Q2 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to the emphasis our second quarter earnings Conference call.
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This conference call may contain forward looking statements, including statements relating to to Amphastar pharmaceuticals.
These statements are not historical facts, but rather based on Amphastar pharmaceuticals.
Current expectations estimates and projections regarding Amphastar pharmaceuticals business operations and other similar or related factors.
Words, such as May well could would should anticipate predicts potential continue expects intends plans projects believes estimates and other similar or related expressions are used to identify these forward looking statements.
These statements are only predictions and are such.
Are not guarantees of future performance and they involve risks uncertainties and assumptions that are difficult or impossible to predict.
Actual results may differ differ materially from those in the forward looking statements as a result of a number of factors, including these described from time to time in Amphastar pharmaceuticals filings with the FCC.
I would now like to introduce your host for today's conference Mr., Jason Shandell, Sir you may begin.
Thank you operator.
Good afternoon, and welcome to Amphastar Pharmaceuticals second quarter earnings call. My name is Jason Shandell President of Amphastar I'm joined today with my colleague Bill Peters CFO of Amphastar. We appreciate you joining us on the call today and look forward to speaking with you and answering any questions you may have.
The company had a great second quarter with sales, increasing 11% and gross profit increasing from 37% to 41% as compared to the second quarter in 2018.
Additionally, on June 27th we received $59.9 million from Sandoz and Momenta to settle all outstanding litigation between the parties.
This significantly strengthened our balance sheet with total net cash and short term investments of $127.4 million as of June thirtyth.
We plan to use the settlement funds to continue to invest in research and development, including clinical trials for our inhalation and insulin pipeline and also to expand our capacity it adds to start for future pipeline products.
Furthermore, our legal expenses will be dramatically reduce going forward, allowing our management team to focus on growing our core business and further advancing our robust pipeline of product candidates, including complex peptides complex proteins and combination inhalation products.
Our pipeline continues to make good progress. We currently have four anda is on file targeting products with the market size of over $800 million three bio similar products in development targeting products with the market size of approximately $14 billion and 11 generic products in development targeting products to the market size of approximately $14 billion.
With respect to our proprietary pipeline, we have one N D and file and three other N.D.A. isn't development targeting significant market.
It should be noted that four of our A.N.D.A. is on file with the agency were granted competitive generic therapy designation, which could help speed the time to approval.
Two of the four N D. A's have been previously disclosed one is Vasopressor, then which has a 30 months day due to the paragraph four litigation and the second is up enough friend and a 30 ml vial.
We have good do for dates in the second half of this year for our up enough Fernand de and another undisclosed complex injectable product.
We remain on track to file two to three and Da's. This year, which are all injectable products with respect to our first inhalation N.D.A. Weve had continued discussions with the agency, which have helped us enhance our robust development strategy. As a result of these interactions we have increased the number of subjects in our ongoing clinical trial in order to provide more confidence in meeting our endpoint. Therefore that filing is now planned for 2020 as you may be aware there has been no previously approved HFSA metered dose inhalers under an A.N.D.A. However, we believe that our discussions with the agency will lead to a successful trial for our first inhalation and D.A.
We're also making good progress on our insulin programs and are having active communications with the agency regarding the I.N.D. that we filed in the first quarter. These information exchanges have been positive as we further focus our development program and establish a relationship but the B.L.A. team at the agency. This is particularly important as the agency transitions from considering insulin as a drug to a biologic.
With respect to our IND for nasal the locks in India. We had previously received general advice letters from the agency and are continuing to improve the product based on the agency's advice. There continues to be strong interest by the agency in this product and we believe that our improved product will address all of their concerns.
We anticipate resubmitting the NDA in 2020.
With respect the privacy missed we continue to see a positive trend in the retail store level with a 50% increase in unit sales from the first quarter to the second quarter.
In July we began running national television and radio commercials, and also launched the product on Walmart Dot com.
