© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
This conference call may contain forward-looking statements, including statements relating to Amphastar Pharmaceuticals. These statements are not historical facts but rather based on Amphastar Pharmaceutical's current expectations, estimates and projections regarding Amphastar Pharmaceuticals' business, operations and other similar or related factors. Words such as may, will, could, would, should, anticipate, predict, potential, continue, expects, intends, plans, projects, believes, estimates and other there similar or related expansions are used to identify these forward-looking statements.
These statements are only predictions and/or 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 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 SEC.
At this time, I'd like to turn the call over to Mr. Jason Shandell, President of Amphastar. Please go ahead.
Thank you, operator. Good afternoon, and welcome to Amphastar Pharmaceuticals' Third 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 we look forward to speaking with you and answering any questions you may have.
The company had a great third quarter, and I'm happy to announce that we shipped a significant quantity of Primatene Mist to Walmart in October, and the product will be on Walmart's shelves on Monday, November 11. We view this as a significant milestone, given that historically, Walmart has made up 35% of our Primatene Mist CFC sales. Once sales commence in Walmart, which will greatly increase distribution of our product, we plan on increasing our TV advertising spend as our Primatene Mist commercials have had a demonstrable impact on sales at the retail stores. Weekly store sales in the last week of the third quarter increased by 58% compared to the first week of the third quarter, which was just before the TV ads began airing. We expect weekly store sales to significantly increase further once Walmart begins selling the product next week. Based on the consumer awareness that is being generated by advertising and the continued positive trend in retail store sales, we maintain our guidance of achieving $65 million in revenues from Primatene Mist in approximately 2 to 3 years from the launch of the product. The majority of our commercial injectable portfolio continued to have strong sales and margin growth in the third quarter and helped to offset weakness in the enoxaparin market. Sales of medroxyprogesterone increased 27% compared to the second quarter, primarily due to new contracts as well as supply issues by competitors. Naloxone sales increased 20% compared to the second quarter due to the timing of purchases by some large customers. We also had increased sales of isoproterenol, as we secured some new contracts for this product. Finally, demand for our IMS products continues to be very strong due to ongoing competitor supply issues, which, in many cases, has resulted in higher unit sales. With respect to our near-term pipeline, we currently have 5 ANDAs on file with the FDA. These 5 ANDAs represent a total addressable market of approximately $1.1 billion based on IQVIA data as of September 30, 2019. Two of the 5 ANDAs have been previously disclosed, one is vasopressin, which has a 30-month stay due to the Paragraph IV litigation, and the second is epinephrine 30 ml vial. Per previous conference calls, we remain on track to file 2 to 3 ANDAs this year. With respect to our epinephrine ANDA, we received the CRL in the third quarter. However, we were able to quickly address the issues identified by the agency and resubmitted the application. As a result, we have a GDUFA date in January 2020. Regarding our complex injectable product, which was on a third-cycle review, we recently received a CRL. We are currently reviewing the CRL and our preliminary assessment is that the issues are addressable, and we plan to resubmit the ANDA in January 2020.
We continue to make progress on our insulin programs and following a series of communications with the agency have been given the green light to commence human clinical trials. Our first human clinical trial using our insulin is scheduled to begin later this quarter. With respect to our intranasal naloxone NDA, we continue to have active communications with the agency including receiving and responding to several general advice letters. We believe that we have addressed all of the issues identified in the CRL and FDA's general advice letters, and we remain on track to resubmit the NDA in the middle of 2020. At the Wells Fargo Conference in September, we disclosed that the FDA had accepted our ANDA for another very complex injectable product that is off patent, but has never had generic competition due to its complexity. We have a GDUFA date for this product in the second quarter of 2020. There's been a lot of FDA attention on this product as we have successfully completed a clinical site inspection and pre-approval inspection at our manufacturing facility for this product.
The agency also inspected our new prefilled syringe line at IMS and recommended approval. This new manufacturing line will greatly increase the capacity for our critical care drugs, many of which remain on the FDA's drug shortage list. We continue to focus on these important products and have frequent communications with the FDA Drug Shortage Staff as alleviating drug shortages has become one of the agency's top priorities in recent years.
Based on our discussions with the agency, and the recent inspection of our new manufacturing line, we are confident that we will have increased capacity to produce prefilled syringes for both the United States and United Kingdom in 2020. In this regard, we recently secured the ProvideGx contract with Premier, which is the second largest group purchasing organization in the United States for hospital markets. Premier has partnered with Amphastar to supply phytonadione injection and emergency prefilled syringes of calcium chloride, epinephrine, sodium bicarbonate, Atropine, dextrose and lidocaine. We believe that this collaboration further validates our company as a reliable manufacturer of high-quality sterile injectables and will be a source of significant revenues going forward. I will now turn the call over to Bill to go through the third quarter financials.
