Bill Peters - CFO Jason Shandell - President.

Elliot Wilbur - Raymond James David Maris - Wells Fargo David Steinberg - Jefferies Serge Belanger - Needham & Company.

Welcome to the Amphastar Third Quarter 2016 Earnings Call. [Operator Instructions].

All statements in this conference call referenced above that are not historical are forward-looking statements, including, among other things, statements relating to the Company's expectations regarding future financial performance, sales and marketing of its products, market size and growth, the timing of FDA filings or approvals, acquisitions and other matters related to its pipeline of product candidates, its share buyback program and other future events.

These statements are not historical facts, but rather are based on Amphastar's historical performance and its current expectations, estimates and projections regarding Amphastar's business, operations and other similar or related factors.

Words such as may, might, will, could, would, should, anticipate, predict, potential, continue, expect, intend, plan, project, believe, estimate and/or other similar related expressions are used to identify these forward-looking statements, although not all forward-looking statements contain these words.

You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and assumptions that are difficult or impossible to predict and in some cases, beyond Amphastar's control.

Actual results may differ materially from those forward-looking statements as a result of a number of factors, including those described in Amphastar's filings with the Securities and Exchange Commission. You can locate these reports at the Company's website at http,//IR.Amphastar.com and on the SEC's website at www.SEC.gov.

Amphastar undertakes no obligation to revise or update information in this press release or the conference call referenced above to reflect events or circumstances in the future, even if new information becomes available or if subsequent events cause the Company's expectations to change.

I would now like to introduce your host for today's conference, Mr. Jason Shandell, President of Amphastar. Please go ahead. .

Thank you. 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 look forward to speaking with you and answering any questions you may have.

I will now turn the call over to our CFO, Bill Peters, to discuss the third quarter financials. .

Thank you, Jason. Sales for the third quarter increased 1% to $64.2 million from $63.9 million from the previous year's period. Sales of enoxaparin declined to $15.4 million from $21.3 million, as we stopped shipping enoxaparin to activists for the retail market in August. Other finished pharmaceutical product sales increased 19% to $43.7 million.

Naloxone sales increased to $12.4 million from $10.5 million on strong unit volume, but lower average pricing, as the Company continued to increase rebates. Sales of phytonadione increased to $8.7 million from $5.9 million and sales of lidocaine increased to $8.3 million from $6.2 million.

Sales from our insulin API business totaled $5.2 million, as MannKind purchased $3.1 million of RHI to complete their purchases of their 2015 commitment. Cost of revenues declined in dollar terms to $36.6 million. More importantly, we saw a gross profit margin improvement to 43% of revenues from 28% of revenues in the previous year's period.

Improved pricing, lower heparin costs and increased factory utilization were the reasons for the improvement. Selling, distribution and marketing expenses increased slightly to $1.3 million from $1.2 million in the previous year's period. General and administrative spending increased to $10.8 million from $9 million due to increased legal expenses.

Research and development expenditures were down to $9.7 million versus $11.1 million in the previous year due to lower clinical trial expenses. We expect an increase in clinical trial spending in the fourth quarter of this year and in 2017.

The Company reported another profitable quarter, with net income of $3.9 million or $0.08 per share, compared to last year's third quarter net loss of $3 million or $0.07 per share.

The Company reported an adjusted net income of $6.6 million or $0.14 per share, compared to an adjusted net loss of $300,000 or $0.01 per share in the third quarter of last year. Adjusted earnings exclude amortization, non-cash equity compensation and impairments.

On September 30, 2016, the Company had approximately $68.8 million in cash and short term investments, including restricted short term investments. In the third quarter cash flow from operations was approximately $1.3 million and was positive for the 10th quarter in a row.

Cash expenditures for our CapEx project in France will ramp up in the fourth quarter of this year and in 2017. Additionally, we have previously disclosed a commitment to invest an additional $12 million in our business in Nanjing, China. We plan to complete this estimate by the end of the year.

