Amneal Pharmaceuticals, Inc. (NYSE:AMRX) Q1 2023 Earnings Call Transcript May 5, 2023

Operator: Hello, everyone and welcome to the Amneal Pharmaceuticals First Quarter 2023 Earnings Conference Call. My name is Emily, and I'll be your moderator for today's call. I will now turn the call over to Amneal's Head of Investor Relations, Tony DiMeo. Please go ahead.

Tony DiMeo: Good morning, and thank you for joining Amneal's first quarter 2023 earnings call. Today, we issued a press release reporting our full Q1 results. We announced certain unaudited preliminary results for the first quarter on April 17, 2023. The press release and presentation are available at amneal.com. Certain statements made on this call regarding matters that are not historical facts, including but not limited to management's outlook or predictions are forward-looking statements that are based solely on information that is now available to us. Please see the section entitled Cautionary Statements on Forward-Looking Statements in the earnings presentation and our SEC filings for a discussion of factors that may impact our future performance.

We also discuss non-GAAP measures. Information on our use of these measures and reconciliations to US GAAP are in the earnings presentation. On the call today are Chirag and Chintu Patel, Co-Founders and Co-CEOs; Tasos Konidaris, CFO; our commercial leaders Andy Boyer for Generics; Joe Renda for Specialty; Harsher Singh for Biosciences; and Jason Daly, Chief Legal Officer. I will now turn the call over to Chirag.

Chirag Patel: Thank you, Tony. Good morning, everyone. We delivered a very strong first quarter results with $558 million of revenue growing 12% and adjusted EBITDA of $116 million growing 16%. We saw robust top-line growth in Q1 across all three business segments: Generics, Specialty and AvKARE reduced our net leverage to 4.9 times and affirmed our full year 2023 guidance. Taking a step back for those who are newer to the Amneal story, we are a global pharmaceutical company with an expanding portfolio of approximately 270 products. Our strategy focuses on launching new products in high-growth and high-impact areas of medicines such as complex generics, injectables, biosimilars and specialty. Since 2019, we have significantly diversified our business fueled by the productivity of our R&D pipeline and strategic investments to build our global platform.

As a result of Amneal's diversification, we have seen continuous strong financial performance since 2019 as we have delivered substantial revenue and EBITDA growth. In 2022, approximately, $500 million of our top-line performance came from products launched since 2019. We see our momentum accelerating in 2023 and beyond underscored by our strong Q1 results and 2023 outlook. In short, we are very well-positioned for sustainable long-term growth accelerating profitability and continued deleveraging. I'll now briefly walk through, how are we executing on our key strategic priorities across our businesses. First in the Generics segment, our diverse portfolio of approximately 230 retail generic products is continually expanding moving up the value chain of complexity and generating durable top-line growth since 2019.

Our strategy to diversify with more complex products has been deliberate over the years. To give you context, we expect about 55% of 2023 Generics revenue will be from complex products up from 35% in 2019. We feel great about the breadth and depth of our R&D pipeline, which we expect will continue to deliver 20 to 30 new product launches every year and continue to differentiate our business as we move forward -- move towards complex products. We have been on a remarkable journey these last four years and the team has been hard at work focusing on the highest-value products in complex generics with many nearing the finish line. Altogether, we expect continued strong execution and growth of our business. In Injectables, similar to where we are today in US.

generics our goal is to be a top five U.S. Injectable business and also a global player. Today, we have about 30 institutional products, with over 30 new launches expected by 2025. We are executing very well on our Injectables growth strategy by expanding our portfolio, building key capabilities and adding capacity. Our commercial strategy centers on our ability to be a differentiated supplier of a growing portfolio of Injectables for hospitals, with a resilient supply chain in a market impacted by shortages. To that end, today we are pleased to share a major milestone with the successful U.S. FDA inspection this week of our fourth and largest injectable site. As we ramp up commercial production later this year, in line with our plan, we expect the next revenue inflection point in 2024.

We remain on track for over $300 million injectables revenue, by 2025. Next, in Biosimilars, we're very pleased with the initial market penetration of our first two biosimilars: ALYMSYS and RELEUKO. Since their launch in Q4, our commercial team is executing very well by adding new customers' outlets, for both products and driving substantial pull-through as usage rates of our biosimilars have doubled month-over-month since launch. In particular, we are seeing strong market adoption of our ALYMSYS product which is our bevacizumab biosimilar, referencing Avastin. This month, we plan to launch our third-biosimilar, FYLNETRA. And we'll have three U.S. oncology biosimilars, in the market. Based on our strong commercial execution and trajectory, we are well on our way of achieving this year target of $40 million to $60 million, more next year and over $200 million in peak sales.

Beyond these three initial biosimilars, we are working to expand our portfolio with additional molecules, where we can be early to the market and vertically integrated from development to commercialization overtime. Our goal is to be a top five biosimilar player in the United States overtime. Internationally, we are leveraging our diverse portfolio of U.S. FDA-approved products to expand into new geographies. In India, we are expanding Amneal's brand presence and leveraging our local teams and infrastructure as we focus on the hospital market. Around the rest of the world, we are working with distribution partners. We expect meaningful incremental revenue and profits overtime. Next, in the Specialty segment, we continue to grow our branded products in RYTARY in Parkinson's and Unithroid in hypothyroidism, delivering strong growth again in Q1.

