Greetings and welcome to the Amphastar Pharmaceuticals Third Quarter Earnings Conference Call. [Operator Instructions] Please note that certain statements made during this call regarding matters that are not historical facts, including, but not limited to, management's outlook or predictions for future periods are forward-looking statements.

These statements are based solely on information that is now available to us. We encourage you to review the section entitled Forward-Looking Statements in the press release issued today and the presentation on the company's website.

Also, please refer to our SEC filings, which can be found on our company - on our website and the SEC's website for a discussion of numerous factors that may impact our future performance. We will also discuss certain non-GAAP measures. Important information on our use of these measures and reconciliations to U.S.

GAAP may be found in our earnings release. Please note, this conference call is being recorded. Our speakers today are Mr. Bill Peters, CFO; Mr. Dan Dischner, Senior Vice President of Corporate Communications; and Mr. Tony Marrs, Ex-Vice President of Regulatory Affairs and Clinical Operations. I will now turn the conference over to your host, Mr.

Dan Dischner, Senior Vice President of Corporate Communications. Dan, you may begin..

Thank you, Paul. Good afternoon and thank you all for joining us today on our third quarter earnings call of 2023. Joining me today will be Bill Peters, CFO and Executive Vice President of Finance; and Tony Marrs, Executive Vice President of Regulatory Affairs and Clinical Operations.

2023 has been characterized by maintaining the momentum of our key high margin products by fulfilling our commitment by advancing our portfolio's proprietary biosimilar and complex product segments.

In terms of sales, the third quarter ended with a $180.5 million in revenue, representing a 50% increase on an annualized basis with the added net sales of our recently acquired proprietary products BAQSIMI. And the continued strength of our core products specifically glucagon, Primatene Mist, and epinephrine.

Since we closed the BAQSIMI acquisition on June 30, we've been working hard transferring operations in 27 countries worldwide. On October 1, we began marketing the product in the United States using a contract sales force combined with our internal sales team.

Around the world, we have signed agreements with third-party logistics and local companies to help us set up the needed distribution networks. We have already transferred the NDA in the United States to Amphastar and we are working on transferring the marketing authorizations in other countries as quickly as possible.

We plan to transfer distribution in the United States in the first quarter of next year and other countries as soon as possible after that. BAQSIMI recorded its highest sales ever this quarter, continuing a growth trend we expected. Due to the seasonality of the product, the third quarter represents approximately 31% of the annual sales.

In addition to the commentary on our glucagon and Primatene MIST offerings, the sustained performance of these products from the previous financial quarters is notable, specifically glucagon which generated $29.5 million in revenue, marking a substantial 107% increase over the same period last year.

However, we note that glucagon sales peak in the third quarter was due to the increased back-to-school demand and will typically normalize after the seasonal period. As Primatene MIST, the product realized an impressive $24.8 million in sales in the third quarter.

This represents a noteworthy 35% increase compared to the corresponding period in the previous year, primarily due to restocking by retailers. We continue to see unit retail growth in the 5% to 6% range and still project that Primatene MIST will reach the milestone of $100 million in sales by the end of 2024.

Regarding our epinephrine and other finished pharmaceutical products, once again, we have been able to capitalize on competitive supply shortages, specifically epinephrine, which achieved a notable 19% increase in sales over the prior quarter and a 4% increase annually amounting to $20.2 million in sales.

Our lidocaine product also saw sales growth within our injectable products and shortage registering a 10% increase over the last quarter. This performance reflects our agile response to market dynamics and the strategic positioning of our products to serve unmet market needs effectively.

Our commitment to providing continuity of supply during periods of competitor shortage exemplifies our role as a reliable provider in the pharmaceutical landscape and supports our projection for sustained performance.

As we address our adaptive response to evolving market conditions, the launch of [Rexcovit] our proprietary naloxone nasal spray is now scheduled for release in the first quarter of 2024 due to production needs for shortages projects - products.