We believe that our online presence on Walmart Dot com will provide a smooth transition for a successful launch into Walmart stores in the fourth quarter. In addition to focusing on increasing consumer awareness and selling to the large retailers and pharmacies. We're also beginning to expand distribution of the product to more independent pharmacies and small retail chains. We remain very excited with the prospects for private seen Miss and we continue to forecast a return to peak sales of $65 million in the next two to three years.
Finally, we continue to believe that our disciplined management strategy and vertically integrated business model that has enabled us to rise above the risks posed by the current trade and political tensions while focusing on complex hard to produce quality products.
We strive to achieve long term sales and profit growth from our organic pipeline, which should help insulate us from legal and compliance risk stemming from the pursuit of short term gains.
With that I will turn the call over to Bill Peters, our CFO to go through the second quarter financial results.
Thank you Jason.
Sales for the second quarter increased 11% to $79 million from $71 million in the previous years period, a ton of down was our biggest selling product in the quarter with sales of $12.4 million up from $10.8 million, primarily due to higher average selling prices.
Lighter can have a small sales increased $10.1 million from $10 million.
And I guess the parents saw sales increased to $9.8 million from $8.7 million in the year prior as higher average selling prices more than offset unit declines.
The locks on sales declined to $7.8 million from $11.1 million on lower unit volumes at lower average selling prices.
Medroxyprogesterone sales increased $6.7 million from $6.4 million.
Sales from Primatene mist totaled $2.5 million as we began loading the product into wholesalers as part of our marketing plan to target independent drugstores and smaller chains.
Higher sales of control isn't dextrose calcium chloride sodium bicarbonate another products to the market shortages and higher sales suffice it proterra and all which was launched in the third quarter of 20 2018 also contributed to increased sales for other finished pharmaceutical products.
Our insulin apiay business had sales of $5.3 million down from $7.8 million in the prior year, primarily due to the timing of shipments.
Gross margins increased to 41% of sales from 37% of sales as we had increased sales of high margin products like Medroxyprogesterone, Primatene mist, Caretrust and ISO proterra at all.
Selling distribution and marketing expenses increased to $3 million from $1.9 million, primarily due to marketing costs associated with the launch of prime its best.
These expenditures were for our digital marketing campaign, and the development of our television ads, which began airing in July .
General and administrative spending increased slightly to $12.4 million from $11.7 million, primarily because of higher legal expenses related to the anti trust case against Momenta and Sandoz.
However, this amount was significantly lower than the first quarter spending of $16.4 million as we settled the case in the quarter and were able to decrease spending.
Research and development expenditures increased to $16 million from $15.5 million for two reasons.
One expansion of our R&D team at our China subsidiary, Amphastar, Nanjing Pharmaceuticals, due to the expansion of both pipeline projects hand establish finished products for the Chinese market.
Two.
Increased clinical trial expenses for our first planned inhalation anda.
These increases were partially offset by lower expenses related to pre launch inventory.
We usually don't mention other income on our earnings call because it is usually not material. However, this quarter, we settled our longstanding case with Momenta and Sandoz and received a $59.9 million settlement, which was booked to other income.
I want to note that while this wall the book taxes for this payment will be at our normal rate for us federal and state taxes of about 25% or an amount close to $15 million. We are planning to use a significant portion of our deferred tax assets, including a small amount of net operating loss carry forwards and the larger amount of research and development tax credits both at the federal level and for the state of California. This will bring the actual cash tax paid for the settlement to an amount closer to $2 million. So we will net about $58 million in cash from the settlement.
The company reported net income attributable to amphastar shareholders of $47.8 million or 96 cents per share in the second quarter compared to a loss of 2.9 million or six cents per share in the second quarter of 2019.
The company reported an adjusted net income of $4.1 million or eight cents per share compared to an adjusted net income of $1.2 million or two cents per share in the second quarter of last year.
Adjusted earnings exclude.
Amortization equity compensation impairments of long lived assets and legal settlements.
In the second quarter cash flow provided by operations was approximately $51.7 million.
Total equity increased to 364 million at the end.
From 364 million at the end of 2018 to 432 million at the end of June Thirtyth 2019, an increase of 18.6% and during the quarter, we repurchased $1.1 million of stock, which completed the buyback program authorized in 2018 as we mentioned on the last call. The board authorized an additional $20 million buyback program, which we plan to utilize in the future.