Retail sales of enoxaparin were approximately $9.3 million for the third quarter.

It should be noted, however, that we will probably not have retail sales of enoxaparin again until the first quarter of 2017, due to our termination of the distribution agreement with activists in which we agreed to a transition where we would not ship retail units of enoxaparin from September to December 31, 2016.

For this reason, I suggest that some of the analysts revisit their fourth quarter estimates to take into account the sales gap from retail units of enoxaparin. I'll now turn the call back over to Jason. .

Thanks, Bill. We continue to make good progress on our pipeline and are happy to report another profitable quarter. We had EBITDA of $9.9 million on $64.2 million of revenues. In addition, this marks our 10th quarter in a row of positive cash flow. Cash flow from operations was $24.6 million for the nine months ended September 30, 2016.

As discussed in the last earnings call, the FDA provided us with a PDUFA goal date of December 28, 2016 for our Primatene Mist product candidate. We continue to have active communication with the Agency on this NDA and are hopeful to receive approval in December and launch the product back to the OTC market in the beginning of 2017.

Our confidence in this application has led us to order components for Primatene Mist, schedule production for later this month and engage an advertising agency to help ensure a successful launch. We also continue to have active communication with the FDA regarding our NDA for intranasal naloxone which has a PDUFA goal date of February 19, 2017.

On October 5, 2016, we participated in an advisory committee meeting regarding naloxone use in the community, where the topic of the appropriate dose of naloxone was discussed.

The outcome was a split decision as to whether to increase the initial starting exposure of naloxone above the currently-approved 0.4 mg dose delivered via intramuscular injection. We do not believe that this will have an impact on our application, since we have demonstrated to the FDA that our new formulation is well above this threshold.

We're also still optimistic about getting approval for one of our NDAs currently on file with the FDA. If approved, this product could be meaningful to Amphastar's 2017 results.

With respect to our insulin API business, we continue to have discussions with MannKind regarding delaying their minimum commitments under the supply agreement due to their cash flow issues. We believe that we're close to an agreement on this issue.

In terms of our antitrust lawsuit against Momenta and Sandoz, on October 31, 2016, we filed an appeal brief with the First Circuit Court of Appeals seeking to reverse the District Court of Massachusetts' dismissal of our antitrust complaint.

We're happy to report that today, November 8, 2016 the Federal Trade Commission issued a press release that it has filed an amicus brief with the U.S. Court of Appeals for the First Circuit urging the court to reverse the district court's dismissal of our complaint.

The press release states that the FTC vote approving the amicus brief filing was three to zero and that its amicus was filed with the First Circuit on November 7, 2016. Finally on November 7, 2016, the Company's Board of Directors authorized an increase of $20 million to the Company's share buyback program.

With that update, I will now turn the call over to the operator to begin Q&A. .

[Operator Instructions]. Our first question comes from the line of Elliot Wilbur with Raymond James. Your line is now open. .

First specifically on the naloxone obviously that's been a very, very strong product for the company but you have encountered some pricing resistance in the marketplace. And just curious about your thinking around pricing dynamics with an NDA product on the marketplace.

Obviously you have a competitor out there who is selling an auto injected formulation of the products somewhat close to $4000 and it's doing $250 million in sales so it seems like the market will bear much higher price than what you guys are currently selling your intranasal products, just wondering if it maybe the upside to pricing with the NDA formulation on the market.

.

Yes so right now the product that we’re moving forward is very similar to the current product that we have in the market and while we have spent a lot of money to, we’re cognizant of a lot of pricing issues around this.

So as we look to competitive dynamics as far as pricing goes I think that the adapt product that’s out there is probably closer comp to where we would see ourselves pricing it but we haven't made a final decision on this at this time. .

Okay. And then a follow-up question for you as well built around Enoxaparine.

Can you just help us think about that product going into '17 assuming at this point you'll probably sell into the retail channel directly but maybe just sort of kind of walk us through high-level thinking at this point in terms of the trade-off between potential dollars and gross margin on the product. .

