Third Quarter Earnings Call - AMPHASTAR PHARMACEUTICALS INC

Financial Performance:

• Q3 2026 revenue reached a record $207.6 million, an 8% year-over-year increase and 13% sequential growth.
• Gross margin decreased to 48% from 51% in the prior year period, driven primarily by lower net pricing on Baximi, Glucagon, and epinephrine products, alongside $2–$3 million in higher manufacturing expenses related to IMS facility remediation.
• Net income increased to $37.8 million ($0.87/share) compared to $17.4 million ($0.37/share) in Q3 2025; adjusted net income rose to $49.3 million ($1.14/share) from $44.7 million ($0.93/share).
• Cash flow from operations was approximately $43.3 million.
• Selling, distribution, and marketing expenses rose 4% to $11.9 million due to higher freight costs; general and administrative expenses dropped 57% to $16.8 million as the prior year included a one-time legal settlement.
• R&D expenses decreased 10% to $20.1 million, primarily due to a one-time licensing payment in the prior year, though current expenses for insulin and proprietary pipelines remain elevated.

Guidance and Future Outlook:

• Management expects Q4 2026 sales to grow in the high single-digit range year-over-year, incorporating a modest slowdown in IMS sales to prioritize quality remediation.
• Revenue growth for 2027 is anticipated to be driven by strong performance from Baximi, Primatine Mist, and the annualized contribution of Ipratropium Bromide.
• The company forecasts gross margin recovery in the future, contingent on increased volumes to utilize underutilized capacity at A&P and IMS facilities.
• No specific full-year 2027 financial guidance was provided, but the company remains on track for the 2027 commercial launch of its insulin aspart biosimilar (AMP-303/AMP-305 depending on classification).

Business Segments and Product Lines:

• Commercial Portfolio: Baximi (vaccine) sales hit $58.8 million (+10%); Primatine Mist sales reached $31.5 million (+9%); Ipratropium bromide (launched April 2026) generated $6.6 million; Teriparatide (launched Dec 2025) contributed $6.4 million.
• Product Variance: Lidocaine sales surged 29% to $16.6 million due to competitor supply shortages; Glucagon sales fell 37% to $8.6 million due to increased competition; Epinephrine sales declined 19% to $15.3 million due to IMS facility remediation delays.
• Pipeline Progress: AMP-101 (intranasal epinephrine) refined Phase I design; AMP-109 (oncology peptide) advanced non-clinical studies; AMP-110 (synthetic corticotropin) and AMP-107 (ophthalmic) remain in early development; AMP-118 (GLP-1 generic) faces a competitive landscape with limited opportunity.
• Manufacturing: IMS facility remediation efforts are ongoing; backlog for IMS products stands at $12.5 million due to increased quality controls.

Market and Competitive Landscape:

• Baximi growth was driven by unit volumes, partially offset by lower net pricing from higher rebates and 340B pharmacy discounts; duplicate 340B discount impact was reduced significantly compared to prior quarters but remains a headwind.
• The company maintains a U.S.-based, vertically integrated manufacturing footprint as a competitive advantage.
• Competition in the Glucagon and GLP-1 generic markets has intensified, negatively impacting sales for established products.
• Ipratropium bromide is currently the only generic in the market, with management expecting continued market share growth.

Risks and Challenges:

• IMS facility remediation related to the FDA warning letter continues to cause production delays, lower sales for specific IMS products, and increased manufacturing costs.
• Pricing pressure from duplicate 340B discounts and commercial rebates is expected to persist into 2027, preventing a return to historical net pricing levels.
• Supply chain capacity constraints at the IMS facility limit the company's ability to fulfill backorders and meet demand for high-demand products like Lidocaine and other IMS SKUs.
• Regulatory delays in proprietary pipeline filings (AMP-105, AMP-107) and competitive pressures in generic markets pose risks to future revenue streams.

Management Commentary and Tone:

• Management expressed confidence in the commercial execution, citing record sales for Baximi and Primatine Mist as validation of their commercial platform.
• The tone regarding IMS remediation was cautious yet positive, emphasizing that the issues are operational rather than demand-related and that progress is being made with the FDA.
• Capital allocation remains disciplined, with a new $50 million share buyback authorized by the Board.
• Management reiterated a clear strategy focused on maximizing the commercial portfolio, advancing complex generics/biosimilars, and progressing proprietary programs.

Analyst Questions and Answers:

• 340B Discounts: Management noted duplicate discount remediation is close to the targeted 80% resolution but not yet fully achieved; they do not expect to exceed this threshold as peer companies have hit similar limits, though the negative pricing impact ($2.2M this quarter) has narrowed significantly.
• IMS Facility Impact: The extra remediation expense in Q3 was $2–$3 million, expected to be higher in the next 2–3 quarters, with full capacity recovery anticipated around mid-2027.
• Ipratropium Bromide: Despite Q3 sales being lower than Q2 due to Q2 "loading," annualized run rate is approximately $25 million; management maintains the long-term $50 million opportunity given current market share growth and lack of competition.
• Lidocaine: Demand is expected to continue into 2027, but shipping is limited by available capacity and the existing $12.5 million backlog at the IMS facility.
• Insulin Biosimilar: While the market is competitive, the large total market size allows for a viable opportunity; launch is targeted for 2027, though no specific quarter is confirmed.
• Proprietary Programs: AMP-118 (GLP-1 generic) is viewed as a limited opportunity due to competition; the delay in AMP-105/107 filings is attributed to standard development processes rather than FDA issues.

Other Key Points:

• The company announced a new formulation for Primatine Mist (AMP-118 equivalent) designed to have a lower global warming potential to comply with evolving EPA/FDA regulations, with a patent approval secured and a target filing end of 2028 to extend IP protection.
• FDA warning letter remediation efforts at IMS are proceeding with third-party partners, including additional resources for quality control groups.
• The company highlighted the importance of reducing the IMS backlog to unlock sales for delayed products.
• Non-operating expenses decreased to $1.7 million from $3.8 million in the prior year, driven by foreign currency fluctuations and interest rate swap adjustments.