formed as we move forward with our

Collaboration with frozen farmer and we will make sure we have the right people and resources to execute on this significant opportunity generic drug development may have changed. We continue to see opportunity in high Roi projects running now towards specialty franchise. We have a solid scalable foundation and infrastructures inspection and see significant opportunities for Value creation and gross margin across the segment. It is a meaningful part of our business and going forward. We expect to allocate a significant amount of our R&D budget to Specialty as we grow this business. We will continue to be very thoughtful about product selection and leveraging our existing infrastructure.

We can continue to invest selectively in several key pipeline assets our IP x-23 development program continues to move forward and we expect Topline data from over three study in the first half of 2021. We recently presented data from our previous phase 2A and 2B stock which showed statistically significant Improvement. What's this immediate release carbidopa-levodopa combination for key endpoints. We are excited about the potential for this product and what it could do to improve the lives of Parkinson's disease patients beyond what we have done with right Terry. Our current expectation is to begin commercialization no later than 2023 and earlier. We also entered into a licensing agreement with cashew biosciences in November.

Chintu Patel: We previously told you we would launch at least 15 high-value products over the next 18 to 24 months. Since rejoining in August, we have already launched 4, including generic version of NuvaRing and Carafate, which are first to market opportunities. As we launch more products with limited competition, our margins will naturally increase as well. Finally, we have a renewed focus on operational excellence. When we previously ran Amneal, we had some of the highest gross margins in the industry. We accomplished this through a relentless pursuit of cost reduction in all areas of our business, including bringing manufacturing in-house and reducing reliance on CMOs. So far, we are pleased with the results, which include strengthening our forecasting, improving coordination across finance, operations, supply chain, and our customers, and also leveraging our scalability and network of reliable suppliers. This isn't an initiative with end date.

Which expands there was?

CNS pipeline into neuromuscular disorder as part of this agreement MD Now has exclusive rights within the US to the new drug application and commercialization off-key 127 for the treatment of myasthenia gravis. We expect to file these by end of 2021 for biosimilars. We have three candidates currently off-line biosimilar version of neupogen neulasta and arresting and are actively working to add additional products. Our current focus is uncle aaja and at the time of commercialization, we plan to supplement our existing managed care and Commercial operations with new oncology Focus resources in sales and marketing a white while it's early days. We fully expect to become one of the Key Bank similar players in the US market.

Chintu Patel: It is a constant process and one we look forward to building upon. Since we took over in August, and a direct result of the four buckets I just outlined, we are pleased to have achieved generic gross margin expansion of 350 basis points from Q3 to Q4, 2019, and we believe this is just the beginning. Now turning to R&D. As with any pharmaceutical company, this is the engine for our growth. Given the ever-changing landscape of the industry, we have to be especially thoughtful with our R&D spend. We acknowledge that the ROI for small molecule generic is not what it used to be. The focus needs to be on quality of pipeline, not quantity of products within it, as well as the product selection, and the ability to execute and successfully launch high-value generics.

In summary, we look forward to adding more specialty assets where we can leverage our existing development and commercialization capabilities before I turn the call over to thoughts. I want to thank all employees customer and suppliers for that continued their continued support.

Chintu Patel: We expect to file 20 to 25 products in 2020, and many of these are potential first to market opportunities as well. We have 97 products in the pipeline waiting for FDA approval and 80 products in the development pipeline. Unlike many of our competitors, we have expertise in both complex product development and manufacturing, which reduces our reliance on third parties and gives us better economics on high-value products. We have just begun to utilize excellent R&D and regulatory infrastructure to pursue ex-US opportunities. As you can imagine, a large hurdle of launching drugs internationally is getting the regulatory process right. We recognize that many of our products have global opportunity, and the process of expanding geographically starts with R&D.

Thanks. You too. Good morning, everyone before I dive into our results from the fourth quarter. I would like to express my enthusiasm at the positive Trends. We are seeing as we move into 2020. We continue to face a challenging generics Marketplace, but the work we have done to address internal and efficiencies and better position and able to capitalize on growth opportunities as already had a positive impact on our financial results. We believe we are well-positioned to build on this momentum through 2020 and Beyond

No turning to the results total net revenue in the fourth quarter was $397 compared to 378 million in this year's third quarter a 5% sequential increase wage driven by sales for new products launched in the fourth quarter, including a December 1st generic versions of NuvaRing and Carafate.

Gross margin in the fourth quarter of prove to 43% an increase of 350 basis points from the 3rd quarter 2018 due to favorable volume and mix new product launches and loss inventory obsolescence charges, which more than offset price erosion. We are continuing to actively manage operating expenses across the organization and the fourth quarter 2019 adjusted r m e n sg&a expenses were forty-three million and sixty four million respectively probably in line with our current run-rate levels for these expenditures.

Chintu Patel: We have already begun augmenting our existing team as we move forward with our collaboration with Fosun Pharma, and we will make sure we have the right people and resources to execute on this significant opportunity. Generic drug development may have changed, but we continue to see opportunity in high ROI projects. Turning now to our specialty franchise. We have a solid, scalable foundation and infrastructure in specialty and see significant opportunities for value creation and gross margin across the segment. It is a meaningful part of our business, and going forward, we expect to allocate a significant amount of our R&D budget to specialty. As we grow this business, we will continue to be very thoughtful about product selection and leveraging our existing infrastructure. We continue to invest selectively in several key pipeline assets.

adjusted ebit

So and adjusted diluted earnings per share for the fourth quarter 2018 or $81.08 respectively both sequential Improvement as a result of higher revenues better gross margins compared to the third quarter of 2018.

Moving to a review review of our generic segment results compared to the third quarter of 2019 net revenues grew 3% driven primarily by the launches of generic NuvaRing and generic Thursday. We were pleased to see the extension of our genetics gross margin from the 30% We delivered in third quarter of 2019 to 33% in the fourth quarter. The fourth quarter gross margin was driven by favorable volume and mix new product launches and lower inventory obsolescence charges as compared to the third quarter. Our work is not done however, and will continue to aggressively to drive are generics gross margins to our long-term goal of 40% plus but we believe or trending in the right direction.

