Amneal Pharmaceuticals, Inc. (NYSE:AMRX) Q4 2023 Earnings Call Transcript

Amneal Pharmaceuticals, Inc. (NYSE:AMRX) Q4 2023 Earnings Call Transcript March 1, 2024

Amneal Pharmaceuticals, Inc. beats earnings expectations. Reported EPS is $0.14, expectations were $0.07. AMRX  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and welcome to Amneal Pharmaceuticals Fourth Quarter and Full-Year 2013 Earnings Call. I’ll now turn the call over to Amneal’s Head of Investor Relations, Tony DiMeo.

Tony DiMeo: Good morning, and thank you for joining Amneal Pharmaceuticals Fourth Quarter 2023 Earnings Call. Today, we issued a press release reporting Q4 and full-year 2023 results. The earnings 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 factors that may impact our future performance. We also discuss non-GAAP measures. Information on 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 hand the call over to Chirag.

Chirag Patel: Thank you, Tony. Good morning to everyone on the call. Amneal delivered solid financial performance in 2023, as revenues grew 8% and adjusted EBITDA grew 9%. We raised our guidance twice during the year and delivered on it, driven by strong execution and the robust performance across our diversified business. We expect our momentum will continue in 2024 and beyond. Amneal’s core strengths lie in our broad-based business platform and our team, both of which are dedicated to providing access to high quality, affordable, essential medicines. Since Chintu and I returned to the company in 2019, we have been implementing a thoughtful and deliberate strategy to transform Amneal into a leading global diversified pharmaceutical company.

With a global aging population and ongoing supply challenges and shortages, our capabilities have never been more important and more in need. In our affordable medicines business, which is our Generics segment, we have been building our leadership position since Amneal’s inception. We have decades-long reputation for industry-leading innovation, quality, and customer service levels. Our strategy focuses on expanding our portfolio and driving growth with complex high-value products across retail, injectables, and biosimilars. Our affordable medicines business has consistently grown each year since 2019, and we have launched more complex retail and injectable innovations in the United States than anyone else since then. In 2023, we set a new record number of 39 new retail and injectable products launched.

In retail market, our commercial portfolio of over 230 medicines is complex and diversified, with less price erosion and more stability. Overall, the US Generics industry appears to have turned the corner after years of higher price erosion, as many recognize the importance of the sector responsible for over 90% of US medicines. In injectables, we have an expanding portfolio, significant capacity, and the capabilities needed to scale this business. We are helping address chronic shortages across hospitals and clinics, and are providing ready-to-use injectables that reduce errors and improve the efficiency of care. The next wave of affordable medicines is biosimilars, which has an estimated $141 billion in branded products facing loss of exclusivity between 2023 and 2027.

We successfully entered this new market with over three oncology biosimilars. That performance exceeded our revenue expectations in 2023, driven by an exceptional commercial execution in that first year. In Q4, we also expanded our biosimilars portfolio by adding two more oncology molecules to our pipeline. Given the market growth and importance of biosimilars, this is a key area of strategic focus and investment for Amneal. We look to further build out biosimilars pipeline over time. Internationally, we are expanding our reach. In India, we are building a customized portfolio focused on key local needs. In other geographies, we’re actively working with partners to register and commercialize Amneal products. In our specialty branded business, we continue to provide differentiated medicines.

We are focused primarily on neurology and endocrinology with our key branded products. In Q4, we expanded with the addition of Ongentys, an adjunctive therapy for Parkinson’s. Next, we are so excited about the potential approval and launch of IPX203 this year, which we believe meaningfully advances the standard of care for all Parkinson’s patients. In our AvKARE distribution business, which we acquired in 2020, the business has about doubled in size in four years. We’re launching new products across three channels, distribution, government, and unit dose. In short, we are starting 2024 with remarkable momentum. We believe our durable broad-based top and bottom-line growth profile is sustainable and accelerating. As Amnealians, we wake up every day thinking about what we can accomplish next.