In parallel, we are advancing our pipeline of new CNS and endocrinology products. On IPX203, we are one step closer to delivering a new impactful therapy for Parkinson's patients, as we head towards the June 30th PDUFA-date. As we expand our portfolio, we expect over $500 million in Specialty revenue, by 2027. In the third segment, AvKARE, we see continued momentum across the multiple channels: distribution, federal government and unit dose. We expect this business will continue to deliver durable double-digit growth going forward, driven by the ongoing expansion of the distribution channels. Overall, we are proud of the strong momentum across Amneal. Each quarter, our portfolio is incrementally larger and more diverse as we launch new increasingly complex products.

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We are leveraging our key capabilities and global footprint to operate at scale, across our business. As we execute, we look to build upon our sustainable growth profile and drive higher adjusted EBITDA levels. I want to touch briefly on our capital allocation strategy which Tasos will discuss further. To be clear, reducing debt and strengthening our balance sheet has been always our key priority. As a result, our net leverage has reduced from 7.4 times in 2019 to 4.9 times this quarter. And our goal is to be below four times net leverage by the end of 2025. I'll now hand it over to Chintu.

Chintu Patel: Good morning, everyone. Thank you, Chirag. Let me begin by thanking the Amneal family, who work hard every day to make healthy possible for so many. We are very excited about our strong start to the year and the great progress we are seeing across our organization. I will touch on how our strong foundation in operational excellence and highly productive R&D engine continues to propel our company strategy forward. Starting in operations. We are focused on operational excellence and efficiency, super quality and expanding our global capabilities, particularly in injectables. Let me provide more color on each. First, we remain focused on operational excellence and driving efficiencies. The team has done an excellent job as we move manufacturing for over 30 products to low-cost locations.

And we are on track to achieve our in-year operational efficiency goals. We are taking various other measures to lower cost and expand our margins. In addition, our prudent capital spend, focuses on driving operational efficiency, automation and supporting long-term growth. Second, from a quality perspective, Amneal has maintained a super track record and commitment to the highest standards of quality over the years. Since 2005 the US FDA has conducted over 90 successful inspection with no OAIs or warning letters. We are very excited to share the successful US FDA inspection this week of our largest injectable site. We look to commercialize products from this site starting in third quarter. This is an important cornerstone of our injectables growth strategy by increasing our capacity and capabilities across all areas.

We now have 19 production lines across various dosage forms, including vials, prefilled syringes, cartridges, LVP bags and immersion. Over the last two years, we have invested over $150 million in capital and tremendous energy to bring two new injectable sites online. As a result, we are now at scale in injectables with four manufacturing locations, doubling the capacity we had a few years ago and a deep R&D pipeline that provides a clear runway for long-term injectables growth. With our expanded infrastructure, we are well positioned to be a top five US injectable business and a global player. Let me move to generics R&D, where we are continually adding new products to our pipeline. In the first four months of 2023, we have launched 10 new generics and we are on track to deliver over 30 new products this year.

Overall, we have 99 ANDA spending with the US FDA with 63% representing non-oral solid products. This includes 32 injectables, 10 ophthalmics, 10 topical, six oral liquids and four inhalation products. Behind that, we have 81 pipeline products with 89% representing non-oral solid products in complex categories, which tend to drive higher profitability and have longer product life cycle. Over one-third of our pending ANDAs and two-thirds of our pipeline are expected to be first-to-market, first-to-file or 505(b)(2). In injectables, we see our cadence of innovation continuing as we remain on track to file 10 to 15 more ANDAs in 2023, including many complex injectables. We look to file our first 505(b)(2) ready-to-use bags this year as well. In inhalation, we recently completed clinical trials for generic ProAir and look to submit our ANDA shortly.

In addition, we shared last quarter our new partnership to in-license the Soft Mist technology platform for the development of Respimat inhalation programs. Also, we are pleased with the progress of our MDI programs and expect to submit additional ANDAs in the coming years. Next, let me highlight a few notable upcoming new product launches. First, as discussed last quarter, we are very excited about our ANDA for naloxone nasal spray, our generic version of Narcan which is currently under priority review with the US FDA. We believe this product now over-the-counter, will improve access to a critical life-saving opioid overdose treatment for millions of people across America. In addition, we are on track for the July launch of an authorized generic version of Xyrem, which is a key therapy for narcolepsy.

A list of our notable launches, is included on the key growth catalyst slide in the presentation. We have added a number of new programs to the list this quarter. Turning to specialty R&D. We are expanding our portfolio through our pipeline. We have our PDUFA date for IPX203 coming up on June 30. We see IPX203, as an important innovation that advances the standard of care, with a broad market appeal for Parkinson's patients. Accordingly, we continue to see IPX203 as a $300 million to $500 million peak sales opportunity. In addition, we are making good progress on international licensing opportunities for IPX203, which is pending approval so that this new therapy can reach the global patient population. Next in biosimilars, we are very excited about the value Amneal can bring to this space.