Yes, sure. Right now, when we take a look at this product, selling it ourselves, we'll get to keep all of the gross margin. But as a reminder, this is a very low gross margin product for us. It's not our very lowest, but it's pretty close to it.

There's not a lot of incremental benefit that we'll be getting from doing it ourselves, but we will capture all of that profit for ourselves. As far as sales levels go, if you take a look at the trends over the last -- the first half of the year, they've continued to trend down slightly on price.

And we would expect that to continue in the coming year. But we are ready to launch the product ourselves come January, or potentially sooner, if Actavis/Teva lets us know that they're down to 30 days of inventory before December 31. .

Okay. Just one last question for Jason. During your prepared comments, I thought I heard you say that you expect approval for one NDA product filing, but I guess my records show that was -- just want to confirm that. .

Yes. It's one ANDA. Currently we have four ANDAs on file, and the one that I've talked about in the past -- it's the first that we had on file -- and one of the most significant of the four. That's the one that were expecting approval of and think it could be very meaningful for 2017.

And as we've talked about on prior calls, this is an injectable product, ANDA, with no other generic on the market. .

Sure. .

Our next question comes from David Maris with Wells Fargo. Your line is now open. .

I have a really broad question. Over the next 24 months, you could see the sales for the Company double.

I wanted to see if you thought -- if everything goes the way you hope, which, obviously, things never do, but if they did, how many products would be approved? How many brands and generics would be filed at the end of the two years? And do you think that you have everything that you need if everything goes right from systems standpoint to personnel and to capacity? Thank you.

.

Yes. It's a pretty broad question, but first it starts off with a statement of potentially sales doubling. I will say that while if everything went right, maybe that's theoretically possible, but I certainly wouldn't model it to double within two years. The first point.

We would assume, as we get those near-term approvals that we're hoping, for planning to have, such as the Primatene approval, then the intranasal naloxone approval, and also that other ANDA that we've schedule -- talked about.

In order to hit that higher level, we'd probably also have to get one of the other ANDAs that we have on file, or maybe two of them, launched, as well as increase -- launch one of the Hikma products that we had acquired, as well as reenter the UK -- or enter the UK market through for the IMS UK acquisition that we did.

Everything would have to go on track, and on schedule, and have optimistic assumptions for all of those things in order to do that. And that includes any risks, such as maintaining, making sure we get our API supply down correctly, understanding competitive dynamics.

Right now, with that large ANDA that we're hoping to get approval on next year, there's no generic currently on the market, which could certainly mean significant sales.

But one more generic on the market after us, or if the Company that has an approval launch that never launched, does launch, that will certainly affect the dynamics, and particularly the pricing. So, a lot a lot could happen or not happen.

As far as personnel, we certainly have, I believe, the appropriate personnel in place, other than potentially adding about a dozen people that at our Armstrong facility to ramp up production. But that's incrementally a fairly minor amount of money to be spent on that.

As far as the next two years ago, we have all of the manufacturing capacity in place to do those things.

However, if we look past two years, we do need incremental manufacturing capacity, including some renovations for certain buildings and also some incremental systems, some incremental machinery that's being purchased right now that needs to be installed for that. But then we also have to make sure that we get online.

As we've mentioned, we have a CapEx project at our IMS facility, so we have to get that online to increase the capacity there in order to make sure that we could launch all of the ANDAs, plus the Hikma ANDA and the IMS UK products as well.

Systems, maybe long term, we probably need a new computer system here at the Company as the Company looks to grow and expand internationally. That would probably be a good idea long term as well, but we haven't started to move forward with that at this point. .

And then just to add the number of filings I would anticipate two years from now, 15. But then hopefully of that 15, let's say we get the one that we're expecting, plus another, that would take us down to 13 on file. So to be conservative, I would say two years from now, we would expect at least 10 ANDAs on file. .

Our next question comes from David Amsellem with Piper Jaffray. Your line is now open. .

