Operator: Greetings, and welcome to the Amphastar Pharmaceuticals fourth quarter earnings 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 performance 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 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; Mr. Tony Marrs, Executive 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.

Dan Dischner: Thank you, Paul. Good afternoon, and thank you all for joining us today. On the call with me will be Bill Peters, CFO and Executive Vice President of Finance; and Tony Marrs, Executive Vice President of Regulatory Affairs and Clinical Operations. Throughout 2023, our strategic focus remained on driving momentum across our core high-margin offerings while bolstering our presence in the complex product segments of our portfolio. This includes our strategic acquisition of BAQSIMI and recent advancements in our interchangeable biosimilar development with our first BLA filing for insulin aspart or AMP-004. Earlier today, we announced financial results for the 2023 fiscal year highlighted by our net revenues, which have surged to an impressive $644 million, representing a substantial 29% increase annually.

This remarkable growth is further seen by a notable 41% increase in gross profit and a 51% increase in net income compared to the previous year. Our growth is attributed to our high-margin products, notably within our diabetes portfolio featuring glucagon injection and our recent addition of BAQSIMI alongside our other branded product, Primatene MIST. Moreover, our hospital and clinic use products, such as epinephrine, dextrose and sodium bicarbonate, continue to experience heightened demand driven by shortages amongst other suppliers. Looking towards 2024, we expect our glucagon injection, BAQSIMI and Primatene MIST products to continue to drive revenues, and we anticipate a sustained demand for our hospital and clinical use products. We anticipate potentially four product launches this year.

We are excited about our upcoming launch of REXTOVY, our intranasal naloxone, which uses our proprietary device; for AMP-015, or teriparatide. Our progress towards its GDUFA date remains on track for a second quarter. This filing is undergoing a preapproval inspection, marking a step forward in the regulatory process. As for AMP-002, ongoing dialogue with the agency in pursuit of a favorable determination indicates the agency’s commitment despite a delay in a GDUFA date. The market demand for this product remains robust, presenting an opportunity as the first generic contender in a market exceeding $500 million according to IQVIA. As for AMP-008, our first inhalation ANDA which received priority review status, we have a GDUFA goal date in the second quarter of this year.

And our AMP-007 inhalation ANDA, which was filed in the fourth quarter of 2023, we have a GDUFA date in the fourth quarter of 2024. There is a Paragraph IV certification with this ANDA. As for updates on BAQSIMI, the progress of the transition from Lilly continues as planned, and sales totaled $28.7 million in the fourth quarter, a figure slightly impacted by anticipated seasonality factors. As expected, the transfer is going smoothly as we took over U.S. marketing in October. We began shipping the 2-pack of BAQSIMI in the United States at the beginning of February and will start shipping the 1-pack in March. Looking forward, we remain optimistic about the trajectory of this product as we continue to take over worldwide distribution from Lilly throughout 2024.

Having discussed the main drivers of our revenue and the impact of market nuances on our quarterly performance, I want to pivot the discussion towards our pipeline and regulatory affairs concerning our proprietary biosimilar and complex generic products. Starting with our insulin aspart filing, we firmly believe our BLA application aimed at securing interchangeable status will not only mark a significant advancement for our diabetes portfolio, but will also demonstrate our commitment to leveraging our robust U.S.-based capabilities. This strategic move is poised to solidify our position as a frontrunner in being a proud U.S.-finished interchangeable biosimilar insulin manufacturer and supplier. This aspect sets us apart in an increasingly competitive landscape.

As the demand for more affordable options for diabetic patients continues to surge, we are poised to meet this need with our U.S. manufacturing site. Furthermore, we believe this milestone will pave the way for success of our other insulin products currently in development, including AMP-004m or insulin aspart M, AMP-005 recombinant human insulin and AMP-025 insulin degludec, which development continues to advance. Additionally, while on the topic of our diabetes pipeline, our GLP-1 ANDA in development known as AMP-018 remains on track for a filing this year. In reference to our proprietary product, intranasal epinephrine or AMP-019, this product continues to progress through the various development stages. Concluding my remarks and looking ahead, Amphastar has significant opportunities in front of us, supported by our sustained growth and strategic initiatives.

