Amneal Pharmaceuticals, Inc. (NYSE:AMRX) Q1 2024 Earnings Call Transcript May 3, 2024
Amneal Pharmaceuticals, Inc. misses on earnings expectations. Reported EPS is $-0.29824 EPS, expectations were $0.09. Amneal 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: Good morning and welcome to Amneal Pharmaceuticals First Quarter 2024 Earnings Call. I will 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 first quarter 2024 earnings call. Today, we issued a press release reporting Q1 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 for factors that may impact future performance. We also discuss non-GAAP measures. Information on use of these measures and reconciliations to GAAP are in the earnings release and 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; and Jason Daly, Chief Legal Officer. I will now hand the call over to Chirag.
Chirag Patel: Thank you, Tony. Good morning to everyone. Our first quarter performance was outstanding. Record Q1 revenues of $659 million grew 18%. For the first time, all three of our segments generated double-digit growth in the same quarter. Q1 adjusted EBITDA of $152 million grew by 31% as strong execution continues to drive sustainably higher levels of profits. As momentum builds across Amneal, we are confident in our ability to achieve our financial commitments for 2024 and beyond. Our strategic vision for Amneal is to be a global, diversified pharmaceutical company that provides patients, providers, and payers with access to high quality, affordable, and essential medicines. In the United States, Amneal fills approximately 175 million prescriptions per year.
In retail pharmacies, we provide complex genetics medicines such as transdermals, topicals, oral solids, and ophthalmics. For hospitals and clinics, we supply important acute care injectables where there are chronic shortages. In biosimilars, we are expanding access to oncology therapies and adding more to our portfolio. In Specialty, our innovative medicines advance the standard of care, such as in Parkinson’s disease. In our AvKARE distribution business, we provide military veterans with access to high quality medicines. Globally, we are addressing unmet health care needs in developing and developed countries. As we continue to grow larger, Amneal is leading a new era of affordable medicines and having a significant societal impact. Nowhere in our commitment to this mission more evident than our recent approval of naloxone.
Opioid overdose remains a US public health care emergency. We are expanding access to this critical rescue medicine as an OTC product at pharmacies and for the public interest through states and cities across the United States. We were pleased to finalize our partnership with the State of California with more to come. We are so proud that this essential life-saving medicine is made in America and manufactured here in New Jersey by Amneal. Let me now walk through our business at a high level where we remain confident in our strategy, our ability to execute well and drive growth, and the opportunity to have a tremendous impact. First, our affordable medicines business, which is our Generics segment, has consistently grown each year since 2019.
We are seeing this growth accelerate in 2024, driven by our diverse portfolio of retail, injectables, and biosimilars. Amneal has a track record of quality, innovation, and customer service. Those hallmarks continue to resonate in the US pharmaceutical market, plagued by supply shortages with perpetual demand for high quality medicines. The durability of our complex portfolio and regular cadence of new launches each year position Amneal well to continue expanding our leadership position in affordable medicines and driving sustainable long term growth. In the retail pharmaceutical market, our portfolio of around 240 medicines is complex and diversified. With industry-wide supply chain disruption due to site inspections and manufacturer discontinuations, price erosion in the United States generic industry remains lower than it has been in several years.
In injectables, we are expanding our portfolio and have a significant capacity to help address drug shortages in hospitals and clinics. Our injectable strategy focuses on providing unique, ready to use products like our recent launch of PEMRYDI RTU for the treatment of certain lung cancers. Across retail and injectables, we are on track to launch over 30 new products this year, following our record 39 new launches last year. In biosimilars, we are seeing the next wave of affordable medicines. From 2024 to 2028, an estimated $192 billion in annual branded biologics value will lose exclusivity. We expect most biosimilar markets to be less competitive, given the inherent complexities of these molecules and the investment required to bring them to market.
Adoption rates for early biosimilars are now 80%, particularly in oncology where we operate. Our excellent commercial team is driving strong adoption at both community oncology and hospital integrated delivery networks. That, coupled with our pipeline and with trusted partners, gives us confidence in continued momentum. We are well on our way to achieving over $125 million of revenue in 2024, with $90 million in biosimilars revenue over the last 12 months. We look to in-license one to two biosimilars each year or more and to be vertically integrated over time. Internationally, we are continuing to expand our reach and build a strong foundation. This is happening most notably in India, where we are building a customized portfolio of therapies for unmet needs like critical care, ophthalmology, oncology and diagnostics.