Chintu Patel: Our IPX203 development program continues to move forward, and we expect top-line data from our pivotal Phase 3 study in H1 2021. We recently presented data from our previous Phase IIa and IIb studies, which showed statistically significant improvement versus immediate-release carbidopa/levodopa combination for key endpoints. We are excited about the potential for this product and what it could do to improve the lives of Parkinson's disease patients beyond what we have done with Rytary. Our current expectation is to begin commercialization no later than 2023. As Chirag alluded earlier, we also entered into a licensing agreement with Kashiv BioSciences in November, which expands our CNS pipeline into neuromuscular disorder. As part of this agreement, Amneal now has exclusive rights within the US to the new drug application and commercialization of K-127 for the treatment of myasthenia gravis.

adjusted operating

In the fourth quarter was $49 a sequential increase of nine million compared to the third quarter of 2019 higher revenue and gross margin expansion drove the sequential increase in adjusted operating room column.

Turning now to our specialty segment results on a year-over-year basis net revenue increased 11% to ninety seven dollars driven by higher sales of unified and the reclassification of oxymorphone HCI from the generic segment on a sequential basis net revenue in the fourth quarter also increased 11% due to higher sales of Atari, you know, throw it in the bag nasal spray compared to this year's third quarter adjusted gross. Margin for the fourth quarter was 75% probably in line with our third quarter adjusted gross margin.

Chintu Patel: We expect to file this by end of 2021. For biosimilars, we have three candidates currently in the pipeline, biosimilar version of Neupogen, Neulasta, and Avastin, and are actively working to add additional products. Our current focus is oncology, and at the time of commercialization, we plan to supplement our existing managed care and commercial operations with new oncology-focused resources in sales and marketing. While it's early days, we fully expect to become one of the key biosimilar players in the US market. In summary, we look forward to adding more specialty assets where we can leverage our existing development and commercialization capabilities. Before I turn the call over to Todd, I want to thank all employees, customers, and suppliers for their continued support. Todd?

What a year every year basis fourth quarter 2019 adjusted operating income declined by $5 primarily due to higher managed-care rebates and Medicare coverage Gap liabilities.

Sequential basis adjusted operating income for the fourth quarter increased $5 to $46 million. This increase was primarily due to product mix partially offset by higher rebates and coverage Gap ability for timing of claims.

Now for a review of our cash flow and balance sheet information we end at the fourth quarter with 153 million dollars in cash down $64 million compared to the third quarter of 2018 or cash flow from operations in the fourth quarter 2019 was -51 million dollars as I mentioned during our last earnings call. We expected a step down in cash in the fourth quarter to two factors that resulted in a higher cash balance at the end of the third quarter these included the timing of customer charge back deductions and expenditure disbursements. Both of which came in at the beginning of the fourth quarter rather than at the end of the third quarter as we had expected and the fourth quarter of 2019. We had Shell stock adjustments and an acceleration of customer credits these contributed to lower cash collections wage order, but we believe these will normalize in 2020. We also believe the pricing actions. We took will benefit our gross to net conversion ratio ratio in future periods.

Todd Branning: Thanks, Chintu. Good morning, everyone. Before I dive into our results from Q4, I would like to express my enthusiasm at the positive trends we are seeing as we move into 2020. We continue to face a challenging generics marketplace, but the work we have done to address internal inefficiencies and better position Amneal to capitalize on growth opportunities has already had a positive impact on our financial results. We believe we are well-positioned to build on this momentum through 2020 and beyond. Now, turning to the results. Total net revenue in Q4 was $397 million, compared to $378 million in this year's Q3, a 5% sequential increase driven by sales from new products launched in Q4, including in December, the first generic versions of NuvaRing and Carafate.

Go ahead to our full-year 2020 Financial Outlook. We previously expressed our expectation to 2020 would be a growth year for annual that is still our expectation. We also close the app transaction at the end of January and the expected contribution from that business for the balance of the year is reflected in our Outlook.

Todd Branning: Gross margin in Q4 improved to 43%, an increase of 350 basis points from Q3 2019 due to favorable volume and mix, new product launches, and lower inventory obsolescence charges, which more than offset price erosion. We are continuing to actively manage operating expenses across the organization. In Q4 2019, adjusted R&D and SG&A expenses were $43 million and $64 million respectively, broadly in line with our current run rate levels for these expenditures. Adjusted EBITDA and adjusted diluted earnings per share for Q4 2019 were $81 million and $0.08 respectively, both sequential improvements as a result of higher revenues and better gross margins compared to Q3 2019.

In terms of the numbers, we expect annual revenues up between 1.88 and 1.9 eight billion dollars driven primarily by growth in our generic segment and the additional revenues from App. KO we expect adjusted gross margin between 44% and 46% even in the range of $400 to $450 and adjusted diluted earnings per share of $0.55 per share to sixty cents per share based on weighted average diluted shares outstanding of approximately 300 million shares. I would note that we will include 100% of the app KO but in our reported adjusted ebitda figures since non-controlling interest is calculated based on net income. Not even. All right, just a diluted earnings per share calculations. Will of course account the 35% non-controlling interest ownership in AB Kare.

Todd Branning: Moving to a review of our Generics segment results compared to Q3 2019. Net revenues grew 3%, driven primarily by the launches of generic NuvaRing and generic Carafate. We were pleased to see the expansion of our Generics gross margin from the 30% we delivered in Q3 2019 to 33% in Q4. The Q4 gross margin was driven by favorable volume and mix, new product launches, and lower inventory obsolescence charges as compared to Q3. Our work is not done, however, and we'll continue to move aggressively to drive our Generics gross margins to our long-term goal of 40%+, but we believe we're trending in the right direction.

finally we anticipate

A 2020 operating cash flow between 150 million and two hundred million dollars in capital expenditures in the range of 60 to 70 million dollars with that all notes on the call taxes. Thank your dog while we are proud to be have seen improvements this quarter. We are aware that we still have a long way to go to reach our goals. We expect the trends. We are seeing to continue as we work aggressively to improve operations and gain greater efficiencies Drive gross margin expansion and generate growth 2020 and Beyond as we look through challenging market conditions and internal changes, we continue to operate in a solid financial position wage with no near-term that maturities our covenant compliance concerns. We are excited to reinvest in the business in the coming quarters and years and rebuild them Neil into dead.

Todd Branning: Adjusted operating income in the Q4 was $49 million, a sequential increase of $9 million compared to the Q3 of 2019. Higher revenue and gross margin expansion drove the sequential increase in adjusted operating income. Turning now to our specialty segment results. On a year-over-year basis, net revenue increased 11% to $97 million, driven by higher sales of Unithroid and the reclassification of oxymorphone HCl from the generics segment. On a sequential basis, net revenue in the Q4 also increased 11% due to higher sales of Rytary, Unithroid, and Zomig nasal spray compared to this year's Q3. Adjusted gross margin for the Q4 was 75%, broadly in line with our Q3 adjusted gross margin.