This is Sabir on for David. Just a couple here on intranasal naloxone, are you thinking about this primarily being a retail product that can be dispensed in pharmacies, or is it mainly a tool for first responders, or a bit of both? Do you want me to just ask them all up front? I have two more here. .

Maybe I will answer the first one and then we can go to the next. The answer is a little of both. Obviously, from the first responder market, right now they're using our product extensively off label, and once we get the approval of the NDA for intranasal, we would definitely want to continue with that market.

As has been shown in the news, we've been extending rebate agreements with various states around the country. We look forward to supporting the first responders in the effort to combat this epidemic.

But we do view the retail side as upside for the Company, because clearly the intranasal approval would cannibalize the current sales of our product that are being used off label. Where we do see the upside is in two areas -- number one, on the retail.

As we've talked about, there are approximately 37 states that have various laws in place to allow expanded access to our product. Another potential, albeit maybe a little bit more of a long shot, there are laws that are making their way through Congress and the Senate, one of them being a co-prescription bill.

Ideally, what we would love to see is a situation where doctors that prescribe opioids are also then required to prescribe naloxone. At a minimum, perhaps the doctors would be encouraged to prescribe naloxone. That would allow very good upside for our product. .

And then also on intranasal naloxone, I know you touched on it a little earlier, but how do you think you stack up against SDO, the injector product? Are you planning to position the intranasal product as an alternative?.

Yes. Just to follow on what Bill said previously, we comp ourselves more to Adapt's intranasal product. We feel that the Evsio product, although it's an auto-injector, it's still a needle.

And we feel, based on discussions with the first responders, as well as a retail product for use by caregivers, we believe that both caregivers and first responders would prefer an intranasal delivery system versus a needle. But in terms of our competitor, we would view it more as the other intranasal that's already been approved, which is Adapt. .

Okay. I see. And then one final one here on Primatene.

Can you just remind us how big the market was before the CFC-based products were pulled and your opportunity for HSA?.

Sure. Definitely. The last two full years of sales, which were 2009 and 2010, Primatene did $65 million in revenues. We feel that ultimately we can exceed that number, through advertising, as well as an improved product. The old product was in a glass container. This one is aluminum. The old one did not have a dose indicator. This one does.

And ultimately, we feel that because of healthcare issues, this will be a very good alternative for asthmatics, as this will be the only FDA-approved asthma inhaler for mild to intermittent asthma.

It may take a little bit of sales and marketing efforts before we exceed that $65 million, but ultimately we think we can exceed the $65 million on an annual basis. .

Our next question comes from David Steinberg with Jefferies. Your line is now open. .

I just wanted to follow up on Primatene. Assuming you get approval on the PDUFA date, I assume the next time you'll have a quarterly call, you'll actually launch the product, given some of your prior comments. So, as such, I was wondering if you could help us with some metrics.

Could you comment on -- you're going to do some advertising -- any comment on the scale of advertising in terms of dollars, what sort of media -- print, TV, other media you're going to focus on? And then, can you remind us what the price per unit was before the CFC product was taken off the market? And perhaps what price range you intend to price the HFA unit at? And then in discussing the fact that you're going to -- you think you're going to exceed the prior peak sales, is that largely on units, or will the price be higher enough so that part of that higher than the prior peak might be attained through price as well? Thanks.

.

Yes. You had a couple things there. One was the media spend. We're going to spend a small amount of money prior to approval to tease things up ahead of time.

We will, and one of the reasons why Jason discussed it in his call was we will have a small advertising spend in the fourth quarter as we prepare some materials, websites, things like that for the product launch.

While we do have a spend targeted for next year, I will say it's probably a double-digit percentage of sales, but a low double-digit percentage of what we think sales will be. As far as media goes, it's primarily going to be starting with online and social media, and more of a modern ad campaign with this.

We're not going to initially target TV and probably not radio initially, either. We're going to start small and build up from there. As far as pricing goes, I'm not sure if you meant our price to the retailer, or the retail price. But the retail price was in the low $20 range.