In other geographies, we are working with partners to register and commercialize select and new products. We expect international expansion will add $5,200 million revenues by 2027 and rapidly scale up to that. Next, in our Specialty business, we continue to make good progress with our key neurology and endocrinology branded products, as revenues are growing double digits. In Q1, we successfully launched Ongentys, an adjunctive therapy for Parkinson’s disease, which we recently in-licensed to our specialty portfolio. Next up is IPX203, with our action date is on August 7. Carbidopa/levodopa has been the main therapy for Parkinson’s disease for over five decades. We believe IPX203 meaningfully advances that standard of care with a broad application for all patients.
In our AvKARE distribution business, we have more than doubled revenues and profits since our acquisition in 2020. We are expanding all three channels, distribution, government and unit dose, driven by new products from suppliers, including Amneal. We now expect over $650 million in our AvKARE revenue next year, as we expect this to remain a high growth business. In short, we’re starting 2024 with very strong momentum. Our diversified growth profile is sustainable and our financial performance is accelerating remarkably. I’ll now hand it to Chintu.
Chintu Patel: Good morning, everyone. Thank you, Chirag, and thank you to the global Amneal family who works hard every day to help make healthy possible. I will discuss how our core strengths in both operations and innovation provides us with a long runway for sustainable top and bottom line growth. First, quality has been at the center of everything we do since our founding in 2002. We continue to invest in quality through automation and AI technologies to advance our global infrastructure. Our success is also driven by our commitment to operational excellence, ongoing efficiency programs and a robust supply chain. All of our plans are FDA approved. In each plant, we are driving optimization and efficiency programs to maintain our exceptional customer service levels and gain cost efficiencies.
Across our supply chain, we are focused on what we call the three Rs – redundancy, resiliency and reliability. In particular, drug shortages are an ongoing challenge in the market. The US FDA released 114 drug shortages, including 75 injectables. At Amneal, we look to be part of the solution. We have about 20 commercial and pipeline injectables that are on the shortage list, including oncology medicines. We have also tripled our injectables manufacturing capacity in recent years at multiple plants. We continue to prioritize efforts to help alleviate shortages in the market, particularly for injectables. Second, our track record in innovation is very strong, and we are off to a great start in 2024 with five key complex product launches, naloxone nasal spray, PEMRYDI RTU, carvedilol ER, FML eye drops, and generic Ciprodex.
We currently have 86 new products, ANDAs pending, of which 63 are non-oral solids. In addition, we have 67 pipeline products, 94% of which are non-oral solids. With our ongoing shift towards complex innovations, we have improved our R&D efficiencies and are spending less internally, which allows us to allocate more investment towards external R&D over time. We were so proud of last week’s approval of Naloxone nasal spray, a life-saving treatment for drug overdoses. This is a tremendous milestone for the entire team at Amneal. The product is now available through retail pharmacies as an OTC product and to states and counties across the US. We have built robust manufacturing capacity to make up to 10 million two-packs starting next year. We are significantly expanding access to help address the opioid crisis that impacts so many Americans.
In injectables, we expect to launch over 10 new products this year, following the 14 new injectables we launched in 2023. Our R&D focus is on oncology, ready-to-use bags, and long-acting injectables. For years, we have been meeting with clinicians to understand their needs. This emphasis on the voice of the customer has allowed us to develop unique presentations of existing products. Last month, we launched our first 505(b)(2) injectable in PEMRYDI RTU. This new ready-to-use presentation of a frequently used oncology medicine can improve efficiency and reduce medication error. We look to launch two to three 505(b)(2) injectables each year with approximately 15 in development. Next, biosimilars continue to be a key area of strategic focus. Building on the success of our first three commercial products, we in-licensed two denosumab biosimilar candidates for Prolia and XGEVA in Q4.