Our first oncology biosimilars are seeing strong uptake in the market, and we see tremendous opportunity to expand our portfolio through partnership for future molecules. We see biosimilars as a key long-term growth driver. Looking globally, we see 2023 as a foundational year for our international expansion strategy. Our R&D team, is well positioned to leverage our rich portfolio and file key products in markets around the world including Europe, China and other emerging markets. We have begun registering selected products this year, as we pursue over 50 product opportunities in different emerging market countries. We have a dedicated team at Amneal, focused on driving international expansion. In summary, we continue to drive operational excellence and execute well across our innovation strategy, which is fueling our ability to drive sustainable growth.

I will now hand it over to Tasos.

Tasos Konidaris: Thank you, Chintu. I'll first discuss first quarter results, then capital allocation, followed by a brief review of our full year 2023 guidance affirmation. We're very pleased with our first quarter results, with total net revenue of $558 million growing 12%; adjusted EBITDA of $116 million growing 16%; and adjusted diluted EPS of $0.12 in line with prior year. First quarter Generics net revenue was $344 million, an increase of $26 million or 8% versus the prior year. Strong performance was driven by new product launch in 2022 and 2023, which added $31 million of revenue and stable performance in the rest of our broad portfolio. In addition to the strong performance, we're very pleased by the continued evolution in the refreshing of our Generics portfolio.

As an example, products launched and added since 2019, now account for 42% of our Generic revenue, which bodes well for continued growth and profitability. Q1 Specialty net revenue of $92 million, increased $7 million or 8% versus the prior year driven by Unithroid, up 39%; and Rytary, up 14% which reflects strong commercial execution as well as substantial patient needs. Our AvKARE business continues to perform exceedingly well, with Q1 net revenue of $122 million, up $27 million or 29% compared to the prior year due to continued expansion of our distribution channel. We're very proud of the work our AvKARE team is doing in increasing market share, and providing our customers with new products and innovative solutions. Q1 2023 adjusted gross margin of 39.4% compares to 43.5% in the prior year was in line with our expectations reflecting discontinuation of a handful of legacy products timing of fixed overhead absorption and our mix of business.

Our first quarter adjusted gross margin represents the low point of the year as future quarters will benefit from new product launches operating efficiencies and manufacturing plant utilization increases. First quarter adjusted EBITDA of $116 million increased $16 million or 16% versus the prior year. The strong performance reflects our revenue growth higher investment in sales and marketing to support our biosimilar and specialty brands offset by tight expense management across the remaining operations. First quarter adjusted diluted EPS of $0.12 was in line with prior year, as higher interest expense offset our adjusted EBITDA growth. From a cash flow perspective, we generated operating cash flow of $140 million which includes our interest expense and $85 million payment related to the Opana ER settlement that we announced last year.

The strong performance was driven by robust cash collections related to our high accounts receivable balance at year-end 2022 as well as the continued strength of our top line growth. Let me now turn to our capital allocation. Over the last few years, we have successfully increased profitability acquired key capabilities and well-run businesses reduced legacy legal exposures and lowered leverage. As a result, we have grown annual adjusted EBITDA to over $500 million compared to $339 million in 2019. We invested about $500 million in M&A such as AvKARE; new state-of-the-art injectable facilities; rebuilt our specialty R&D pipeline; and settled substantial legacy legal matters. In addition we reduced net leverage from 7.4x in 2019 to 4.9x in the most recent quarter.

With many of these investments now behind us, our intent is to prioritize debt reduction. We believe our strong cash generation bottom line growth as many of these investments come to market and active debt paydown will further reduce net leverage to below 4x by the end of 2025. For full year 2023, we're reaffirming our guidance expectations. As a reminder, we expect total net revenue of $2.250 billion to $2.350 billion in 2023 which reflects continued mid single-digit growth driven by growth across all our three business segments. Also we continue to expect 2023 adjusted EBITDA between $500 million and $530 million which includes incremental investments particularly in sales and marketing to support new launches and scale up in higher-growth areas of the business.

We expect adjusted EPS between $0.40 and $0.50 which reflects higher interest expense including the potential refinancing of our term loan B. On the cash side, we continue to expect 2023 operating cash flow between $200 million to $230 million which includes interest expense and exclude the already announced legal settlement costs of about $90 million mostly related to Opana ER and capital spend between $50 million and $60 million. With that let me hand it back to Chirag.

Chirag Patel : Thank you, Tasos. In summary, we are pleased with our excellent start of the year. We expect our strong momentum will accelerate over 2023. Amneal remains well positioned for sustainable long-term growth with a diversified and expanding portfolio and key near-term catalysts happening all now including biosimilars, complex GX, injectables and IPX203. As we continue to execute our strategy well, further diversify our business and deliver profitable growth, we expect to drive higher levels of adjusted EBITDA and remarkably delever the company. Let me now open the call to questions.

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