Third Quarter Earnings Call - AMPHASTAR PHARMACEUTICALS INC

Explicit Guidance:

• Q4 2026 Revenue: Expected to increase in the high single-digit range year-over-year, incorporating a modest slowdown in IMS product sales due to remediation prioritization.
• Q4–Q6 2027 IMS Spending: Anticipated to exceed Q3 2026 remediation costs ($2–3 million), with higher expenses expected in the next two to three quarters.
• Backlog Reduction: Goal to reduce IMS facility backlog (currently ~$12.5 million) and associated unshipped product sales in the immediate future (Q4 2026).
• Margin Recovery: No specific target date provided, but management expects gross margins to normalize as volumes increase and the IMS backlog clears, noting current margin depression is driven by pricing (Baximi, Glucagon, Epinephrine) and remediation costs.

Business-Segment Outlook:

• Baximi: Forecasted to continue delivering strong growth in 2027; annualized sales expected to remain robust despite pricing headwinds from duplicate 340B discounts.
• Primatine Mist: Expected to sustain strong growth in 2027; price increases and volume growth driven by in-store demand.
• Ipratropium Bromide: Sales expected to continue growing beyond the $25 million annualized run-rate (Q3 2026) toward a long-term ~$50 million opportunity; no new generic competition currently anticipated.
• Teraparatide: Expected to stabilize at strong sales levels in 2027 as the product reaches its 12-month anniversary; growth contribution expected to be steady rather than explosive.
• Glucagon: Facing continued pricing headwinds and competition, with sales expected to remain under pressure; no specific recovery timeline provided.
• Epinephrine: Sales expected to recover as IMS facility production ramps up to full capacity; current volume constrained by remediation.
• Lidocaine: Demand expected to remain elevated in 2027 due to competitor shortages; however, shipment volume will be limited by competing demands on IMS facility resources.
• Vaccini (Baximi/Vaccine Franchise): Growth driven by marketing efforts and unit volumes; management does not expect pricing to recover to pre-discount historical levels, though comps will improve as the Q1 2026 peak discounting period moves forward.
• Glip-1 Generic: Positioned as a "limited opportunity" in 2027 due to the highly competitive market environment.
• Insulin Aspart Biosimilar (Baximi): Commercial launch targeted for 2027; expected to enter a market with 3–4 existing competitive generics, but management believes sufficient room exists for market share capture. Launch timing is projected for "next year" (2027) but lacks a specific quarter/date commitment.

Market and Competitive Outlook:

• Pricing Environment: Persistent headwinds from duplicate 340B discounts are expected to continue into 2027; management does not anticipate a return to previous pricing levels, though the severity is expected to diminish year-over-year as duplicate resolution measures mature (currently ~$2.2M headwind, down from prior quarters).
• Competitive Landscape: Ipratropium bromide remains the sole generic in its market; GLip-1 generic launch expected to face intense competition; Insulin biosimilar launch will face competition from existing generics.
• Supply Dynamics: Supplier shortages for Lidocaine expected to persist, driving demand; Amphistar's ability to capture this demand is capped by internal IMS capacity constraints.

Macro / Industry Outlook:

• Regulatory (FDA): IMS remediation involves active, routine engagement with the FDA; management expects the FDA to be involved in quality control checks but views the process as progressing well.
• Environmental Regulation: New EPA regulations regarding hydrofluorocarbon (HFC) propellants are driving the need for the proprietary AMP104 (next-gen Primatine) to ensure long-term compliance.
• Drug Shortages: Industry-wide shortages for Lidocaine and Epinephrine products are creating temporary supply-demand imbalances that Amphistar aims to leverage.

Strategic Initiatives:

• IMS Facility Remediation: Corrective actions ongoing to address FDA warning letter; full capacity restoration expected by mid-2027. Activities include adding quality control resources and controls, resulting in temporary sales delays and elevated costs.
• Product Launches:
  • AMP101 (Intranasal Epinephrine): Phase I development active; study design refined based on FDA feedback.
  • AMP109 (Oncology): Non-clinical studies and manufacturing prep ongoing.
  • AMP110 (Corticotropin): Evaluating therapeutic indications and conducting non-clinical studies.
  • AMP107 (Ophthalmic): Developing eyedrop alternative for wet AMD and diabetic macular edema.
  • AMP104 (Next-gen Primatine): Aiming to file by end of 2028; designed to lower global warming potential and extend IP protection.
• Capital Allocation: Board authorized additional $50 million share buyback program in Q3 2026.
• Manufacturing: Investing in vertically integrated U.S. manufacturing capabilities and new capacity at IMS and A&P facilities to support API and finished product launches.

Risks and Headwinds to Outlook:

• IMS Production Constraints: Continued impact on sales and margins due to remediation efforts; risk of delayed product releases and inability to meet full demand for Lidocaine and Epinephrine.
• Pricing Pressure: Ongoing lower net pricing on key franchises (Baximi, Glucagon, Epinephrine) due to 340B discounts and rebates; potential inability to fully offset this with price increases.
• Regulatory Risk: Continued FDA scrutiny on IMS facility; risk of further operational disruption or delayed capacity recovery if remediation is not completed efficiently.
• Pipeline Uncertainty: Proprietary development programs (AMP101, AMP109, AMP110, AMP107) are in early stages; timing and approval are subject to FDA feedback and development success.
• Competition: Intense competition in GLip-1 and Insulin biosimilar spaces; potential entry of new generics into Ipratropium market (timing unknown).
• Cost Inflation: Increased manufacturing expenses at IMS and A&P facilities due to remediation and capacity expansion.

Management Tone on the Future:

• Confidence Level: Cautiously optimistic. Management expresses confidence in the commercial platform, pipeline progression, and the resolution of the IMS remediation.
• Hedges: Frequent caveats regarding the timing of IMS capacity return ("mid-2027"), the lack of firm launch dates for biosimilars ("no firm date on that launch"), and the persistence of pricing headwinds.
• Strategic Shift: Emphasis on shifting from pure growth to "disciplined investment," quality remediation, and long-term value creation rather than immediate revenue expansion in the IMS sector.
• Comparative Sentiment: Highlights "easier comps" in 2027 due to the resolution of peak discounting issues in Q1 2026, suggesting a favorable backdrop for sequential improvement despite structural pricing changes.

Miscellaneous:

• Timeline Delays: AMP105 and AMP107 filings delayed from H1 2027 to H2 2027, attributed to normal development process rather than regulatory or capacity issues.
• Backlog Metrics: IMS facility backlog has risen to $12.5 million, representing both a risk to near-term revenue and an opportunity for future growth once cleared.
• Expense Trends: G&A and R&D decreased YoY due to one-time prior year items (legal settlement, licensing payment); Q3 2026 saw a "drag" on gross margins from three specific high-margin products (Baximi, Glucagon, Epinephrine).