Furthermore, due to the API supplier for our MPA injection having discontinued manufacturing this API, we will have minimal to no sales of MPA over the incurring quarters. We plan to resume manufacturing MPA following the anticipated FDA approval for qualification of the new API, which will be reduced at our A&P facility.

The FDA on authorization will enable us to leverage our in-house production capabilities ensuring a steady supply to meet market demand. I would now like to shift our dialog on the progress within our pipeline and the regulatory endeavors related to our proprietary biosimilar and complex generic products.

Regarding the regulatory progress of AMP-002, we acknowledge the delay beyond its initial GDUFA goal date. We are currently engaged in discussions with the agency. The agency remains committed to moving the application forward in the regulatory review process as quickly as possible.

There remains a significant market demand for this product, which would represent itself as the first generic in the market niche exceeding $600 million, according to Equivia. Recognizing the need for generic options, we are dedicated to advancing our dialog with the FDA.

For our teriparatide ANDA referenced as AMP-015, as previously stated, we have responded to the CRL. We have a goal date in the first quarter of 2024. This date adheres to the conventional schedule allowing for an additional quarter's extension should a pre-approval inspection be necessary.

In reference to our AMP-008 inhalation ANDA which received priority review status. We believe we have addressed the issues identified in the minor CRL. As a result, we have a GDUFA goal date set for the fourth quarter of this year. Concurrently our AMP-007 application is progressing as planned and is scheduled for submission by the end of this year.

Regarding our proprietary product intranasal epinephrine identified as AMP-019, we are diligently advancing through the clinical development phases in collaboration with the FDA. In alignment with our strategic objectives for our biosimilars, I am pleased to report today steady progress with AMP-004, our insulin aspart biosimilar candidate.

We are on track to submit the BLA for this product by the end of this year with the intent of securing interchangeable status. In summary, the solid performance and strategic advancement detailed today underscore the strength and adaptability of our product portfolio in response to the competitive and regulatory environments we operate within.

Our strong sales growth strategic pipeline advancements and regulatory foresight aligned with our company's sustained growth and value creation vision. We remain dedicated to advancing unmet medical needs as we continue to invest in our high margin products and innovate in proprietary biosimilar and complex products.

We are confident in our ability to capitalize on market opportunities and navigate industry challenges strategically. I would now like to turn the call over to our CFO and Executive Vice President of Finance, Bill Peters to discuss the third quarter's financial results..

Thank you, Dan. Revenues for the third quarter increased 50% to $180.6 million from $120.1 million in the previous year's period. Glucagon sales increased 107% to $29.5 million from $14.2 million as two suppliers left the market and we experienced seasonally strong back-to-school sales.

Primatene MIST sales grew to a new record of $24.8 million in the third quarter, which represents a sales growth of 35% from sales of $18.4 million in the third quarter of last year As retailers replenished their inventories.

Lidocaine sales increased to $15.5 million from $12.6 million due to higher unit volumes As a result of continued supplier shortages during the quarter. Phytonadione saw increased competition as sales decreased 47% to $7.4 million from $14 million.

Other finished pharmaceutical product sales increased $14.1 million to $37.7 million on increased sales of legacy products such as dextrose, atropine, calcium chloride, and sodium bicarbonate. And on sales of newer launches including regadenoson, ganirelix and vasopressin. This marks the first quarter revenues from BAQSIMI.

We recorded net revenues of $28.7 million, which corresponds to Amphastar's net economic benefit from BAQSIMI. This net economic benefit was calculated based on a Eli Lilly sales of $48.7 million less their expenses of $20 million which included cost of goods, selling expenses, and research and development expenses.

We will continue to book revenues on a net basis until we begin distributing BAQSIMI in 2024. This change will occur on a country-by-country basis. Our insulin API business had sales of $4.2 million, up from $1.2 million last year, primarily due to the timing of orders. Cost of revenues increased to $72.2 million from $61.6 million.