With the imminent launches of REXTOVY and promising candidates like teriparatide, AMP-002 and AMP-008, we are optimistic about our trajectory. Our annualized performance underscores the resilience and diversity of our portfolio, signaling growth potential. Moving forward, our dedication to growth is evident through our R&D advancements, which is the engine of our company, and our planned expansion efforts within our inhalation pipeline at our Armstrong facility, our continued API expansion at our ANP facility, which is anticipated to be completed this year, and our capacity expansion at our headquarters to capitalize on our insulin and complex injectable opportunities. I would like to turn the call over to our CFO and Executive Vice President of Finance, Bill Peters, to discuss the fourth quarter and year-end financial results.

A close-up of a woman's hand syringe containing a bio-pharmaceutical drug.

William Peters: Thank you, Dan. Sales for the fourth quarter of 2023 increased 32% from $178.1 million from $135 million in the fourth quarter of 2022. BAQSIMI contributed $22.5 million to net sales based on Eli Lilly’s sales of $37.6 million less cost of revenues and transition service fees of $15.2 million. Glucagon sales increased 70%, growing to $31.2 million from $18.3 million as the discontinuation of other injectable glucagon products from two suppliers at the end of 2022 positively impacted demand. Primatene MIST continued to show strong sales growth during the quarter, with sales up — sales of $24.5 million up 10% from $22.3 million in the prior year period. Epinephrine showed strong sales in the fourth quarter amid continued shortages by our competitors, growing to $24.6 million from $21.4 million in the previous year’s period.

Lidocaine showed growth of 13% to $15 million in the current quarter from $13.3 million in the fourth quarter of 2022 as we were able to increase capacity and decrease our back order. Other finished pharmaceutical product sales increased 6% to $35 million in the fourth quarter of 2023 compared to $33.1 million from 2022 as the company recorded stronger sales due to the launch of regadenoson earlier in 2023 and increased unit sales of atropine, calcium chloride, sodium bicarbonate and ganirelix, which were partially offset by lower sales of medroxyprogesterone as the company was in the process of transferring the API production for that product to its facility in China. Gross margins increased to 54% of revenues in the fourth quarter of 2023 from 53% of revenues in the fourth quarter of 2022 due to BAQSIMI sales, which are recorded net of Lilly’s expenses, and to strong sales of higher-margin products like glucagon and Primatene MIST.

These positives were partially offset by an inventory reserve of $3.6 million for insulin API due to our amended contract with MannKind, which delays required purchases. Selling, distribution and marketing expenses increased to $8.6 million from $5.5 million due to the expansion of our sales and marketing efforts for BAQSIMI as we began detailing the product at the beginning of October. General and administrative expenses increased to $13.1 million from $10.6 million in the prior year due to BAQSIMI-related expenses and higher personnel costs. Research and development expenditures increased in the quarter to $20.4 million from $17.2 million in the comparable quarter of 2023, primarily due to spending on materials and supplies for our inhalation programs.

Non-operating expense in the fourth quarter of 2023 was $12.6 million, primarily related to interest expense on the debt used to finance the BAQSIMI acquisition, foreign currency fluctuations and mark-to-market adjustments on our interest rate swaps. This compares to non-operating income of $3.4 million in the fourth quarter of 2022 due to a remeasurement gain on foreign currency. The tax rate this quarter was lower than usual due to a mix of onetime events combined with an updated review of our international tax structure. The company reported net income of $36.2 million or $0.68 per share, which was up 7% and 3%, respectively, compared to the previous year’s fourth quarter net income of $33.9 million or $0.66 per share. The company reported an adjusted net income of $46.9 million or $0.88 per share compared to an adjusted net income of approximately $37.6 million or $0.73 per share in the fourth quarter of the previous year.

Adjusted earnings exclude amortization, equity compensation, impairments of long-lived assets and onetime events. In the fourth quarter, we had cash flow provided by operations of approximately $23.9 million, and for the full year, cash flows from operations were $183.5 million. Let me review a few of the financial assumptions we are using as we look to 2024 and beyond. BAQSIMI will drive sales growth in the coming year. We anticipate continued unit growth in the high single-digit range. Average selling price will be impacted slightly due to the difference between the wholesaler fee structure for Amphastar compared to that of Eli Lilly. As for Primatene MIST, we are reiterating our forecast of hitting $100 million in sales this year. We are forecasting up to four product launches this year, including REXTOVY, which will be launched in the coming weeks.