I will now turn the call back over to the operator to begin <unk>.
Ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key on your touch and telephone.
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Our first question comes from David Maris with Wells Fargo. Your line is now open.
Good afternoon.
First I noticed that you filed the Dms for a tear apartheid during the quarter.
So a few questions when would you expect to file Forteo Secondly will this be a product for the U.S. and international markets from Forteo sells a lot outside the U.S. or is it just intended.
For the US and then I have another question.
[noise].
Sure Yes.
Definitely always good to look at our Dms filings you know our Chinese subsidiary has been very active currently have 12 drug Master files, and we're developing six additional and with respect to your question.
Yeah, we do ultimately.
Intend to sell both U.S. and internationally.
And then just as a follow up.
What's the usual timeline from filing a D.M.F. to filing a product is there a good rule of thumb.
I don't think there is a good rule it really depends on the complexity of the product and discussions with the agency, we definitely focus on the more difficult to produce so.
I wouldn't say, there's a rule of thumb, the it's going to be.
You know several years.
Until we launch.
And then Bill you mentioned the other finished pharmaceutical products that did very well, but you ran through kind of the components of what that benefit was or at least to quickly for my typing.
Can you just describe those again and whether or not those are.
If you had to characterize them are those more onetime in nature or is that something like shortages that should continue for a while or is it large enough number of products, where maybe some do and some don't but this level of sales.
Shouldn't be expected going forward since it was a big big step up sequentially.
So specifically I mentioned.
The four products that had the highest sales increases due to shortages and those work or trason dextrose calcium chloride and sodium bicarbonate, but there was also a few other products that also had some shortages, including one of the skews lighting can and.
I'm trying to.
There's at least one other I'm not thinking about right now.
Some of those.
Products are still.
Experiencing market shortages.
However, we are shipping out as much as we can.
Due to the capacity constraint that we have.
Most of those products because they're sold out of our.
Imus facility.
In South our Monte.
The construction so that the infant star we do have some capacity here. So we are fully able to satisfy that but on things like the sodium bicarbonate, we can't really even meet up keep up with the demand of that product sale.
But these products have had a history of.
Having a shortage for a few quarters and then coming back and then a different mix of products. It just happened that this this quarter was a little bit different in that.
The courts rose in which is at a higher price level in the higher margin level is also experiencing shortages while the.
The critical care products are.
We're also experiencing shortages and just another word on that is that.
As we've been telling people, we built extra capacity at that factory recently and we're still in the process of validating that we hope to have that factory online by the end of the year.
Great. Thank you very much.
Welcome. Thank you.
I cannot give a question. Please press star and then one.
Our next question comes from Gary.
Nachman with BMO capital markets. Your line is now open.
Hi.
Prime mid teen sales stalled a bit in twoq relative to one Q4 Q. So how much was additional stocking in the quarter versus reorders that are coming through.
And are you still expecting to get into Walmart when will that be did you say that would be in the fourth quarter.
And then you know what sort of impact do you expect the TV and radio ads will have you just started them in July I know, it's early but.
Just give us a sense of the magnitude and when we could see an impact from that and then I have a follow up after.
Sure. So let me begin this is Jason so I'll start with the Walmart question in the advertising question and then I'll turn over the stocking question to Bill.
So with respect to Walmart Yeah, we're set to launch in the fourth quarter.
So yeah, we're very excited about that they intend to place the product in all Walmart stores, and we think thats going to be a really good increase in sales for the company I've said in the previous call that.
Historically, the CFC version of Prime and teen Walmart made up 35% of sales. So we're excited they seem excited by the product and there should be some good promotion both in store and we may even ramp up some of our ads because we are it is early to your point, but we're seeing very good indication that the ads are working.
Yeah, we saw a very big surge in sales with that so we get a lagging data from the major retailers and in one of the major retailers, we saw the highest weekly sales.
Since launching at the major retailers following the advertisement we've also seen a significant increase in traffic to our website. So so we do believe that the ads are working and.