Thank you, Jason. Sales for the third quarter increased 6% to $80.1 million from $75.5 million in the previous year's period. Enoxaparin sales decreased 48% to $9.6 million from $18.6 million in the third quarter of last year as there was a market shortage in 2018, which ended prior to the third quarter of 2019. Phytonadione had a 22% sales increase to $10.9 million on average -- higher average selling prices. Naloxone and epinephrine saw sales increases due to higher unit volumes. Primatene Mist had sales of $3.7 million. Higher sales of atropine, dextrose, calcium chloride and other products due to market shortages contributed to increased sales for our other finished pharmaceutical products. Our insulin API business had sales of $4.4 million, up from $3.8 million last year and included a $1.5 million amendment fee for MannKind. We anticipate receiving an additional amendment fee payment of $1.25 million from MannKind in December.
Cost of revenues decreased to $44.9 million from $46.3 million. Gross margins increased to 44% of revenues from 39% of revenues in the third quarter of 2018, which follows the trend we have predicted as we increase our sales of higher-margin products with new launches. Specifically, the improved gross margin was related to newer higher-margin products, such as isoproterenol and Primatene Mist, while increased sales of higher-margin products, such as phytonadione, helped this trend. Selling, distribution and marketing expenses increased to $3.2 million from $2 million due to advertising costs, including television commercials for Primatene Mist. General and administrative spending decreased to $11 million from $13.4 million due to lower legal expenses. Research and development expenditures increased 64% to $18.6 million from $11.3 million due to the development of APIs and key components from multiple items in our pipeline and increased clinical trial expense related to our inhalation ANDAs. The company reported net income attributable to Amphastar's shareholders of $1.3 million or $0.03 per share in the third quarter compared to a net income of $2.4 million or $0.05 per share in the third quarter of 2018. The company reported an adjusted net income of $5.2 million or $0.10 per share compared to an adjusted net income of $5.7 million or $0.12 per share in the third quarter of last year. Adjusted earnings exclude amortization, equity compensation and impairments of long-lived assets and onetime events. In the third quarter, we had cash flow used in operations of approximately $12 million as we increased our levels of inventory. During the quarter, we used a portion of our cash to buy back approximately $4.4 million worth of stock. Additionally, the Board of Directors has now authorized an additional $20 million repurchase plan, the second authorization this year, which reflects the confidence we have in Amphastar's future.
I will now turn the call back over to Jason.
Thanks, Bill. So at this stage, we're prepared to take Q&A.
[Operator Instructions] The first question comes from the line of David Amsellem from Piper Jaffray.
So just a couple. I wanted to get some more specifics on your thinking regarding shortage products. I know you have the higher capacity in place or will have it in place. But is there any way you can put some metrics around the opportunities, how -- maybe how many shortage products you could target? Help us just to understand quantitatively what that kind of opportunity could be or just put any metrics around it, that's number one. And then number two, on Depo-Provera. With a handful of generics on the market, what's your sense as to how sustainable that run rate is? I know there's supply issues. But question here is how sustainable is that product given competition? And how long do you think the supply issues from competitors could persist?
Sure. I'll start with the first question and -- on how many products. We have about a half a dozen products that have been off and on the shortage list, including atropine, dextrose, calcium chloride, sodium bicarbonate. Those have been products which are sold at the IMS facility that have been subject to these shortages from time to time. All of these products, our -- or none of those products, I'll say, are our biggest selling products. None of these are $10 million annual products. These are all products in the $2 million to $6 million sales range right now, but we think we could increase our sales by -- on any of them by 20% to 30% easily if there were shortages, if we were able to supply them during shortage times and possibly even more.
The other additional opportunities, as Jason alluded to, is that we have 11 approvals that we purchased a few years back for the -- in the U.K. Once we get this capacity online, we can apply to get the site transfer for those products from their previous supplier to our facility here in the U.S., and then we can begin making those and supplying those. Once we have those first, we have 4 that we're going to apply for right away that we have stability for. And then once those 4 are on sale, we'll start targeting things that we think we get meaningful sales out of for those products. But right now, we -- the way to think about those is on an annual run rate, maybe for the first 4 of around $5 million or $6 million a year might be a good way to think about those once we get those launched.
And then -- this is Jason. With respect to your second question about the generic Depo-Provera. Yes. So there was a supply disruption that led to increased sales for us. However, that's not very surprising. As I've discussed in past calls, not only is it very complex and difficult to get approved, but even once you have approval, it's a very difficult product to manufacture. And so as the years go by, we would not be surprised to see more of such disruptions. And so -- in fact, some of the more recent approvals, there have been some companies that have not even launched yet. So one, it's difficult to get approved; two, it's difficult to manufacture. Based on those factors, we are confident in maintaining or even perhaps increasing our market share for this product.