We are also expecting approvals in 2024 for AMP-002, AMP-008 and teriparatide. We expect gross margins to be slightly lower primarily due to the shift in accounting for BAQSIMI from net economic benefit, in which sales are booked net of cost of goods sold, to typical revenue recognition with cost of goods sold, thus increasing both the sales and the cost of goods line on the income statement. We’ve already begun this transition in the United States, where we began shipping the 2-pack of BAQSIMI at the beginning of February, and we will begin shipping the 1-pack in March. Last week, we also started distributing BAQSIMI in Italy, the first country outside of the United States, with the remainder of foreign countries converting to our distribution network one by one throughout the remainder of 2024.

Our selling and marketing expenses will increase due to efforts related to BAQSIMI. We expect G&A spending to increase due to expenses associated with BAQSIMI and legal expenses associated with Paragraph IV patent challenges. Turning to research and development. We plan to ramp up spending on clinical trials, purchases of materials and supplies and FDA filing fees this year as we increase spending on our insulin portfolio, two inhalation candidates and our intranasal epinephrine product. We also anticipate a significant increase in capital spending this year as we continue our project to double the capacity for our inhalation products at our Armstrong facility to align with our pipeline development. Additionally, we plan to finish our insulin API production capacity expansion at our ANP facility in China this year.

At our Amphastar facility, we are in the process of an expansion project which will significantly increase the capacity of our Rancho Cucamonga complex as we look to major insulin and complex ingestible opportunities. Spending on this major project will begin this year, but will ramp up more significantly in 2025, reaching $40 million a year for three years. We plan to finance this expansion with cash flows from operations. We will use a portion of our cash this year to make the $125 million payment due to Lilly in June. At the same time, we plan to utilize our strong cash position to continue our stock buyback program. I’ll now turn the call back over to the operator for questions.

Operator: [Operator Instructions] Our first question is from Jason Gerberry with Bank of America.

Unidentified Analyst: This is Pawan on for Jason. Two questions from us. First, can you provide some color as to the line of sight into competitor supply shortages, namely as it pertains to the tailwind we’re seeing with generic epinephrine and a handful of products in the other finished pharmaceutical products segment? When can we expect that trend to reverse? And then second question on BAQSIMI growth. Are you on track for the transition from Lilly in 1Q in the U.S.? And do you expect any sort of headwind during this transition phase while your sales force gets more comfortable with getting out there and driving uptake with prescribers?

Dan Dischner: Yes. Thanks for the question. Yes, in regards to shortages, we always seem to come across this. There’s always a shortage of some products in this portfolio at one time or another. We don’t have any additional insight or color on the status of whether or not they’ll be back online or come back online, but what we can tell in the near future, at least for the next quarter or 2, that our — the demand for the products that we were talking about are still necessary for us to provide.

William Peters: And some of those products are supposed to be back online according to the communications that we get from the FDA. But the reality is, and I think what Dan was getting to, is that we’ve had these shortage issues for over 10 years now. Every quarter, there’s been some product or another where there’s been a shortage, and we’ve been able to be there and be able to supply our customers for that. And our customers have appreciated that and supported us because of that. I think the second question was BAQSIMI, and yes, as I said in my remarks, we started selling the 2-pack in the United States in February, and we’re going to start selling the 1-pack of BAQSIMI in the United States in March. Those — that’s already taken care of in Italy, already transferred in February as well. And the rest of the countries in Europe are going to move on a one-by-one basis. And the marketing program is going as planned in the United States.

Operator: Our next question is from Tim Chiang with Capital One.

Timothy Chiang: Bill, I had a question just on the net economic benefit figure for BAQSIMI just going forward. I know you’d indicated you expect sales to be up more than the single digits, single-digit growth. I mean is that sort of the net economic benefit figure that we should be modeling single-digit growth for going forward on a quarter-to-quarter basis?

William Peters: What I’m talking about is more of the actual sales level, like when I referred to BAQSIMI sales that Eli Lilly had in the quarter of — was it $37 million? So that’s the level that we’re looking at. And as I mentioned, in the United States, which makes up 80% of the sales of BAQSIMI, we transitioned to the 2-pack in February, and we’re planning to transition to the 1-pack in March. So the first quarter is going to be a mix of both the NEB and our regular sales for the U.S. and for Italy. The rest of the world will still remain on the NEB mostly until the third quarter. And that’s — we expect most of the transitions from most of the other countries to occur in the third quarter.

Timothy Chiang: I see. And then you mentioned higher sales and marketing expenses going forward. Is it too early to sort of peg just sort of a ballpark increase rate for selling and marketing expenses this year?