We're getting more consumer awareness.
And to your question on stocking I've had to characterize the fourth quarter sales were entirely stocking first quarter sales were primarily stocking with a little bit of Reorders and this quarter was a little bit of stocking, but it was primarily reorders.
Okay.
And then.
For he knocks so is this the normalized run rate now going forward.
It was down significantly from one Q. So did you lose share or did the price contract.
And then DNA was was a lot lighter like you said then one Q. So I just want to get a sense. If that's the new run rate now that you have some of the litigation spend out of the way. Thank you.
So first of all on the Inox apparent we did there is increased competition in the market now so.
You know that that took a toll and we'll continue to take a toll on both the number of units, we sell and the pricing so that did come down over the course of the quarter. So.
You know there is that on the GNS, our legal expenses will come down pretty significantly.
From where they were especially in the first quarter, where theyre very high but we do have some some increased spending on some compliance costs as well.
And that that will that will ramp up a little bit more on an offset part of that and second.
Okay. Thank you.
Thank you.
Our next question comes from David Steinberg with Jefferies. Your line is now open.
Great. Thanks.
I have a couple of questions first and business development I know that.
You have been acquire in the past, but you typically have not used.
Debts, thankfully and equity, but instead you views cash. So now you just got I think 50 million in cash.
And most of your transaction has been relatively small so does this increase the likelihood of something near term.
Does increase your appetite and.
If you are in fact looking for assets.
What sort of pricing have you been seeing the valuation still high and then just to clarify what Gary It asked before on Primatene regarding Wal Mart you said the launch would be in Q4 does that mean the load will also be in Q4 or the or would the pipeline fill be in Q3 for the Walmart prime attain thanks.
Sure Yeah, so with respect to business development, Yeah, we do have a strong balance sheet now and it does increase our appetite we are seeing better valuations.
Yeah, we were very disciplined and when we do an acquisition it has to be very synergistic.
There are some opportunities out there it's just the matter of valuations so.
We're continuing to look and yeah, we'll provide updates as we go for now, though obviously our core competency is organic growth then and we do have some extensive clinical trials. So we'll put some of the money towards that but yes, we definitely have increased our appetite for some business development at the right price and the right products that would be synergistic and just to clarify is really closer to 60 million because we're using utilizing the tax credit you know, we really did have a nice.
We'll have a nice cash flow and from from that.
That settlement and as far as the load into Walmart goes.
It's probably going to be a fourth quarter event.
Okay.
Just a couple of quick follow up so on your gross margin it looks like it was.
Decent clip weaker then.
Perhaps one would expect any reasons for that and secondly.
You mentioned the.
To do so for in the second half of the year.
For that large undisclosed products are just to ask you about that.
Could you clarify the timing in the second half it it's a big window and secondly.
In the past you've described is I think is close to a $300 million product off patent for a while.
No generics has anything changed either in terms of has there been a generic approved or is the sales size still about 300 million.
So sure yeah, so that Oh, we have to get do for us in the second half of this year.
Yeah. The one is for the up enough ran and the other is for this large undisclosed product, we'd rather just keep it general sense. Yeah. At this point. It's August . So you know we have four months remaining but.
You know in the next four months, we will have to get do for dates and we're excited by the possibility and perhaps the probability of getting both of these approved so those could be drivers you know we were confident in the approval. So yeah. We're trying to see if we could launch soon thereafter, and then we can get sales you know for the fourth quarter, which would be great and then.
With respect to the next question.
Got to margins yeah. So on the on the gross margin.
You know it is higher than we had been experiencing so oh, we did have higher sales of products that were.
Higher margin products like the private scene and they asked for Terminaling as Rocco Strauss.
But then you know we did have a little bit more.
This unlocks apparent.
This quarter of with that price coming down and also the locks on price coming down a little bit.
Secondly, some offsets there, but you know just as we take a look at the drivers of growth for the rest of this year and.