We have more shots on goal than ever before. This includes key medicines and new markets where success represents $100 million or more in potential revenues each. Amneal is on an upward trajectory and we are so excited for what’s ahead. I’ll now hand it over to my younger brother, Chintu.

Chintu Patel: Thank you. Good morning, everyone. Thank you, Chirag, and thank you to the global Amneal family who work hard every day to help make healthy possible. As Chirag mentioned, we are executing well on our strategy to be an innovative global pharmaceuticals company capable of driving sustainable growth in the key areas of medicine. I will touch on how our core competencies in operations and R&D continue to drive our company success. First, Amneal has one of the best service levels in the industry, with quality at the center of everything we do. Our success is driven by our operational excellence, robust supply chain, and great commercial team. We are driving operational efficiencies to lower cost and expand our margins.

At Amneal, we have long been focused on global supply chain security and resilience as we work proactively to meet market needs, given the dynamic and ever-changing nature of our business. Over the last few years, we have invested substantial resources to triple our injectables capacity to scale our business and help address market shortages. As you know, the US pharmaceutical market is plagued by chronic drug shortages, including critical oncology therapies. There are several contributing factors, including market price being generally too low for some products to be produced, and contract commitment being too short term in the retail market. As of February, the US FDA listed 121 products in shortages, including 78 injectables, about 20 of our commercial and pipeline injectables products around the US FDA shortage list.

We continue to work closely with the FDA to help alleviate drug shortages in the US. We also remain committed to maintaining our stellar quality track record. Since 2005, the US FDA has conducted over 100 successful inspections with either no or only minor observations. Now, all of our manufacturing locations are FDA-approved for commercial products, including our inhalation plant in Ireland. As the standards of quality continue to increase, we continue to invest in quality and infrastructure. Our high-quality global operations are at scale to support sustainable long-term growth. Second, innovation is the lifeblood of any growing pharmaceuticals company, and that’s certainly the case for Amneal. In 2023, we launched a record 39 new retail and injectables products.

Looking forward, the pipeline is deep, with 160 products pending approval or in development. We have 88 ANDAs pending, of which 64% are non-oral solids, primarily injectables, ophthalmics, and inhalation products. Further, we have 72 pipeline products, of which now 94% are non-oral solids. Accordingly, we expect over 30 new launches in 2024. Also, approximately 45% of pending ANDAs and over 60% of our pipeline are expected to be first to market, first to file, or 505(b)(2) products. As we shift towards complex innovations, we have also been very disciplined by doing more with less spend, and have improved the efficiency of our R&D operations. This also allows us to allocate more investment towards external R&D over time. Our key area of R&D focus remains injectables.

In 2023, we launched 40 new injectables, which sets up well for revenue acceleration in 2024 and beyond. We are increasingly focusing our R&D on oncology, ready-to-use bags and long-acting injectables. We look to launch two to three high-value 505(b)(2) injectables each year going forward, starting with the upcoming launch of PEMRYDI RTU in April. In addition, our filing for risperidone was recently accepted by the FDA. We have more products like these in the advanced stage of development. Outside injectables, another complex area we are focusing our R&D effort is inhalation. We are advancing a number of inhalation drug delivery devices, including metered-dose inhalers and respimat products, which we believe will drive sustainable long-term growth.

The next key catalyst is Naloxone nasal spray, which is an essential life-saving drug. Our facility in Branchburg, New Jersey, has been repurposed for making this product. Our goal date is soon and we are ready to go. This product will be available over the counter and to States and counties around the US to help improve access to these critical overdose rescue therapy. Next, we are very excited about the future of biosimilars and pleased with the commercial success of our first three products. This is a key area of growth for us and to build on that initial success, we added two more biosimilars to our pipeline in 2023, and we look to add two to three more to our pipeline in 2024. In international, we filed about 60 dossiers in emerging markets in 2023, and we plan to file 150 to 200 more in Europe and the rest of the world in 2024.