The leader we know it can be.

Thank you with that. I'll turn the call back to talk.

Thank you. Before we open up the line for questions. I'd ask that you please limit yourself to one question and one follow-up so we can get through a number of callers in the queue. So with that wage to call back to the operator to open it up for questions, please thank you. And I begin the question-and-answer session to ask a question. You may press * then 1 using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question, please press star then to this question today comes from Elliot Wilbur of Raymond James. Go ahead. Good morning. Just a quick couple of questions around the table care business at the time of acquisition. I think you reported that even Dad was right over just over sixty million. Just want to get a sense of if that's a reasonable run-rate to expect for full year twenty-twenty and then also wonder if we get maybe a month.

Todd Branning: On a year-over-year basis, Q4 2019 adjusted operating income declined by $5 million, primarily due to higher managed care rebates and Medicare coverage gap liability. On a sequential basis, adjusted operating income for the fourth quarter increased $5 million to $46 million. This increase was primarily due to product mix, partially offset by higher rebates and coverage gap liability for timing of claims. Now for a review of our cash flow and balance sheet information. We ended the fourth quarter with $153 million in cash, down $64 million compared to Q3 2019.

Contribution just really trying to you know, understand sort of how that business impacts overall margins. I assume that

Todd Branning: Our cash flow from operations in Q4 2019 was -$51 million. I mentioned during our last earnings call, we expected a step down in cash in the fourth quarter due to factors that resulted in a higher cash balance at the end of Q3. These included the timing of customer chargeback deductions and expenditure disbursements, both of which came in at the beginning of Q4 rather than at the end of Q3, as we had expected. In Q4 2019, we had shelf stock adjustments and an acceleration of customer credits. These contributed to lower cash collections in the quarter, but we believe these will normalize in 2020. We also believe the pricing actions we took will benefit our gross to net conversion ratio in future periods.

That is going to be we're actually I don't know the answer this is that going to be reported as a separate segments or is that going to be Consolidated into generic results, but just trying to get a sense of how that business impacts the overall margin profile and then just as a as a follow-up just a a macro question hearing a lot of noise out of China with respect impact of coronavirus and how that could impact the generic supply chain seems like companies that are closest to the the API world are suggesting there could be issues relatively near term indicating. They've got plenty of Safety stock on hand and there shouldn't be issues for a couple of quarters. Just wondering what your perspective is on the issue, whether there's any amnio specific risks, and you know what you may be hearing back from the the overall competitive environment in terms of whether or not there will be a potential negative impact or shortages. Thanks.

Todd Branning: As we look ahead to our full year 2020 financial outlook, we previously expressed our expectation that 2020 would be a growth year for Amneal. That is still our expectation. We also closed the AvKARE transaction at the end of January, and the expected contribution from that business for the balance of the year is reflected in our outlook. In terms of the numbers, we expect annual revenues of between $1.88 and $1.98 billion, driven primarily by growth in our generic segment and the additional revenues from AvKARE.

This is Todd. Thank you for your questions. I'll take the first couple you asked and respect to that care and then a strong connection to answer the last question as it relates to supply change. So with the adjusted he would amount that we disclosed when we announced the Acura transaction. The little over sixty million dollars is a reasonable run rate for for a full year. Of course, there'll be a little less contribution to us in 2020 simply because we close the transaction at the end of January and so will only get 11 months contribution this year, but you can work still with that v as as a approximate run rate of even for the business for this year in terms of the the top-line contribution. We're not going to disclose that the revenue estimate for today. It will be reported as a separate segments in our results, uh apart from the generic segment and the specialty segment. So when we report the first quarter

Todd Branning: We expect adjusted gross margin between 44% and 46%, EBITDA in the range of $400 to $450 million, and adjusted diluted earnings per share of $0.45 per share to $0.60 per share based on weighted average diluted shares outstanding of approximately 300 million shares. I would note that we will include 100% of the AvKARE EBITDA in our reported adjusted EBITDA figures since non-controlling interest is calculated based on net income, not EBITDA. Our adjusted diluted earnings per share calculations will, of course, account for the 35% non-controlling interest ownership in AvKARE. Finally, we anticipate 2020 operating cash flow of between $150 million and $200 million, and capital expenditures in the range of $60 to $70 million. With that, I'll turn the call back over to Chirag.

it'll be included for for a couple of months and they'll be

Additional visibility into the financial profile of that business at that time. Good morning. Uh so far our exposure to do to Corona it is is limited. Ugh, we expect one product to be impacted over next 3 months and other products could be in a single-digit are away six months plus since we have this we have stock and proactively we're working with our API suppliers in India and other parts of the world Europe too long have alternate key starting materials. So we don't at this point see any impact at all.

Chirag Patel: Thank you, Todd. While we are proud to have seen improvements this quarter, we are aware that we still have a long way to go to reach our goals. We expect the trends we are seeing to continue as we work aggressively to improve operations and gain greater efficiencies, drive gross margin expansion and generate growth in 2020 and beyond. As we look through challenging market conditions and internal changes, we continue to operate in a solid financial position with no near-term debt maturities or covenant compliance concerns. We are excited to reinvest in the business in the coming quarters and years and rebuild Amneal into the leader we know it can be. Thank you. With that, I'll turn the call back to Todd.

And just do we had one point most of our apis are coming out of India Europe and us we only have single-digit API coming from China and Thursday. We are we have taken proactive measures to protect our supply chain and we don't at this point anticipate issues, uh over the near-term month.

Todd Branning: Thank you, Chirag. Before we open up the line for questions, I'd ask that you please limit yourself to one question and one follow-up so we can get through a number of callers in the queue. With that, I'll turn the call back to the operator to open it up for questions, please.

The next question is ready to move to the next question. The next question today comes from David anthem of Piper Sandler, please go ahead. Thanks. So wanted to focus on your two newest generics NuvaRing and and Care afraid. So a NuvaRing you just talk about how much of the market wage you can supply and I believe that you have or will file a cb34 a more automated manufacturing process. Can you talk about what chat means in terms of your ability to supply more of the market and then in terms of competition on Nuvaring what are your expectations regarding competitors specifically to have unread he's or even anyone else down the road and then I guess the same question for Carafate. How should we think about competitive expectations for that product?

