Amphastar Pharmaceuticals, Inc. (NASDAQ:AMPH) Q4 2023 Earnings Call Transcript February 29, 2024
Amphastar Pharmaceuticals, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
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.
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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.