Quarters to come you know, we expect promising miss or to rent keep ramping up and that's a very high gross margin product and we expect that the the new products that we hope to launch the two products that have could do for days. Later. This year, we would expect to have both of those have very high gross margins as well. So we think that that gross margin trend continues to go up.
As we go on.
Our next question.
Comes from David Amsellem with Piper Jaffray. Your line is now open.
Thanks, So I joined late so you might have addressed this already but just an update on the specific inhalation products.
In the.
In the pipeline and the and your thoughts on our filings for later this year and just thinking higher level. This is more beyond this year.
This is how we should think about the pace of filings or advancement of inhalation products. I mean, you have primatene would you know how should we think about the longer term expansion of the inhalation portfolio.
Last question on the appropriate there other generic just any color on the competitive dynamics, there and where you think that product will trend back half of the year and into next year. Thanks.
Sure. So yeah I was wondering if anyone would pick up on actually what was the new disclosure related to our first inhalation N.D.A. yeah for competitive reasons, we've always been pretty close to the vest on that and have never disclosed whether its a dry powder or a metered dose inhaler. So today in my prepared remarks, I I did say that it will be an h. yesterday metered dose inhaler.
So that's you know as as as everyone knows that's an area of expertise ramp the star Yeah, We've got a lot of expertise in.
With prime a teen in terms of re formulating the CFC the HFSA and so that is something new that we've disclosed that a it is an HFSA M.D. I.
Now on the last call we had discussed filing it late this year, but in my prepared remarks I was discussing that yeah. We have an ongoing clinical trial and after further discussions with the F.D.A., we decided to increase the number of subjects in order to provide more confidence in meeting the endpoints. So now you know, we're making good progress, but we are now forecasting to file that A.N.D.A. in 2020 as opposed to the end of 2019.
And then let's see in terms of you know the sort of the future of the pipeline, we want to keep a a similar cadence to what we've had over the last couple of years. So what we're seeing is you know you know about three Oh, our hope is to get you know two to three approvals on an annual basis and then we're looking to file on an annual basis approximately three products every year and we think for a company of our size given the complexity and the large markets that these products are focusing on you know it it will be very large opportunities for a company with our market cap and then finally, specifically on inflation, though on inflation is that going to be more of a filing mix yes.
Yes. So you know we are focused right now I I talked a lot about this a one M.D. is that a is got ongoing right now in the clinical trial targeting filing that next year. There's another inhalation product that we're working on in parallel so that will be part of the mix as well, but as you know we've got a a large number of ventilation and you'll see more of those coming into the mix next year and 2021.
Okay, and then a the generic Depo Pro Vera you know there is some more competition in the market.
But you know we've always felt this is a great product to produce because it's so difficult to manufacture and so we think we have a really good process in place that will allow us to produce quality products for many years to come. So you know we do expect as a generic companies see more competition, but we think we can strongly compete especially with respect to this product.
Okay. Thanks.
Thank you.
Our next question comes from Serge Belanger with Needham Your line.
Hey, Thanks for the question guys. This 10 officers so.
Besides Walmart.
She was secured for the fourth quarter.
Is there any other retailers that you're looking at.
Discount retailers were even supermarkets that you're looking for.
And then in terms of the independent pharmacies in the smaller chain pharmacies, how big are these markets relative to the big three pharmacies like Cvs Walgreens and Rite aid.
And then lastly, I think you mentioned about online sales team. So do you have any break down in terms of sales of in store versus online.
Got you.
Now ill a across the board on line independent pharmacies, we are in discussions with.
Other large retailers and groceries, but but really we see it as like the 80 20 rule you get Walmart Cvs Walgreens and that's a huge percentage of the market, but but we are exploring all opportunities.
Including in the long run Amazon as well so we see this as a very exciting product and are very encouraged by the upcoming launch to Walmart.
Thank you.
Thank you.
At this time Im showing no further questions I would like to turn the call back over to Jason for any closing remarks.
Thank you operator.
I want to thank everyone again for joining US today, we are pleased with the progress that we've recently made and remain confident in achieving our long term goals and enhancing shareholder value.
We look forward to talking with you in future and hope everyone has a great day.
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect everyone have a great day.