Operator 2: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on a touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question today comes from Elliot Wilbur of Raymond James. Please go ahead.

Operator: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on a touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question today comes from Elliot Wilbur of Raymond James. Please go ahead.

Elliot Wilbur: Thanks. Good morning. Just a quick couple of questions around the AvKARE business. At the time of acquisition, I think you reported that EBITDA was just over $60 million. Just want to get a sense of if that's a reasonable run rate to expect for full year 2020. And then also wonder if we'd get maybe a top-line contribution. Just really trying to, you know, understand sort of how that business impacts overall margins. I assume that that is going to be. Or actually, I don't know the answer to this. Is that going to be reported as a separate segment, or is that going to be consolidated into generic results? Just trying to get a sense of how that business impacts the overall margin profile.

Thanks. Thank you, David. Good morning.

New ring we have approximately 16% market share, but we're see meet Saturday for the Automated machine fully Automated machine has been approved and we are ramping up over production as we stated earlier or goal is to get twenty-five to thirty percent market share competition. We expect, you know, first half, uh-huh mainly from home and even with the competition and authorized genetics. We should be able to keep our market share of twenty-five thirty percent. We do not expect our competitors maybe in the late in the year, but not throughout early part of the Year moving to Carafate. We have almost 60% market share is a g has launched in January, and we do not expect any competition this year.

Elliot Wilbur: Then just as a follow-up, just a macro question, hearing a lot of noise out of China with respect to the impact of coronavirus and how that could impact the generic supply chain. Seems like companies that are closest to the API world are suggesting there could be issues relatively near term. Others are indicating they've got plenty of safety stock on hand, and there shouldn't be issues for a couple of quarters. Just wondering what your perspective is on that issue, whether there's any Amneal specific risks and, you know, what you may be hearing from the overall competitive environment in terms of whether or not there will be potential negative impact or shortages. Thanks.

Thank you.

Thanks question comes from Greg Gilbert of please go ahead.

Todd Branning: Elliot, this is Todd. Thank you for your questions. I'll take the first couple you asked in respect to AvKARE, and then ask Chirag and Chintu to answer the last question as it relates to supply chain. The adjusted EBITDA amount that we disclosed when we announced the AvKARE transaction of a little over $60 million is a reasonable run rate for a full year. Of course, that'll be a little less contribution to us in 2020 simply because we closed the transaction at the end of January, and we'll only get 11 months' contribution this year. But you can work still with that figure as an approximate run rate of EBITDA for the business for this year.

Thank you, just to follow up first on AdvoCare. I was curious if you're seeing any customer concerns or questions for now that I'm Neil is the majority owner. It sounds like you're not expecting any Financial disruption, but just wanted to see if you have any qualitative comments on how that handoff in in the ownership stake has changed anything if at all and then my follow-up is this for Dragon into curious what your appetite is as well as your flexibility to pursue additional transactions in the relative near term that can materially diversify took us such as AdvoCare something of that size or larger. Thank you.

Todd Branning: In terms of the top-line contribution, we're not gonna disclose the revenue estimate for AvKARE today. It will be reported as a separate segment in our results, apart from the Generic segment and the Specialty segment. When we report Q1, it'll be included for a couple of months, and there'll be some additional visibility into the financial profile of that business at that time.

Thank you, Greg Good Morning Advocate actually run runs as an independent company and we have a tremendous support, you know, the uh Founders have 35% stake date on the company and they treat every manufacturing partner is equally we have a hundred manufacturing part is tremendous support from the big manufacturers as this is a highly profitable channel for them to sell their products and have cared as a great job of customer service relationship with manufacturers. So we're actually very excited to grow that business on the appetite of flexibility on the new transaction as we have stated. We are in the game to hit singles and doubles and now we have turned our focus on to Specialty and we're looking at

Chirag Patel: Elliot, good morning. So far our exposure due to coronavirus is limited. We expect one product to be impacted over the next three months, and other products could be in a single digit right away, six months plus since we have stock. Proactively, we're working with our API suppliers in India and other parts of the world, Europe, to have alternate key starting materials. So we don't, at this point, see any impact at all. Just to add one point, most of our APIs are coming out of India, Europe, and US. We only have a single-digit API coming from China. As Chirag said, we have taken proactive measures to protect our supply chain, and we don't, at this point, anticipate issues over the near term.

Chintu Patel: Elliot, good morning. So far our exposure due to coronavirus is limited. We expect one product to be impacted over the next three months, and other products could be in a single digit right away, six months plus since we have stock. Proactively, we're working with our API suppliers in India and other parts of the world, Europe, to have alternate key starting materials. So we don't, at this point, see any impact at all. Just to add one point, most of our APIs are coming out of India, Europe, and US. We only have a single-digit API coming from China. As Chirag said, we have taken proactive measures to protect our supply chain, and we don't, at this point, anticipate issues over the near term.

number of

Potential transaction that can fit real nicely with our neurology basically in CNS, uh Phil or Endocrinology. So we're very excited to what condos and we could hit singles and doubles we do have flexibility to do so.

If I could interject just a single or double is that care in that realm or is that yes, no, no, no single. Yes, ma'am. Thanks a lot.

The next question comes from Chris shot of JPMorgan, please. Go ahead great. Thanks very much for the questions. Just the first one here was on the biosimilars. Can you elaborate a little bit more money on College and infrastructure you expect you'll need to to build out to compete in these markets. It might be more strategically. It seems like at least on some of these initial products you're going to be entering the market after a number of competitors have already launched. It's a company differentiates itself given that Dynamic and then she's very quick one. Just coming back to the guidance and a bit more in Gross margins that 44 to 46% Can you just give us a little more color of how that breaks down by division? Just given the the app care inclusion the P now, I'm trying to get a sense of how we think about kind of generics versus specialty versus f as we construct the to get that 44 is 46000 much. Thank you, Chris. Good morning biosimilar. As you are well aware how it's shaping up. It's more of a I call it a quasi birth.

Operator 2: The next question.

Operator: The next question.

Operator 2: Thank you. Operator, you can move to the next question.

Todd Branning: Thank you. Operator, you can move to the next question.

Operator 2: The next question today comes from David Amsellem of Piper Sandler. Please go ahead.

Operator: The next question today comes from David Amsellem of Piper Sandler. Please go ahead.