In specialty, we are continuously evolving our R&D efforts to move up the value chain, just like in Generics. On IPX203, we have completed one additional study with very good results and made our complete response resubmission in early February. We look forward to launching IPX203 in Q3 pending FDA approval. We seek to provide access to IPX203 for the over 10 million global Parkinson’s patients, and are pleased to recently sign licensing agreements to bring IPX203 to Europe, Canada, and Latin America. Next, our DHE autoinjector for migraine and cluster headache is set for Q1 2025 launch, as site transfer to Amneal manufacturing is underway now. We continue to look to add to our specialty pipeline, particularly in new key areas of neurology and endocrinology.

As Chirag mentioned, our hard work continues in 2024 as we build on the success of 2023 to bring Amneal to new heights. As founders and CEOs, we are extremely passionate about our company’s mission and the shared value we can create for all our stakeholders. I will now pass it over to Tasos.

Tasos Konidaris : Thank you, Chintu, and good morning, everyone. As a reminder, the four pillars of value creation at Amneal are diversification, financial growth, cash generation, and deleveraging. I’m extremely pleased with our performance across all four pillars in 2023 and excited about 2024 and beyond. Let me first start with diversification, where Amneal has made remarkable progress, driven by AvKARE, strong cadence of new more complex products, growth of our specialty brands, and expanding in new areas such as biosimilars. As a tangible result, our oral solid Generics now account for 25% of total revenues compared to 53% in 2019. Also, our Generics account for 61% of total revenue compared to 80% in 2019. We expect our diversification to grow over time, which bodes well for consistent financial performance.

Let me now discuss our second and third pillars of value creation, where financial performance and cost generation was undoubtedly exceptional in 2023. All business units grew their respective businesses to deliver record levels of financial results, and substantially exceeded every guidance metric we shared with you over the course of last year. Let me first start with our Q4 results, where we recorded strong revenue, $617 million. Generics net revenue was $363 million, down 9% due to year-end timing of orders. Products launched in 2022, 2023 and biosimilars, continue to perform very well and added $34 million in Q4. Q4 specialty net revenue of $104 million grew 2%, driven by key brand products, while AvKARE net revenues of $149 million grew 38%, reflecting strong growth across all of the three customer channels.

Q4 adjusted EBITDA of $142 million compares to $154 million in the prior year quarter, driven by investments in R&D and commercial to drive future growth. Adjusted EBITDA in Q4 was ahead of our average quarterly 2023 level, as well as our expectations, which is why we exceeded our annual adjusted EBITDA guidance. Q4 EPS of $0.14 compares to $0.23 in the prior year quarter, mostly driven by higher interest costs. From an operating cashflow perspective, in the fourth quarter of 2023, we generated $136 million compared to negative $23 million in the prior year quarter. The strong growth was well ahead of our expectations and reflects both the strength of our underlying business, as well as timing benefits related to collections of our accounts receivable.

Let me now discuss our full-year 2023 performance, where total net revenue grew to a record level of $2.4 billion, up $181 million or 8%. Generics net revenue of $.1471 billion grew 3%. Products launched in 2022, 2023, and biosimilars, added $130 million or 9% of growth. The remaining product portfolio continues to perform well due to the relevancy of our products, strong market demand, and Amneal’s high quality supply chain. Specialty net revenue for the year was $390 million and grew 4%, driven by key branding products. AvKARE net revenue for the year was $532 million and grew 31%, driven by new product launches and strong commercial execution across all its three customer channels. Full-year adjusted EBITDA was $558 million and grew 9%, well ahead of our original 2023 guidance of $500 million to $530 million, as well as the guidance we provided in November, which was between $540 million and $550 million.