Gross margins improved to 60% of revenues from 49% on increased sales of higher margin products such as Glucagon, Primatene Mist, ganirelix, and vasopressin. Additionally, revenues from BAQSIMI reported net of related expenses.

Selling, distribution, and marketing expenses increased 34% to $6.4 million from $4.8 million in the previous year's period due to sales force expansion expenses related to BAQSIMI and increased advertising expenses for Primatene Mist.

General and administrative spending increased 6% to $12.7 million from $12 million due to increased compensation and expenses related to BAQSIMI, which were partially offset by lower legal expenses.

Research and development expenditures decreased 10% to $16.7 million from $18.5 million due to the timing of clinical trials and material expenses related to our insulin and inhalation pipeline products.

Our nonoperating expense of $9 million compared to a nonoperating expense last year of $600,000, primarily due to interest expense and costs incurred for the term loan we entered into to complete the BAQSIMI acquisition and convertible debt issued this quarter.

These expenses were partially offset by mark-to-market adjustments related to our interest rate swaps. Net income increased over 200% to $49.2 million or $0.91 per share in the third quarter from $15.9 million or $0.30 per share in the third quarter of 2022.

Adjusted net income also increased significantly to $61.9 million or $1.15 per share compared to an adjusted net income of $20.2 million or $0.38 per share in the third quarter of last year. Adjusted earnings excludes amortization, equity compensation, impairment of long-lived assets and onetime events.

In the quarter, we had cash flow from operations of approximately $64.3 million. We issued $345 million of convertible notes in September and used $200 million of the proceeds to concurrently pay down our term loan and $50 million to buy back approximately 1.1 million shares of our common stock.

Subsequent to the end of the quarter, we paid down an additional $50 million of our term loan. When we entered into the term loan, we hedged $250 million of the loan by swapping into a fixed rate for five years. At this point, we do not have any more floating rate debt, which will enable us to lower our interest expense in the coming years.

I'll now turn the call back over to Dan..

Thank you, Bill, for the update. With that, we'll now take your questions. Operator, please open the line for Q&A..

[Operator Instructions] Our first question is from Glen Santangelo with Jefferies. Please proceed with your question..

Yes. Thanks, guys. Thanks for taking my question. Hi Bill, I want to start out talking about BAQSIMI because obviously, I think this is a bigger result than most of all of us were expecting. When you look at the sales generated by nearly $48 million, $49 million.

I mean, I thought at least in your most recent sort of marketing deck, where we're talking about closing out this year at $145 million to $155 million annualized with the potential to get the peak sales of $2.50 to $2.75.

I mean how do you think about those targets that you had previously laid out relative to the fact that Lilly almost did $49 million in resi this quarter?.

Well, two things. One, first of all, thanks for noticing the projections in saying the updated slide deck because we did update the projections from previous number to increase that slightly. And the big thing about this is that this is a back-to-school quarter. So the third quarter has historically been the high point of the year.

So we expect sales will drop going into the fourth quarter, and that's just been the trend. If you take a look at the graph of the script there - IQVIA script there, you see it really does have a big peak in the August, September time frame. So we expect it to decrease.

But that said, the $250 million to $275 million is still just the forecast that we have at this point, and we think we have a very good plan to get to that. Could we beat that forecast, I think we possibly could.

So - it's just right now, it's certainly something that we could do, and we didn't want to set a forecast that was something that we'd ever have to lower. So I'm glad to say that we did increase it once already..

All right. That's helpful. I appreciate that. Maybe I just ask one other quick question. Maybe a high-level question. The quarter, it always benefits to some extent from shortages in one product or another, and it's always hard sitting in our seat to sort of forecast which ones.

Is there anything specifically you'd call out going on in the market this quarter? Like obviously, lidocaine benefited again, epinephrine benefited [indiscernible] obviously, was the opposite. And we know that Pfizer had some manufacturing issues, some unfortunate issues.