David Amsellem: Thanks. Wanted to focus on your two newest generics, NuvaRing and Carafate. On NuvaRing, can you just talk about how much of the market you can supply? I believe that you have or will file a CBE-30 for a more automated manufacturing process. Can you talk about what that means in terms of your ability to supply more of the market? In terms of competition on NuvaRing, what are your expectations regarding competitors, specifically Teva and Dr. Reddy's or even anyone else down the road? I guess the same question for Carafate. How should we think about competitive expectations for that product? Thanks.

Chirag Patel: Thank you, David. Good morning. NuvaRing, we have approximately 16% market share. Our CBE-30 for the automated machine, fully automated machine has been approved, and we are ramping up our production. As we stated earlier, our goal is to get 25% to 30% market share. Competition we expect in H1, mainly from Teva. Even with the competition on authorized generics, we should be able to keep our market share of 25% to 30%. We do not expect other competitors maybe in the late in the year, but not throughout early part of the year. Moving to Carafate, we have almost 60% market share as AG has launched in January, and we do not expect any competition this year.

did business so we have

That business in every specialty division under the leadership of Joe Tedesco who has done a marvelous job leading our oncology in neurology franchise. We are already using our Market access team marketing team customer support team to get ready for our oncology long is the film force would be added as we get closer to the launches and we plan to add more oncology assets as well. Your question on a late entry is absolutely valid one as we had a late start on a biosimilar as we don't expect to jump right into a big market share. So if you are faults are pissed we expect a 10% market share on like the genetics business, uh, but the next version of biosimilars we intend to be first or second job.

David Amsellem: Okay, thank you.

Chirag Patel: Thanks.

Operator 2: The next question comes from Gregg Gilbert of SunTrust. Please go ahead.

Operator: The next question comes from Gregg Gilbert of SunTrust. Please go ahead.

it towed, uh

So move up the value chain there as we see this business has over ten years or fifteen years and we are always here to stay as I said earlier. We build the business over time. We're patiently will come from behind just like genetics and will be one of the key players in by similar business on a question of a gross. Margin. I will turn it over to Todd the Forty Four to forty six percent includes all three segments specialty genetics and have care distribution business office, please stop. Hi Chris, it's Todd. Thanks for the question. So as we look at 2023 to the segments starting with generics, we ended the year roughly mid-thirties gross. Margin. Uh, it just gross. Margin. That's how will we we're starting out 2020. We think that'll improve to probably the upper 30s over the course of of mm.

Gregg Gilbert: Thank you. Just to follow up first on AvKARE. I was curious if you're seeing any customer concerns or questions for AvKARE now that Amneal is the majority owner. It sounds like you're not expecting any financial disruption, but just wanted to see if you have any qualitative comments on how that handoff in the ownership stake has changed anything, if at all. My follow-up is for Chirag and Chintu, curious what your appetite is as well as your flexibility to pursue additional transactions in the relative near term that can materially diversify the business, such as AvKARE, something of that size or larger. Thank you.

Chirag Patel: Thank you, Greg. Good morning. AvKARE actually really is, it runs as an independent company, and we have tremendous support. As you know, founders have a 35% stake. They run the company, and they treat every manufacturing partners equally. We have 100 manufacturing partners, tremendous support from the big manufacturers, as this is a highly profitable channel for them to sell their products. AvKARE does a great job of customer service, relationship with manufacturers. We're actually very excited to grow that business.

24 reasons we talked about

On the call reduction of manufacturing and efficiencies launch of new products, um Improvement in product mix. So that's where we see that segment. I'm coming in in our guidance range of 44 or 6% specialty is right around 75% right now that's table and we expect that stability will continue ugh in 2020 F. I'm not going to mention that the month of March and we have built in our numbers this morning. It's obviously a bit lower than than the generics business given its predominance and distribution. But um, the Blended average of everything I just outlined is what puts in the range of 44 to 46 for the guidance.

Chirag Patel: On the appetite and flexibility on the new transaction, as we have stated, we are in the game to hit singles and doubles, and now we have turned our focus onto specialty, and we are looking at number of potential transaction that can fit real nicely with our neurology, basically, and CNS field or endocrinology. We are very excited to work on those, and we could hit singles and doubles. We do have flexibility to do so.

Thank you.

The next question comes from Balaji price of Barclays, please go ahead good morning and congratulations on the results. So I wanted to explore a bit off a bit further on your comments on biosimilars. So is it fair to assume that your next couple of years next two or three years? We'll be focused on the three products that you disclosed. And what would you like? How can I answer the evolution of your bias in the strategy the pipeline in the timeline on what kind of capital would you deploy behind this? And do you have any Partners on any of these products? Thanks.

Gregg Gilbert: If I could interject, just a single or a double, is AvKARE in that realm, or is AvKARE?

Chirag Patel: Yeah.

Todd Branning: Is AvKARE a triple or large?

Chirag Patel: No, no. That's single and double. Yes.

Gregg Gilbert: Thanks a lot.

Operator 2: The next question comes from Chris Schott of JPMorgan. Please go ahead.

Operator: The next question comes from Chris Schott of JPMorgan. Please go ahead.

Thank you and good morning.

Do you as well? So by some of these is one of our specialty segment piece of business along with genetics and injectable that Evolution will have is obviously the first three products we expect to to get approval and launch in a in a next one two thousand three years. We will add on to our biosimilar pipeline by key partnership today. We have partnership with with cashew bio sciences and math science from Spain. We will add more partnership as we go along our Focus as I mentioned. Last time is been on a regulatory and Commercial

Chris Schott: Great. Thanks very much for the questions. Just the first one here was on the biosimilars. Can you just elaborate a little bit more about the oncology infrastructure you expect you'll need to build out to compete in these markets? And maybe more just strategically, it seems like at least on some of these initial products, you're gonna be entering the market after a number of competitors have already launched. How does the company differentiate itself given that dynamic? And then just a very quick one, just coming back to the guidance and a bit more on gross margins. That 44% to 46%, can you just give us a little more color on how that breaks down by division?

Chris Schott: Just given the AvKARE inclusion, the P&L, I'm just trying to get a sense of how we think about kind of generics versus specialty versus AvKARE as we construct to get to that $44 to $46. Thanks very much.