Our growth was driven by strong operating leverage, favorable R&D spend, and growth in our commercial expenses. Full-year 2023 adjusted EPS of $0.64 declined 6% as higher interest expense offset adjusted EBITDA growth. Nevertheless, our EPS performance, again, substantially exceeded all prior guidance we had provided. Operating cashflow in 2023 was $346 million compared to $65 million in 2022. Our 2023 performance was well ahead of our expectations, and benefited from strong collections in December. It is worth noting that our 2023 operating cashflow of $346 million, also includes $86 million in legal costs, mostly related to the settlement of the Opana ER case. At the end of 2023, we only had one last remaining payment related to Opana IER for approximately $52 million, which bodes well for future cash generation.

Let me now turn to our 2024 guidance where we expect another year of strong growth. On the top-line, we expect total company net revenue of $2.550 billion to $2.650 billion, reflecting high single-digit growth driven by robust growth in all of our three segments. First, in Generics, we expect high single-digit growth compared to 3% in 2023 due to three key dynamics. Number one, biosimilars should more than double to over $125 million in 2024 compared to $66 million in 2023. Our three oncology-focused products continue to drive substantial value to both payers and patients. Number two, new product launches, many of which have already been approved and launched, should add over $100 million. In addition, we’re optimistic on the potential FDA approval of Naloxone, which could add over $30 million in 2024.

Three, as we always do, we expect the competitive nature of Generics to persist and the strength of Amneal’s R&D, superb quality, and reliable supply chain to be competitive advantages. Second, on the specialty business, we expect low double-digit growth compared to 4% in 2023, driven by our key branded products. And in addition, Ongentys in our Parkinson’s franchise. We look forward to the potential approval of IPX203, but we have not included any revenues at this point as to ensure proper conservatism. Finally, on AvKARE, we expect double-digit top-line growth, albeit some slowdown from the 31% growth in 2023, driven by continued broad-based trend across all channels and a number of new launches. Moving down the P&L, we expect 2024 adjusted EBITDA of $580 million to $620 million, reflecting continued high single-digit growth and higher investments in R&D to drive the numerous projects in our pipeline.

From an adjusted EPS perspective, we expect a range between $0.53 and $0.63, driven by higher interest costs, partially offset by higher adjusted EBITDA. On the cost side, we expect operating cash flow, excluding legal settlements, between $260 million and $300 million. The strong cost generation reflects higher EBITDA, typical accounts receivable collection patterns, and higher interest expense. From a capital expenditure perspective, we expect $60 million to $70 million a year. Finally, we continue to make solid progress on our fourth pillar of value creation, deleveraging. Net leverage has come down remarkably from 7.4x in 2019 to 4.8x at the end of 2023. For 2024, we expect to pay down between $100 million and $200 million of gross debt and reduce net leverage closer to 4x by the end of 2024, below 4x in 2025, and then below 3x soon thereafter.

With that, let me turn the call over to Chirag.

Chirag Patel: Thank you, Tasos. In summary, 2023 was a very good year across the board for Amneal. Looking forward, we believe 2024 will be even better as our future is so bright. Let’s now open the call for Q&A.

See also 11 Fastest Declining Cities in Texas and 15 Countries with Most Car Accidents per Capita.

Q&A Session

Operator: Thank you. [Operator Instructions] First question comes from Nathan Rich with Goldman Sachs. Your line is open. Please go ahead.

Nathan Rich: Great. Good morning and congrats on the strong year and for all the details that you shared on the call this morning. I wanted to start with the guidance for the specialty segment in 2024. It seems like you’re expecting a nice acceleration in growth. I think, Tasos, if I heard you correctly, it doesn’t include IPX203. So, could you maybe just talk about what’s driving the growth there, how much is maybe coming from Ongentys and adding that into the portfolio? And then bigger picture, could you maybe just talk about the initial feedback of adding Ongentys in, and can you talk about what the commercial strategy will be, assuming IPX203 gets approved later in the year, and how that’ll help your market position relative to what the experience has been with Rytary.