But is there anything specifically this quarter that you may call out that may have a little bit more - a more sustained impact or something to the opposite might have a little bit of a shorter duration to it?.

Yes. So you did mention the lidocaine - one of our lidocaine SKUs is on shortage and we're producing as much as that as possible. But yet, there's three right now, where we're the only one in the country making them, and that's dextrose, sodium bicarbonate and also the epi syringe - prefilled syringe that's used in the emergency rooms.

So those three things are - we're just making as much of those things as we can. And we don't know when our competition will be back on the market, but it looks like that's going to at least go into at least the second quarter of next year from what we understand for those products. So that's what we can garner out of that.

And as I think we mentioned and also in the presentation because of our attempt to take care of the market for these shortages, we've had to delay once again, the launch of our intranasal naloxone because it runs on the same equipment at our IMS facility.

So we had an opportunity to launch that or satisfy some of the demand for these shortage products and we decided it was more prudent to make more of the shortage products to try to help the market out of the situation that it's in right now..

Perfect. Thanks for the update. Appreciate it..

Thank you. Our next question is from Tim Chiang with Capital One. Please proceed with your question..

Hi. Thanks, Bill. Good quarter.

Maybe you could talk just a little bit about the rebound in Primatene MIST sales, how that might have contributed to your higher gross margins this quarter as well?.

Yes. So two things. One, really the biggest thing to the gross margin was the fact that BAQSIMI is on a net basis. So it's a 100% margin product right now. So all the expenses are taken out before we book that revenue because of the accounting guidance that we have to follow.

So that's really the big driver to get to that 60% but as far as Primatene Mist goes, it's basically what we've been seeing in the last two quarters is it was growing at the retail level in the first quarter, but our sales were down. It was growing at the retail level in the second quarter, but our sales were down.

That indicated to us that there was a contraction in the level of inventory at retailers. It reversed this quarter. The growth has actually been relatively steady at about 5% or 6% a quarter this year, 5% or 6% every quarter this year. And - but you've seen this big fluctuation in our volumes, and that's just really has to do with the inventory.

So this is, we believe, an inventory stocking ahead of what's usually the biggest two quarters of the year for Primatene Mist usually the fourth quarter and the first quarter. So I think we got a little bit of that carryover into the first quarter because the retailers had lowered their inventory levels going into this quarter..

Got it. And I guess with BAQSIMI, you're still going to report net economic benefit from BAQSIMI in the fourth quarter, but obviously that number probably will be less, right? Because the third quarter obviously was the strongest quarter for the year.

Is that right?.

That's correct. The other thing - well, there's going to be a couple of forces that kind of go in different directions for that because starting in the fourth quarter, we are doing our own marketing, our own selling for that. So that's going - the expense of that will now be our selling line and it will not be borne by Lilly.

So they will have a lower expense that's used to deduct that. So there, as we saw the Lilly sales were close to $49 million. So we expect that, that - their top line number to decrease. And as Dan had mentioned, it's historically been about 31% of the annual sales into the third quarter. So it's definitely higher than the other quarters.

But the deductions will be a little bit lower as well. So the selling expense that they deduct will not be as high. So we'll still have their cost of goods, their distribution expenses and a little bit of R&D work as they continue out a couple of the R&D studies that were ongoing. So those expenses will still be born in that gross number.

And I know it's a little bit confusing, but it's a moving piece. And as we've mentioned, we're going to - we plan to take our distribution in the United States in the first quarter of next year.

So - and then the rest of the world will follow depending on the timing of signing of certain contracts and also the transfer of the marketing authorizations in various locales..

Okay. Just one last question then, Bill.

Is the 60% gross margin, is that sort of your new going forward type of run rate now that you have BAQSIMI?.

No, because remember, because BAQSIMI, that we had our net economic benefit was at 100% margin. So the net economic benefit that we get next quarter will also be at 100% margin. But - as we move forward, we will have - we'll start incurring the revenues and the cost of goods.