Chirag Patel: Thank you, Chris. Good morning. Biosimilar, as you are well aware how it's shaping up, it's more of a, I call it a quasi-branded business. We have put that business in our specialty division under the leadership of Joe Renda, who has done a marvelous job leading our oncology and neurology franchise. We are already using our market access team, marketing team, customer support team to get ready for our oncology launches. The field force would be added as we get closer to the launches, and we plan to add more oncology assets as well. Your question on a late entry is absolutely a valid one. As we had a late start on biosimilars, we don't expect to jump right into a big market share. If we are fourth or fifth, we expect 8 to 10% market share, unlike the generics business.

There's plenty of manufacturing capacity people have built and are indeed capacity which will utilize with partners and continue on to evolve original box, which would be will build up the pipeline. And as you know oncology could have ten products 15 products. And that's only when we are focusing today the capital deployment. We believe the the way FDA is moving now and this is what is going to make biosimilars more affordable more accessible and more of a game for players like us off my line and not a game for 5 0 and the other Mark and big Pharma because

the approval

Requirements but it used to require lengthy trials We Believe would go away and FDA would work with with us on a more on analytical method of a moron PK studies. Uh, and we may not have to repeat unnecessary big Trials of already proven effective products. So that will bring the page it'll deployment to a more manageable numbers. We don't have exact number but let's say I could our appetite is between 25 to fifty million bucks buys similar to spend our and we see these deployment over next next five years to build the pipeline. That's why I follow up on off on the injectables firstly so you have 15 new launches in Southwest was this just a question of timing of approvals or did the management do anything differently and on the Dead?

Chirag Patel: The next version of biosimilars, we intend to be first or second or third, to move up the value chain there. As we see this business as over 10 years or 15 years, and we're always here to stay. As I said earlier, we build the business over time, so we patiently will come from behind, just like generics, and we'll be one of the key players in biosimilar business. On a question of a gross margin, I will turn it over to Todd. The 44% to 46% includes all three segments, specialty, generics, and AvKARE distribution business. Please, Todd.

Todd Branning: Hi, Chris, it's Todd. Thanks for the question. As we look at 2020 for each of the segments, starting with Generics, we ended the year roughly mid-30s gross margin, adjusted gross margin. That's how we're starting out 2020. We think that'll improve to probably the upper 30s over the course of 2020 for reasons we talked about on the call, reduction of manufacturing inefficiencies, launch of new products, improvement in product mix. That's where we see that segment coming in our guidance range of 44% to 46%. Specialty is right around 75% right now. That's stable, and we expect that stability will continue in 2020. AvKARE, I'm not gonna mention the gross margin we have built into our numbers this morning.

on the injectables pipeline

And what kind of a timeline would most of this materialized how should I factor growth around this part of the of your pipeline? Thanks. So we already Market almost wage injectables products, uh, we have started but we do have two manufacturing plants of over on. Uh, we have a very strong pipeline off add on injectables, uh and become a key player in coming years today. We're approximately hundred twenty two hundred fifty million injectable Revenue. We see that as a

A key growth driver in next five years, as you know that we have the grade R&D capabilities and our Focus has turned off to injectables as well as some others and Specialty Products. So we will expand that you fifteen complex products. We expect to launch over 18 to 24 months, which we have launched 4 a.m. Which includes both so these are complex products only we do have other product launches as well this year. So, uh, I just want to make sure we're not confusing this 2015 only. It's uh, it's 15. Plus I call it a regular products.

Todd Branning: It's obviously a bit lower than the generics business, given its predominance in distribution. The blended average of everything I just outlined is what puts us in the range of 44 to 46 for the guidance.

Chris Schott: Thank you.

Operator 2: The next question comes from Balaji Prasad of Barclays. Please go ahead.

Operator: The next question comes from Balaji Prasad of Barclays. Please go ahead.

Balaji Prasad: Hi, good morning, and congratulations on the results. I wanted to explore a bit more, a bit further on your comments on biosimilars, Chirag. Is it fair to assume that your next couple of years, next two to three years, will be focused on the three products that you've disclosed? How can I anticipate the evolution of your biosimilars strategy, the pipeline and the timeline? What kind of capital would you deploy behind this? Do you have any partners on any of these products? Thanks.

Thank you. The next question today comes from Randall stanicky of RBC Capital markets, please. Go ahead great. Thanks guys. How much new launch Revenue Office you built into the outlook for 2020 and how does that compare to how you're thinking about twenty Twenty-One. Is it more is it less on a relative basis? And then the follow-up question on opioids? How are you guys currently thinking about the opiate exposure and what are the next data points from an amnio perspective that we should be focused on. Thanks.

Chirag Patel: Thank you, Rajiv, and good morning to you as well. So biosimilars is one of our specialty segment piece of business along with generics and injectable. The evolution we'll have is obviously the first 3 products we expect to get approval and launch in the next 1 to 3 years. We will add onto our biosimilar pipeline by a key partnership. Today, we have partnership with Kashiv BioSciences and mAbxience from Spain. We will add more partnership as we go along. Our focus, as I mentioned last time, has been on regulatory and commercial. There's plenty of manufacturing capacity people have built and R&D capacity, which we'll utilize with partners and continue on to evolve our biosimilars, which would be...

Good morning. Good handle on a we have significant new revenues obviously with the calibrate and luring launched in December. We have not broken it down. So but let's call it a significant and 2021 will continue because of the pipeline that we've been investing over the years that all comes to approval cycle over next several years and we're keep filing new products as well. And we have three bands are indeed to find the products. We used to far very uh high-value products. So very excited about the new uh, new new product that we use in 2020 and coming back on opioid exposure since we have a g see here, which is Steven Manzano. I'm going to turn it over to him. Thank you, sir. Randol on the page.

Chirag Patel: We'll build up the pipeline, and as you know, oncology could have 10 products, 15 products, and that's only one we are focusing today. The capital deployment, we believe the way FDA is moving now, and this is what is going to make biosimilars more affordable, more accessible, and more of a game for players like us and Teva and Mylan, and not a game for Pfizer and other Merck and Big Pharma. Because the approval requirements, where it used to require lengthy trials, we believe would go away. FDA would work with us more on analytical methods, more on PK studies, and we may not have to repeat unnecessary big trials of already proven effective products. That will bring the capital deployment to a more manageable numbers.

exposure in terms of data

Points, I really can't give you any data points that are coming soon. The reason is that we retract to defend it at the end of the day. It seems that the uh, uh, uh with the District of litigation judge is focusing on promotion activities as well as distributor activities, in terms of the case would have no neither one of us. So we have been purely a generic provider of opioids and have not engaged in promotional activities about the safety and Thursday, uh, the generic opioids that workers that were that to prescribing Physicians patients in the employ anybody else.