William Peters: Yes. So what we’ve said is that the increased SG&A costs are going to be similar to what Lilly spent for them, which is around 17% of revenue. So I think if you’re taking a look at something that’s in that neighborhood of BAQSIMI revenues, it’s going to be the range of that increase.

Timothy Chiang: Okay. And maybe just one pipeline question, which is AMP-015, teriparatide, obviously, there are some other existing generic companies in that market. I mean do you still think you’ll have the ability to get meaningful share in that market once you get approval sometime in the second quarter?

Dan Dischner: Yes. What we’ve said is that we sort of expect it to be as what you would expect from a generic that has multiple candidates, three other generics in the market, at the same time. So it’s a market opportunity for us. We still think that it’s significant. But yes, there are — we are — we do recognize that there are other people that got approval.

Operator: Our next question is from David Amsellem with Piper Sandler.

David Amsellem: So a few pipeline questions. AMP-002, what is underlying your confidence in getting it across the finish line? I notice the action date came and went and nothing has happened there. So I guess can you talk more about your interactions with the FDA? Or what just gives you confidence that you can get there? And then on the inhalation product 008, just want to clarify that it is indeed a first-to-market opportunity and how you’re thinking about that, and particularly to the extent it is a first-to-market opportunity, what are margins going to look like relative to the overall business? And then lastly, on the GLP-1. I guess I’ll just ask it straight up. Is it liraglutide or is it something else?

Tony Marrs: David, thanks for the question. For our AMP-002 product, we continue to have discussion with the agency. We view it as positive movement. They have not asked us for any new information or any new data as of yesterday or today as of that. So we just continue to engage with them and have discussions with them. We’re optimistic about it. We feel we understand what the issue is and just work with them as they try to overcome that issue. So from our perspective, we remain optimistic about it.

William Peters: And on the second one for AMP-008, we haven’t decided whether or not it’s a first-to-market. And for the third one, GLP is — we haven’t said what the molecule is, but it will be subject or likely to be subject to a Paragraph IV litigation, so after it’s filed, it’s likely to become known. And also as Dan had mentioned, our AMP-007 is also subject to Paragraph IV filing, so it’s possible that, that becomes known through that process at some point in the not-too-distant future as well.

David Amsellem: Okay. If I may ask a follow-up on 002. So you characterize it as an “issue”, but there’s no CRL here. So is that — should we interpret that as a good thing? Or this is just a complete one-off that sort of confounds any attempt at comparison?

Tony Marrs: Yes. I think maybe it’s just a one-off issue. We have what we believe is our — we have an understanding that we think is the issue that they’re trying to overcome. And we engage them on that and try to just keep pressure, keep discussion, keep engaging with them. But we think that it’s just the one issue that when they’re able to address that issue, that, that’s the only thing that is holding up this application. And once it’s relieved, then it should be very positive.

Operator: Our next question is from Glen Santangelo with Jefferies.

Glen Santangelo: Bill, I just want to follow up on a couple of modeling questions. I mean you gave some color on BAQSIMI, but I was kind of curious if you could maybe help us frame out 2024 a little bit more clearly in terms of this TSA that’s in place and how that’s going to phase in over the different countries. Because it’s obviously going to have a pretty material impact on your revenue and your expenses at the same time, and I just — any help you can sort of give us at a high level from a modeling perspective to think about that transition throughout 2024 would be helpful. And then maybe I have a follow-up.

William Peters: Sure. So it’s actually a little bit confusing to us, too. So — but here’s what I’ll say, that as I mentioned, 80% of the revenues from BAQSIMI come from the United States and part of the — we’re making that transition partway through the year. The way we’re budgeting this internally is we’re just assuming there is no NEB and we just go with the straight sales and the straight expenses because we know that the net income impact is going to be the same either way. So there’s going to be the same amount of money spent or the same amount of sales at the very top line that’s — and our revenues will be slightly different, but we know that the income will be — will end up being the same. So with 80% of the sales being transitioned in the first quarter, the way I would look at it is that half of the quarter is going to be NEB and half of it’s not, for 80% of it.

Then most of the rest of the countries will come online in the third quarter. But that’s only about 20% of the sales worldwide. So — and I don’t know, I could — feel free to answer some follow-up, because we don’t exactly know the exact date for most of these transitions either. Part of this has to do with inventory levels and winding down Lilly inventory labeling versus the Amphastar-labeled products and making sure that we have sufficient inventory of us to get launched. So it’s a little bit of a confusing process, so we don’t have exact dates either.