So in the future, our revenue number goes up, but our cost of goods number goes up as well So instead of BAQSIMI being 100% margin product, it's going to be something that's well above our corporate average, but it will still have a cost associated with it once we begin distributing in locales, around the world.

And I know that's a little bit complicated and a little bit - it's going to be country-by-country basis. So it's not all - it doesn't all happen at once..

Right. Got it. I think historically, what U.S.

BAQSIMI sales had made up about, what, 80% of the total BAQSIMI high?.

That's correct..

Okay..

Thank you. Our next question is from David Amsellem with Piper Sandler. Please proceed with your question..

Hi, this is Tim on for David. Thanks for taking the questions. A few from us, and apologies if there's a little overlap here. So on BAQSIMI, I guess, stepping back, what's your overall view on the glucagon rescue market growth both near term and longer term.

And with respect to your sales force, what are you thinking in terms of sizing? Is that going to be a contract sales organization? Or will it be internal? And when do you expect for them to hit the field? And then second, on the glucagon injection generic.

Could you speak to how penetrated you are in the institutional setting and the extent to which you've been able to leverage our expanded manufacturing capacity.

And over time, how big do you think the opportunity is in that setting? And then last, on the shortage products, can you talk to the extent to which you'll continue to benefit from shortages in 2024? I know you called out those three products that the competitors aren't making right now, but beyond that, what is the impact of the shortage is going to look like next year relative to this year? Thanks..

Okay. So the first one I got was overall glucagon growth. So as we've said, we think the BAQSIMI is going to grow for us, going to be somewhere in the $250 million to $275 million revenue range product for us at peak. So it's a really strong growth from where we are today, but just some are annualizing around $150 million in revenues.

We do think that some of that market share comes out of the traditional glucagon, the generic glucagon that we're selling today. However, our current glucagon generic is also used as a diagnostic aid. And because it's used as a diagnostic aid, that doesn't go away with the conversion to BAQSIMI because it's - the BAQSIMI is not indicated for that.

On the sales force, we haven't said how many sales people we have, but we do have said that we have a contract sales force that we did engage. They began selling on October 1, so they're out there right now marking the product, so that we'll have that expense in our P&L in the selling expense line in from now on.

We've also repurpose some of our internal sales force to be BAQSIMI salespeople as well. So they're also on the job, but they're already doing this. They trained - all of these people were trained during the third quarter and ready to hit the ground running at the beginning of the fourth quarter. So that's definitely something that's ongoing.

On the glucagon injection, the segmented I think the glucagon injection sales about 31% in the retail space and about 69% in the nonretail space. So that's the different breakup there. And then what was the last question, shortage on - the shortage products. We see shortage products every single quarter for as long as we've been reporting our sales.

So somewhere, some products, somehow is always in need currently because of certain issues, we have a little more shortage products, and we're just happy that we planned accordingly and are able to meet those needs at this time..

Yes. And then just going back to elaborate on what Dan said, I've been at the company now 9.5 years and every quarter, we've had some benefit from other competitors having shortage problems.

And it's frequently the dextrose and the sodium bicarbonate, sometimes it's epinephrine, sometimes it's phytonadione, and sometimes it's lidocaine, sometimes it's atropine or calcium chloride. But there's always something that's going on in the market.

And because we've built that extra capacity about three, four years ago, we've been able to capitalize it on it over the last several years. And it's something that we did as a strategic decision. And it's working out well for us..

Great. Thanks for taking the questions..

Thank you. There are no further questions at this time. I would like to hand the floor back over to Mr. Dan Dischner for any closing comments..

I want to thank everyone for joining us today. We would like to characterize 2023 as a year of execution amongst our key high-margin products and the further enhancement of our company portfolio within the proprietary product segment, especially with BAQSIMI. We look forward to updating you all again. Have a great day..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..