Yeah, so there's not no activities at this point. I know.

The next question today comes from Amy of SBB leering, please. Go ahead.

Chirag Patel: We don't have exact number, but let's say our appetite is between $25 to 50 million per biosimilar to spend. We see this deployment over next five years to build our pipeline.

For this is Sheldon Alfa Romeo. Congratulations on the good quarter. And or main question is you expect about 15 new findings or this year or how many of those new launches or do they expect this year? And how many of those are that's kind of a value come back generics and the follow-up question is on objects to 3 on the time line seems to have been delayed a few times in the past. What's the main challenge their Banks?

Balaji Prasad: That's very helpful, Chirag. I have a follow-up on the injectables. Firstly, so you had 15 new launches in August. Was this just a question of timing of approvals, or did the revamped management do anything differently? And on the injectables pipeline, what kind of a timeline would most of these materialize? How should I factor growth around this part of your pipeline? Thanks.

Yeah, hi. Good morning.

Just for clarity, we expect to find 20 to 25 new products in year 2020 and we are expected to launch, uh close to thirty plus new iPhone using your 2020 as far as i p x 203 as you know, uh, uh, the always challenge is Recruitment, and that's why certain timelines have shifted slightly, but we feel very comfortable to have a top-line data by first first have 2021 and commercialize the product no later than 2023.

Chirag Patel: We already market almost 20 injectables products. We do have two manufacturing plants of our own. We have a very strong pipeline to add on injectables, and become a key player in coming years. Today, we're approximately $120 to 150 million in injectable revenue. We see that as a key growth driver in next 5 years. As you know that we have the great R&D capabilities, and our focus has turned more into injectables as well as biosimilars and specialty products, so we will expand that. The 15 complex products we expect to launch over 18 to 24 months, which we have launched four already, which includes both. These are complex products only. We do have other product launches as well, this year.

Could you clarify amount the?

Remaining maybe 11 high-value new launches you identified before how many can potentially launch a good question, but we don't suck cuz certain things are with agency, but we think we'll have a few in coming here in 2020, but we are not ugh this time prepared to give exit number, but we do expect that. We'll have a few in 2020.

Chirag Patel: I just want to make sure we're not confusing the street by 15 only. It's 15 plus, I call it, the regular products.

Balaji Prasad: Thank you.

Operator 2: The next question today comes from Randall Stanicky of RBC Capital Markets. Please go ahead.

Operator: The next question today comes from Randall Stanicky of RBC Capital Markets. Please go ahead.

The next question today comes from Gary nachman of BMO Capital markets, please. Go ahead. Hi. Good morning. Maybe you can provide a general comment on how challenging the investment has been for new complex launches like NuvaRing and Carafate versus the way it was over the last couple of years. It seems like you're grabbing some good share. Are you giving up a a fair amount of price in order to be able to do that? And and then just a quick follow-up on the generic gross. Margin. How long will it take to get to the greater than 40% goal just lay out the path for that wage. Maybe you could get there in 20 21, if you do high 30s like you said in 2020. Thank you very much.

Randall Stanicky: Great. Thanks, guys. How much new launch revenue have you built into the outlook for 2020, and how does that compare to how you're thinking about 2021? Is it more, is it less, on a relative basis? The follow-up question, just on opioids, how are you guys currently thinking about the opioid exposure, and what are the next data points from an Amneal perspective that we should be focused on? Thanks.

Chirag Patel: Good morning, Randall Stanicky. We have significant new revenues, obviously, with the Carafate and NuvaRing launch in December. We have not broken it down. But let's call it significant, and 2021 will continue because of the pipeline that we've been investing over years. That all comes to approval cycle over next several years, and we'll keep filing new products as well. We have revamped the R&D to file the products we used to file, very high-value products. Very excited about the new product revenues in 2020 and coming years. On opioid exposure, since we have a GC here, this is Stephen Manzano, I'm going to turn it over to him.

Yeah, good morning. Gary nice questions. So your first question is on a the new key product Launches on Kara faith during the market share Dynamic stays the same, uh, except for the complex products. Nobody builds out a hundred percent capacity because it requires all the money Capital Investments and we expect the competitors to be there the pricing side as you know, the three major buying groups have come down on generic manufacturers or last three years and uh, the profitability what used to be has reduced for even the first to market products your second question on gross. Margin the four drivers we've been working on it since we came back the plant utilization the efficiency and supply-chain, uh, the new product launches and operations. Yep.

Stephen Manzano: Thank you, Chirag. Randall, on the opioid exposure in terms of data points, I really can't give you any data points that are coming soon. The reason is that we're a track two defendant at the end of the day. It seems that the multidistrict litigation judge is focusing on promotion activities as well as distributor activities in terms of the case, which Amneal is neither one of those. We have been purely a generic provider of opioids and have not engaged in promotional activities about the safety and efficacy of the generic opioids that were presented to prescribing physicians, patients, or anybody else.

Please all of them.

Showing results as we continue on as we said high 30s our under it would be in 40s by fourth quarter. So we expect to get there as soon as possible. Uh-huh. Complete focus is on there.

Okay. Thank you.

And our last question today comes from Dana Flanders of Guggenheim Securities, please go ahead.

Hi, thanks for squeezing me in just two quick ones first has the supply situation for your generic epinephrine improved at all. And and and kind of what's just look for that product in 2020. And then my second one actually is on just i p x 203. I know you have some data phase through data expected soon. How do you think about incremental benefit? You need to see over rytary to get both kind of Physicians and payers on board to switch, you know with with retiree generics expected know five five six years from now. Thanks. Thank you Dana. Good morning on a supply it's been stable to our expectations from 5 a.m. So we are we are in a situation we could use more but this is what we have forecasted and we are getting it. So, uh good job by the hospital plant in the Pfizer dead.

Chirag Patel: Yeah. No activities at this point, Randall.

Randall Stanicky: Okay. Thanks, guys.

Operator 2: The next question today comes from Ami Fadia of SVB Leerink. Please go ahead.

Operator: The next question today comes from Ami Fadia of SVB Leerink. Please go ahead.

Sheldon: Hi, this is Sheldon on for Ami. Congratulations on the good quarter. Our main question is you expect about 15 new filings this year. How many of those new launches do you expect this year, and how many of those are that kind of high-value complex generics? The follow-up question is on IPX203. The timeline seems to have been delayed a few times in the past. What's the main challenge there? Thanks.