Tasos Konidaris: Hi, Nate, I’ll take the first part as to kind of what’s driving the accelerated growth, and I think it just really comes across Unithroid just continues to be doing incredibly well, growing at double-digit rates, number one. Rytary, we aligned our field for commercial – our field forces last year. We have a new leader in that market and just continues to drive high single-digit prescription growth. And then finally, as you correctly pointed out, Ongentys. So, this year in 2024, we have a full year of revenues. That should contribute between $25 million to $30 million of incremental revenue. So, it’s really kind of driven across all of those three key branded products. And as you mentioned correctly, we don’t have – we have not built the – any potential IPX revenues in our guidance. Hopefully, we’ll get approval later on this year, and we should be in a position to add those in the latter part of the year.

Chirag Patel: Yes, and Nate, this is Chirag. Just taking it further, how Ongentys has worked out really well for us. It’s a comp inhibitor. It’s complementary with CD/LD. It improves the off time for certain patients. So, excellent start of transitioning the product from Neurocrine to us and a great partnership with BIAL, the Portuguese innovative company. And the sales force already relaunched at Amneal last week, and very excited to complement Ongentys with currently Rytary, and going forward with IPX203. IPX203, we’re also ready to launch, and as you know, that’s completely differentiated product, then Rytary and obviously much better than the IR with the 1.55 hours of good on-time per dose, which is significant. And 95% of Parkinson’s patients still take IR product.

Only 5% are on Rytary. So, we’re going on a broad-based strategy to general neurologists. We have target lists. We’ve been in contact with payers for a while now, and we’re ready to have a successful launch. With all the learnings of last seven years with Rytary, our teams are very excited and we expect the conversion of these IR to IPX203 and complementing with Ongentys to be a much higher percentages than Rytary. And globally also, as my brother mentioned, we have licensed out the products in Europe, in South America, in Canada, soon to be in China, Japan, India. India we’ll be marketing by ourselves. So, Parkinson’s patients globally should be using latest and greatest formulation and technology and have a better life every day than use 35, 40 years old technology of IR and go through the ups and downs of daily life, and it helps their caretakers as well.

So, very excited on specialty growth. And then it continues in 2025 with DHE auto injector launch and more to come after that.

Nathan Rich: Great. And then maybe just a kind of higher-level question. Looking at the guidance for this year, top-line came in stronger. I think margins are going to be pretty consistent year-over-year, maybe down slightly. I guess I’d just be curious, as we think about the view kind of three to five years out, how do you see the margin profile of the business evolving as you bring a lot of these new products to market? And once we start to see that, especially on the specialty side, do you – I would just be curious to get your view on where you think margins for the business can go longer-term. Thank you.

Tasos Konidaris: Yes, I can take that. As you said, margins have been pretty consistent, number one, the last few years. So, and what we’ve been able to do is really focus on incremental revenues, on incremental EBITDA, right, and transition the business to a more complex, more durable cash-generating business. So, our focus has been primarily on driving incremental top-line, bottom-line and cash. Over the course of time, our profitability profile should increase. It’ll increase for a couple of reasons. Number one is, as our generics portfolio continues to evolve into the world of the more complex businesses, right, those businesses have higher levels of profitability, number one. The same thing, over the last couple of years, in 2024, on the specialty side, we continue to build out those infrastructures, those costs will be behind us. So, over the course of time, when you look at the EBITDA profile and the gross margin profile, should continue to grow over time.

Chirag Patel: And just to add, Nathan, our injectable plants are underutilized as we are launching new products. So, in coming years, both our new injectable facilities will be totally utilized, plus our inhalation plant in Europe, where we don’t have a commercial product, we expect to have a launch by end of the year, early next year. I think that will also improve the margin. So, I think as Tasos mentioned many, many complex product and the plan to do utilization in certain complex area will improve the margins in coming years.

Tasos Konidaris: Yes. And more specialty revenues as well.

Nathan Rich: Great. That’s helpful. Thanks very much.

Operator: We now turn to David Amsellem with Piper Sandler. Your line is open. Please go ahead.