We think the new retail price will be in the mid to high $20 range on a go-forward basis. We believe that eventually it might take a couple years to get past where we were previously. But we believe that there is a couple ways we get there.

One, the prices a little bit higher to adjust for inflation and the fact that it's, as Jason indicated, a better product than it was before.

But then also, because this one needs to be primed, there's a little bit less, fewer doses in the container, so that over the course of the year, someone might -- who uses the product might end up needing an extra unit or two. .

Our next question comes from Gary Nachman with BMO Capital Markets. Your line is now open. .

This is actually Chris on for Gary. I was just hoping if you could actually break out epinephrine sales. I know that you have broken it out in the prior quarter. And then I just have one follow-up. .

Epinephrine sales for the quarter, I don't know. I don't have that right in front of me right now, but I'm sure we will be disclosing that in the 10-Q. .

Okay. All right. And then if you could just give any update at this point on timing of DMF. I know that's something that was hopefully getting a little bit more clarity on in the near term. .

Sure. Our A&P facility has already filed seven DMFs. We're looking to file another DMF within the next month. That's in the short-term. As we've talked about, that facility will supply a majority of the API for our pipeline, so you definitely will see more DMFs filed throughout 2017. .

I actually do have the epinephrine sales. They were about $5.3 million in the quarter. .

Our next question comes from Serge Belanger with Needham & Company. Your line is now open. .

Just a couple questions. First one on Lovenox, and you may have covered this earlier in the call.

You mentioned that sales from the retail segment were around $9 million this quarter, is that correct?.

Yes. .

Starting in 2017, do you expect sales from the retail segment to pick up where they left off in terms of volume and pricing?.

It's hard to say, because we're not necessarily going to keep those retail clients. But, our goal will be to maintain the market share that we have right now. .

Okay.

So we should expect an increase in sales and marketing, given that you'll now be solo on Lovenox, as well as the increased spend around the Primatene launch?.

There'll be an increase, because -- a small increase, I'll say in the hundreds of thousands of dollars in the fourth quarter on the Primatene launch. But there's really no incremental cost for us being in the retail enoxaparin market. We are considering maybe hiring one more salesperson, but it's not a significant incremental spend. .

Okay. And then in terms of the pipeline, it doesn't look like, given the update you gave in the press release, it doesn't look like there were any additional filings this quarter.

Do still expect to complete three NDAs by the end of the year?.

Yes, we do. We're still on track for what we said on the last call of completing three ANDAs by the end of the year. .

[Operator Instructions]. We have a follow-up question from the line of Elliot Wilbur with Raymond James. Your line is now open. .

Just real quickly, maybe try to describe your level of optimism that will see a respiratory filing by the end of 2017.

And then with respect to epinephrine, was there any benefit from pricing in the current quarter?.

Sure. So I'll start. This is Jason with respect to the respiratory filing. Yes, we do intend to file one respiratory product by the end of next year. .

And on the pricing, we did not really get any benefit from a price increase in the quarter. .

We have a follow-up question from the line of David Maris with Wells Fargo. Your line is now open. .

Yes. Just to follow up on the question on the respiratory program. I know you've never confirmed Advair generic, but can you describe the market potential for the respiratory products, what the brand equivalent market opportunity is? Thanks. .

Sure. We've got a table that we provide in our non-deal road shows, and it's on our website. We have calculated, based on IMS data, that it's approximately $15 billion in market potential. .

That's for the whole respiratory program.

Is the first filing -- should we assume that it's the most technically challenging, and the largest opportunity?.

No. No. We should not assume that. Obviously, there are several very large opportunities, but there is nothing to assume that the first one will be the largest. .

I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Shandell for closing remarks. .

Thank you very much, operator. This concludes our call for today. Thanks again for participating. Have a great rest of the day. .

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the programming. You may now disconnect. Everyone, have a great day..