Sharon Ryoo: Hi, this is Sheldon on for Ami. Congratulations on the good quarter. Our main question is you expect about 15 new filings this year. How many of those new launches do you expect this year, and how many of those are that kind of high-value complex generics? The follow-up question is on IPX203. The timeline seems to have been delayed a few times in the past. What's the main challenge there? Thanks.

Chirag Patel: Yeah. Hi, good morning. Just for clarity, we expect to file 20 to 25 new products in year 2020, and we are expected to launch close to 30+ new launches in year 2020. As far as the IPX203, as you know, the usual challenge is recruitment, and that's why certain timelines have shifted slightly. We feel very comfortable to have top-line data by first half 2021 and commercialize the product no later than 2023.

on a supply at this point

I see x two or three phase three, we expect the top-line results in first half and it's a meaningful improvement over i r and Thursday as well. We we have a pretty good coverage on righty and we expect the coverage to improve as our KY land initial feedback or see, you know, everybody's excited on ipx to 3 because it's of a duration is good on time is 6 to eight hours compared to three to four hours on right to the edge. The the fluctuations are much almost half than the IR products. So very excited about 2 or 3. It can expand the market. We will have more prone know they were commercial strategies then the right area when that was launched by impacts a few years ago since we have learned alot. We're with the community all the time.

Joe Renda [SVP and Chief Commercial Officer: Could you clarify, among the remaining, maybe 11 high-valued, new launches you identified before, how many can potentially launch this?

Sharon Ryoo: Could you clarify, among the remaining, maybe 11 high-valued, new launches you identified before, how many can potentially launch this?

Chirag Patel: A good question, but we don't because certain things are with agency, but we think we'll have few in coming year in 2020. We are not at this time prepared to give exact number, but we do expect that we'll have a few in 2020.

excited about two or three

Joe would you like to add any now I'd say we're putting the framework in place now with the agreements we have on on right or to lay the ground for the launch might be x two or three. So we're we're confident at the point of launch will have a meeting for managed care package. Thank you. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Todd burning for any closing remarks. I would just close by saying we appreciate you joining our call tomorrow morning and we look forward to our ongoing dialogue with you. And with that we wish you all a good day. Thank you to conference is now concluded. Thank you for asking. Today's presentation. You may now disconnect.

Operator 2: The next question today comes from Gary Nachman of BMO Capital Markets. Please go ahead.

Operator: The next question today comes from Gary Nachman of BMO Capital Markets. Please go ahead.

Gary Nachman: Hi, good morning. Maybe you can provide a general comment on how challenging the environment has been for new complex launches like NuvaRing and Carafate versus the way it was over the last couple of years. It seems like you're grabbing some good share. Are you giving up a fair amount of price in order to be able to do that? Then just a quick follow-up on the generic gross margin. How long will it take to get to the greater than 40% goal? Just lay out the path for that. Maybe you could get there in 2021 if you do high 30s, like you said, in 2020. Thank you very much.

Chirag Patel: Good morning, Gary. Nice questions. So your first question is on the new key product launches on Carafate and NuvaRing. The market share dynamic stays the same, except for the complex products. Nobody builds out 100% capacity because it requires all the capital investments, and we expect the competitors to be there. The pricing side, as you know, the three major buying groups have come down hard on generic manufacturers over the last three years. The profitability, what used to be, has reduced for even the first to market products. Your second question on gross margin, the four drivers we've been working on it since we came back, the plant utilization, the efficiency in supply chain, the new product launches and operations excellence, all of them are showing results.

Chirag Patel: As we continue on, as we said, high thirties, our run rate would be in forties by Q4. We expect to get there as soon as possible. Complete focus is on that.

Gary Nachman: Okay. Thank you.

Operator 2: Our last question today comes from Dana Flanders of Guggenheim Securities. Please go ahead.

Operator: Our last question today comes from Dana Flanders of Guggenheim Securities. Please go ahead.

Dana Flanders: Hi. Thanks for squeezing me in. Just two quick ones. First, has the supply situation for your generic epinephrine improved at all, and kind of what's the outlook for that product in 2020? My second one actually is on just IPX203. I know you have some data, phase 3 data expected soon. How do you think about the incremental benefit you need to see over Rytary to get both kind of physicians and payers on board to switch, you know, with Rytary generics expected, you know, five, six years from now? Thanks.

Chirag Patel: Thank you, Dana. Good morning. On EpiPen supply, it's been stable to our expectations from Pfizer. We're in an okay situation. We could use more, but this is what we have forecasted, and we are getting it. Good job by the Hospira plant and with Pfizer on the supply at this point. IPX203 phase 3, we expect the top-line results in H1, and it's a meaningful improvement over IR and over Rytary as well.

Chirag Patel: We have a pretty good coverage on Rytary, and we expect the coverage to improve as our KOL and initial feedback, our CMO, everybody's excited about IPX203 because its duration of good ON time is 6 to 8 hours, compared to 3 to 4 hours on Rytary, and the fluctuations are much less, almost half than the IR products. Very excited about IPX203. It can expand the market. We will have more proactive commercial strategies than the Rytary when that was launched by Impax a few years ago. Since we have learned a lot, we're with the community all the time, so very excited about IPX203. Joe, would you like to add anything?

Joe Renda [SVP and Chief Commercial Officer: No, I'd say we're putting the framework in place now with the agreements we have on Rytary to lay the ground for the launch of IPX203. We're confident at the point of launch we'll have meaningful managed care coverage on the product.

Joe Renda: No, I'd say we're putting the framework in place now with the agreements we have on Rytary to lay the ground for the launch of IPX203. We're confident at the point of launch we'll have meaningful managed care coverage on the product.

Chirag Patel: Thank you, Joe.

Dana Flanders: Thank you.

Operator 2: This concludes our question-and-answer session. I would like to turn the conference back over to Todd Branning for any closing remarks.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Todd Branning for any closing remarks.

Todd Branning: Thank you, operator. I would just close by saying we appreciate you joining our call this morning, and we look forward to our ongoing dialogue with you. With that, we wish you all a good day.

Chirag Patel: Thank you.

Joe Renda [SVP and Chief Commercial Officer: Thank you.

Joe Renda: Thank you.

Dana Flanders: Thank you.

Operator 2: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Dana Flanders: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Q4 2019 Earnings Call

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