Our next question comes from the line of Gary Nachman from BMO Capital Markets.
It's Rafay on for Gary. Can you quantify what portion of Primatene sales in the quarter were stocking at Walmart versus reorders at existing retailers? And can you just...
Nothing was stocking at Walmart. That was all October, so that's -- October is in the fourth quarter.
Okay. Can you comment generally on how reorders are tracking versus your expectations? And then how we should think about marketing expenses for the product ramping up next year?
Well. Yes. I'll let Bill discuss the marketing expenses. But in terms of reorders, we're seeing a steady state, where it's increasing. And especially, as my prepared remarks stated, following the airing of commercials in July, we are seeing that -- a lot of the same-store sales. And then we are getting reorders as well. So we're confident that this will continue.
Yes. As far as marketing expenses, we had originally been targeting mid- to high single digits this year on marketing expenses. We're going to come in definitely not in the high single digits, probably closer to mid-single-digit range. We slowed down the acceleration of that marketing spend as we wanted to wait until we got Walmart on board with further -- more universal distribution before we ramped up the advertising. But the advertising on, as Jason had mentioned, went very well this quarter, we saw extremely strong ramp up of that. So we are looking to increase that. We're looking to expand some YouTube commercials and some other things, some other social media type of advertising campaigns as well to go along with that. So the spend is increasing in the fourth quarter and will increase next year. But we're -- we will be running more than that $1 million a quarter or so, which is where we've been running so far year-to-date at that point.
Okay. And can you also provide some more color around enoxaparin. It's trended down for a couple of quarters. Is 9% to 10% a normalized run rate? Or could we see further pressure there?
Yes, we'll definitely see further pressure there. There's been increased competition. Don't know how long that will last. The market -- this market has really been up and down market over the last couple of years, and it's hard to say what the long-term trend will be. But in the short term, we have experienced some additional competition. So therefore, we expect the sales to drop going into the fourth quarter.
Our next question comes from the line of David Steinberg from Jefferies.
A couple of questions. First, on the undisclosed and that you just announced you got a CRL for -- on your second GDUFA date. Could you give us a little more color around that? And I guess, the first thing related to that is, is it still -- are there still no generics to it and so you would be the first? Secondly, when -- what's the timing on the -- when you say you're going to refile in January, sort of, what's the timing on when your next GDUFA date might be? And then the second issue relates to business development, and you had indicated that when you got the cash from your settlement with Sandoz and Momenta, you were considering putting it to work for M&A. I'm just curious, what type of assets you're looking for. Is there something that could happen near-term versus longer term? Are you seeing good valuations in the marketplace?
Sure. So yes, let's start out with the undisclosed ANDA, which we recently got the CRL for. Yes, I can confirm there still are no generics. And we remain confident that we will be the first generic on the market. So that is a complex drug, but with each CRL and each interaction with the FDA, we continue to narrow the issues and -- so we are confident that we ultimately will get approval of this product. Yes, we think that we can respond by January. So just in a couple of months. And our suspicion would be that the GDUFA date would be second half of 2020 and definitely remain confident that we will be the first generic.
Then in terms of business development, we are actively looking. We do see some reasonable prices out there, both in terms of assets as well as companies for acquisition. And our balance sheet is strong. It's still early stage, but it is something that we are working on.
Okay. Just 2 quick follow-ups. Relating to epinephrine, it looked like Hospira got a tentative approval for their 505(b)(2) this week. Any updates on the litigation with Hospira and Belcher. And then secondly, what is the uptick in API revenue for the MannKind supply payment of $1.5 million? And if so, would this be a onetime event or more of a repeatable?
Sure. So with respect to the litigation with Belcher, we've stayed that case. The parties agreed that we would await the outcome of the Hospira trial. And so that has been stayed for quite a while now.
And the second one was...
Was the MannKind.
Yes. The MannKind. So yes, so the $1.5 million is a onetime payment. We're getting another $1.25 million in the fourth quarter, which we would recognize at that time. We've gotten some amendment fees in the past. It's hard to say what their -- what the path forward will be with them. We have a supply contract where they have to buy a certain amount of product for us -- from us. And if they want to amend it in the future, then there might be another amendment fee or they can potentially increase their purchases, if they can get the marketing of that product moving forward. And so I think we've got 2 different opportunities to get revenue from that business there.
Our next question comes from the line of Lucas Lee from Raymond James.