Glen Santangelo: All right. Well, listen, we can maybe explore a little bit more off-line. But maybe as my follow-up, I wanted to ask about glucagon. Obviously, you’ve been posting some pretty sizable growth in ’23 as a couple of those players exited the market late in ’22. Do the comps get much stiffer here now as you enter into the first quarter? And as I think about maybe growth slowing in that product and the four new product launches and sort of BAQSIMI sort of phasing in as we just discussed, you said we should expect gross margins to be trending down this year. Could you maybe just give us a little bit more color on the direction of glucagon and the impact of all these launches on gross margin?

William Peters: Yes. So glucagon has a couple of things. The comps are tougher now. So we’ve now posted the last big up quarter. So that’s the end of that trend. So what we do have though is our expectation is that with — for glucagon being — having now gone to 1/3 anti-hypoglycemic market and 2/3 of that is going to be for the diagnostic market, we see that anti-hypoglycemic market continuing to shrink as products like BAQSIMI, which we think are much better products for that, take more and more market share over the coming years. So we see that portion of the market declining. However, as we mentioned in our presentation, I think we mentioned briefly we are launching the glucagon product in Canada now. So some of the U.S. decline — the U.S. decline should be offset by the pickup in the Canadian business.

And the way to think about it is that Canada is about 10% of the United States business. So we’ll have that to offset some of the decline. So we’re not — and one of the reasons we didn’t mention glucagon as a growth item is just because of that — we think a little bit of decline in the U.S. offset by the Canada business. Then going back to the gross margins, on a GAAP basis, we will have cost of goods for BAQSIMI, which we didn’t have last year. So that’s the biggest impact. The second biggest impact is, going back to GAAP again, is we’ll have a full year of amortization of the intangible for BAQSIMI. Now that gets pulled out for the adjusted cost of goods, but that’s going to be in there for the GAAP cost of goods. And then overall, we’re probably not seeing prices increase across our product line very much, whereas we do have some cost pressures, so there’s going to be a slight decline for some of those products.

Now once we can launch some of these newer products, though, REXTOVY and AMP-002, 008 and teriparatide, all of those should have gross margins that are above the corporate average. So those will all help out pull that gross margin back up again. So there’s definitely different forces pulling both ways on that gross margin this year.

Operator: Our next question is from Serge Belanger with Needham and Company.

Serge Belanger: First question, can you just talk about your outlook for shortage opportunities this year? I guess whether the ones you’ve been able to capture will remain, and if you have the capacity to take on additional ones that may materialize? And then secondly, on teriparatide. What’s your level of confidence for approval at the second quarter GDUFA? And how does that market opportunity look like now that there’s been a couple of other approvals?

Dan Dischner: Yes. Back to the shortage opportunities, we anticipated these for a long time. It’s one of the reasons we invested in expanding our manufacturing capacity at IMS. It seems like one or several of these products every quarter have some shortage issue. We’re happy to pick it up. We’re happy to take it on and provide when we need to be. We don’t have — yes, I think Bill has mentioned that there is some that they may come back with one of these products, but they will probably create a shortage in another product somehow. So we always look at it as probably about $20 million is why — is what we forecasted with the expansion of our capacity. We’re definitely in that ballpark around that. And I think we’re still going to see similar scenarios in the future. That’s for teriparatide.

Tony Marrs: Yes, we remain confident in this, the CRL that we addressed, related mostly to a study which we performed, and we performed studies of that nature before. So we remain optimistic about the approval for that.

William Peters: And as far as the market opportunity goes, there are two other participants in that now to new generics. So the market is crowded, and definitely the price has come down pretty significantly and will come down even further with ours. But that said, it’s still a product that has a relatively high price and relatively high margin, so we still see this as a good opportunity, but not as big an opportunity as it seemed 6 months ago.

Operator: Thank you. There are no further questions at this time. I’d like to hand the floor back over to management for any closing comments.

Dan Dischner: I want to thank you all for joining us on today’s call. We’re excited about the opportunities ahead with the upcoming launches like REXTOVY and other potential launches with teriparatide, AMP-002 and AMP-008, and we look forward to updating you all in the next call. Have a great day.

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

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AMPHASTAR PHARMACEUTICALS INC

Q4 2023

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