Those programs continue to progress with our development partner, mAbxience. In addition, we are pleased to share that, in Q1, we in-licensed two additional pegfilgrastim pipeline programs, on-body injector and pre-filled auto-injector. Today, approximately 30% to 40% of the pegfilgrastim market is on-body and fewer competitors are expected in this space. In total, we have three commercial biosimilars and four more under development, all in oncology. As we establish Amneal as a key biosimilar player, we look to add more opportunistic biosimilar molecules to our pipeline over time. Internationally, we have distribution partners in place for approximately 40 emerging market countries including strong markets like Saudi Arabia, Mexico, South Africa, and the Philippines.
We are registering products globally, including in Europe, Canada, China, and emerging markets. In specialty, we are continuously evolving our R&D efforts to move up the value chain. First, our IPX203 complete response resubmission is under review. Also, we are advancing our DHE auto-injector program for migraine and cluster headache. We transfer production internally and are excited to complete our application later this year, which puts us in a good position to launch in the first half of next year, once approved. In addition, we continue to advance our pipeline with K-114 for endocrinology and other programs. We look to launch one to two specialty products each year going forward. Overall, Amneal is expanding and growing in the key areas of medicine, complex generics, injectables, biosimilars, international distribution and specialty branding.
We are so deeply passionate about our company’s mission and purpose and the good work that remains ahead. I will now pass it over to Tasos.
Tasos Konidaris: Thank you, Chintu. And good morning. At a high level, our diversified business is driving sustainable higher levels of revenues and profits and continued deleveraging. Our first quarter results were excellent with total net revenue of $659 million, up 18%. Q1 generics net revenue of $391 million grew 14%, driven by our diverse portfolio of complex products. Biosimilars generated $27 million in revenue, driven by ALYMSYS. New products launched in 2023 and 2024 added $19 million to Q1 revenue growth. In addition, the remaining base portfolio continued to grow due to the relevancy of our products, strong market demand, less pricing pressure and Amneal’s high quality supply chain. Q1 Specialty net revenues of $105 million grew 15%, driven by double-digit growth of our key branded products, plus the recent launch of ONGENTYS in March.
Q1 AvKARE net revenues of $163 million grew 33%, reflecting continued strong growth across all three customer channels, driven by new products. Our Q1 adjusted gross margins of 42% increased 250 basis points year-over-year and were ahead of our expectations. Strong gross margins were driven by the favorable mix of revenues that reflected the complexity of our portfolio combined with higher fixed overhead absorption. Q1 adjusted EBITDA of $152 million grew 31%, reflecting robust revenue growth, higher gross margins, tight management of operating expenses and a favorable comparison to prior year. Our leveraged growth profile in Q1 is a blueprint for sustainable higher P&L results for the company going forward. Q1 adjusted EPS of $0.14 grew 17%, driven by higher adjusted EBITDA, partially offset by interest costs.
As a reminder, we have made substantial progress over the last four years driving accelerated top and bottom line growth, reducing leverage and resolving legacy matters. As a result, our annual adjusted EBITDA has increased from $339 million in 2019 to $594 million over the last 12 months ended Q1 2024. Also, net leverage has declined from 7.4 times in 2019 to 4.6 times now. As I mentioned earlier, settling legacy legal matters has been a priority of ours. Two years ago, we settled upon our ER litigation and we just made our final payment in Q1. In addition, today, we announced that we reached agreement in principle for a nationwide opioid settlement payable over 10 years that resolves substantially all opioid litigation. Accordingly, in the first quarter, we recorded a pre-tax charge of $94 million, which reflects cash payments in the supply of naloxone nasal spray bought over the next 10 years.
As a result, we have now substantially resolved these two legacy legal matters, which removes these overhangs from the company. Given the strong start of the year and our improved visibility, including the recent naloxone approval, we’re targeting the higher end of our full year outlook. As a reminder, we expect total net revenue of $2.550 billion to $2.650 billion and adjusted EBITDA of $580 million to $620 million, which reflects high-single-digit growth on both top and bottom line. With that, let me turn the call over to Chirag.
Chirag Patel : Thank you, Tasos. Amneal’s Q1 performance was excellent across the board and reflects our continued upward trajectory in driving higher financial results over the years. We are so excited about the opportunities ahead. Let’s now open the call for Q&A, Anthony.
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