This is Lucas Lee on for Elliot. A couple of questions. First, on Walmart positioning. Could you talk about prominence of the product at Walmart in terms of shelf space and freestanding displays? And the second question I have is on -- regarding the recent ANDA filing. Was this a Paragraph IV filing? And if so, are we still within the notification period in terms of the innovator filing and infringement action? And will this qualify for some form of accelerated approval?
Sure. So with respect to Walmart, yes, this is going to be, in our opinion, a very successful launch. We've been in discussion with them regarding some of the displays that they want to do and it looks like they will be putting in a good amount of promotion for the product. So we're excited by it. In addition to the commercials that we're airing, we feel just having this in Walmart, which historically was 35% of our sales and really is the demographic that we're targeting, that -- between our advertising and the prominence of their displays that this will really increase the sales going forward.
With respect to the recent ANDA that was accepted by the agency and is a very complex product, that's actually -- it's so complex, it's been off-patent for a while. So it's not a Paragraph IV. There's no generic on the market, but it does have competitive generic therapy designation and so what that means is that -- although it's more qualitative than quantitative, we have a lot of interaction with the FDA, we'll have a mid-cycle review meeting and essentially, it means that they will put a priority on the application. But a priority more from a qualitative than an actual quantitative. So you have the same amount of months in terms of having a GDUFA date, but they aim at getting you a decision in advance of the GDUFA date.
Our next question comes from the line of Sameer Kandola from Wells Fargo Securities.
Can you give us an update on your intranasal naloxone NDA? I believe you were trying to work around the patents for Narcan as it relates to the dosage. So were you able to figure that out with the FDA?
Sure. So yes, so with respect to that product, we have been going back and forth extensively with the FDA, and they've given us several advice letters around that topic. And so we have sent an extensive amount of data to them and are in sort of what we consider, we're going to have a few more discussions with them and at that point, we feel, and if they confirm this that we have addressed these issues and that's why we feel that the middle of 2020, we will be resubmitting the application.
Okay. And just a quick follow-up on that. How are you sort of thinking about the competitive landscape for the overall opioid rescue market? Do you think it's still the same size of an opportunity as it was maybe 6, 12 or 18 months ago?
Yes, it's an interesting question. On the one hand, there are generic Narcans in the queue, but they've not launched due to the patent. Eventually, you may see more products on the market, but the market continues to expand. And so it's an extremely large market, so net-net, we think that this remains the same opportunity -- a very large opportunity for the company.
[Operator Instructions] Our next question comes from the line of Serge Belanger from Needham.
This is Tian on for Serge. I just had a couple. So the first one is the GDUFA regarding the MDI inhaler products. Is there any update on the timing of that ANDA filing? Is it still on track for 2020? And then on the Primatene Mist, besides getting the Walmart stores, is there any updates as far as additional retailers for 2020? And then lastly, on the partnership with Premier. Could you just provide us with a little bit more detail regarding this agreement? And how this might impact the revenue in general for the 7 products that are described in the agreement going into 2020.
Sure. So first, with respect to the metered dose inhaler. Yes, we are on track. On the last call, I discussed that we had increased the sample size for our trial and in Bill's prepared remarks, he discussed that the increase in R&D spend actually did relate to clinical trials for our inhalation products. So we are still on track for a filing in 2020.
With respect to Primatene, yes, in 2020 -- we are currently in discussions with additional retailers. So obviously, we wanted to get big 3: Walgreens; CVS; and Walmart now. Of course, Rite Aid is in there as well. But yes, the other retailers that you commonly think of some of the large ones, and in addition, the independent retailers as well as online, we've got in process all of the above and are in discussions at this time and do believe that in 2020, we could expand to additional retailers.
Okay, great. And on the Premier agreement. The way I'd like to think about it is, it's not necessarily going to increase our sales, but what it does is that, right now, a lot of these products have peaks and troughs, and we'll sell several hundred thousand units one quarter than only tens of thousand units the next as our competitors have some supply issues. So what it does is it kind of smooths out that process where they're going to be guaranteeing a minimum purchase level from us at all times. And because of that, they'll also be able to keep a little bit more inventory on hand to supply their customers to make sure that their customers aren't out of stock. And we've also guaranteed that we'll keep a certain amount of inventory on hand as well.
So -- and that's going -- and it does tie into the increased capacity that we will have at our IMS facility there. So we think it's a win-win so that when times are a little bit slower, we'll have a little bit more in sales and just evens out the manufacturing and makes things smoother from a manufacturing and production standpoint for us while maintaining inventory for them. So it's really a win-win.
I am showing no further questions at this time. I would now like to turn the conference back to Mr. Jason Shandell for his closing remarks.
Thank you, operator. We really appreciate the time with everybody today, and hope we answered all of your questions. And beyond that, hope you have a great day. Talk to you soon.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may all disconnect.