Good day, ladies and gentlemen, and welcome to the Amphastar Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call may be recorded. This conference call may contain forward-looking statements, including statements relating to Amphastar Pharmaceuticals. These statements are not historical facts but rather based on Amphastar Pharmaceuticals' current expectations, estimates and projections regarding Amphastar Pharmaceuticals' business, operations and other similar or related factors. Words such as may, might, will, could, would, should, anticipate, predict, potential, continue, expects, intends, plans, projects, believes, estimates, and other similar or related expressions are used to identify these forward-looking statements. These statements are only predictions and are -- such are not guarantees of future performance and they involve risks, uncertainties and assumptions that are difficult or impossible to predict. Actual results may differ materially from those and the forward-looking statements as a result of a number of factors, including these described from time-to-time in Amphastar Pharmaceuticals' filings with the SEC. I would now like to introduce your host for today's conference, Mr. Jason Shandell. You may begin.

Thank you, operator. Good afternoon and welcome to Amphastar Pharmaceuticals second quarter earnings call. My name is Jason Shandell, President of Amphastar. I'm joined today with my colleague, Bill Peters, CFO of Amphastar. We appreciate you joining us on the call today and look forward to speaking with you and answering any questions you may have. The Company had a great second quarter with sales increasing 11% and gross profit increasing from 37% to 41% as compared to the second quarter in 2018. Additionally, on June 27, we received $59.9 million from Sandoz and Momenta to settle all outstanding litigation between the parties. This significantly strengthened our balance sheet with total net cash and short-term investments of $127.4 million as of June 30. We plan to use the settlement funds to continue to invest in research and development, including clinical trials for our inhalation and insulin pipeline and also to expand our capacity at Amphastar for future pipeline products. Furthermore, our legal expenses will be dramatically reduced going forward, allowing our management team to focus on growing our core business and further advancing our robust pipeline of product candidates, including complex peptides, complex proteins and combination inhalation products. Our pipeline continues to make good progress. We currently have four ANDAs on file, targeting products with the market size of over $800 million, three biosimilar products in development, targeting products with the market size of approximately $14 billion and 11 generic products in development, targeting products with the market size of approximately $14 billion. With respect to our proprietary pipeline, we have one NDA on file and three other NDAs in development, targeting significant markets. It should be noted that four of our ANDAs on file with the agency were granted competitive generic therapy designations, which could help speed the time…

Thank you, Jason. Sales for the second quarter increased 11% to $79 million from $71 million in the previous year's period. Phytonadione was our biggest selling product in the quarter, with sales of $12.4 million, up from $10.8 million, primarily due to higher average selling prices. Lidocaine had a small sales increase to $10.1 million from $10 million. Enoxaparin saw sales increase to $9.8 million from $8.7 million in the year prior, as higher average selling prices more than offset unit declines. Naloxone sales declined to $7.8 million from $11.1 million on lower unit volumes at lower average selling prices. Medroxyprogesterone sales increased to $6.7 million from $6.4 million. Sales from Primatene Mist totaled $2.5 million as we began loading the product into wholesalers as part of our marketing plan to target independent drug stores and smaller chains. Higher sales of Cortrosyn, dextrose, calcium chloride, sodium bicarbonate and other products due to market shortages and higher sales of isoproterenol, which was launched in the third quarter of 2018, also contributed to increased sales for our other finished pharmaceutical products. Our insulin API business had sales of $5.3 million, down from $7.8 million in the prior year, primarily due to the timing of shipments. Gross margins increased to 41% of sales from 37% of sales as we had increased sales of high margin products like medroxyprogesterone, Primatene Mist, Cortrosyn, and isoproterenol. Selling, distribution and marketing expenses increased to $3 million from $1.9 million, primarily due to marketing costs associated with the launch of Primatene Mist. These expenditures were for our digital marketing campaign and the development of our television ads, which begin airing in July. General and administrative spending increased slightly to $12.4 million from $11.7 million, primarily because of higher legal expenses related to the antitrust case against Momenta and…

[Operator Instructions] Our first question comes from David Maris with Wells Fargo. Your line is now open.

Good afternoon. First, I noticed that you filed the DMF for teriparatide during the quarter. So, a few questions. When would you expect to file FORTEO? Secondly, will this be a product for the US and international markets since FORTEO sells a lot outside the US or is it just intended for the US? And then I have another question.

Sure. Yes. Definitely always good to look at our DMF filings. Our Chinese subsidiary has been very active, currently have 12 Drug Master Files and we're developing six additional. And with respect to your question, we do ultimately intend to sell both US and internationally.

And then just as a follow-up, what's the usual timeline from filing a DMF to filing a product? Is there a good rule of thumb?

I don't think there is a good rule of thumb. It really depends on the complexity of the product and discussions with the agency. We definitely focus on the more difficult to produce. So, I wouldn't say there is a rule of thumb. It's going to be several years until we launch.

And then Bill, you mentioned the other finished pharmaceutical products that did very well, but you ran through kind of the components of what that benefit was at least too quickly for my typing. Can you just describe those again and whether or not those are -- if you had to characterize them, are those more one-time in nature or is that something like shortages that should continue for a while? Or is it a large enough number of products where maybe some do and some don't but this level of sales should be expected going forward since it was a big step-up sequentially?

So, specifically, I mentioned the four products that had the highest sales increases due to shortages and those were Cortrosyn, dextrose, calcium chloride and sodium bicarbonate, but there was also a few other products that also had some shortages, including one of the SKUs of lidocaine and I'm trying to [Indecipherable] right now. Some of those products are still experiencing market shortages. However, we are shipping out as much as we can due to the capacity constraints that we have where most of those products because they're sold out of our IMS facility in South El Monte. The Cortrosyn sold out. At the Amphastar, we do have some capacity here. So, we are fully able to satisfy that. But on things like the sodium bicarbonate, we can't really even meet up -- keep up with the demand of that product still. But these products have had a history of having a shortage for a few quarters and then coming back and then a different mix of products. It just happened that this quarter was a little bit different in that Cortrosyn, which is at a higher price level and the higher margin level, is also experiencing shortages while the critical care products are -- were also experiencing shortages. And just another word on that is that as we've been telling people we've built extra capacity at that factory recently and we're still in the process of validating that. We hope to have that factory online by the end of the year.

Great. Thank you very much.

[Operator Instructions] Our next question comes from Gary Nachman with BMO Capital Markets. Your line is now open.

Hi. Primatene sales stalled a bit in 2Q relative to 1Q and 4Q. So, how much was additional stocking in the quarter versus reorders that are coming through? And are you still expecting to get into Walmart? When will that be? Did you say that would be in the four quarter? And then what sort of impact do you expect that TV and radio ads will have? You just started them in July. I know it's early, but just give us a sense of the magnitude and when we could see an impact from that. And then I have a follow-up after.

Sure. So, let me begin, this is Jason. So, I'll start with the Walmart question and the advertising question, then I'll turn over the stocking question to Bill. So with respect to Walmart, yes, we're set to launch in the fourth quarter. So yes, we're very excited about that. They intend to place the product in all Walmart stores and we think that's going to be a really good increase in sales for the Company. I've said in the previous call that historically the CFC version of Primatene, Walmart made up 35% of sales. So we're excited, they seem excited by the product and there should be some good promotion both in-store and we may even ramp up some of our ads, because we are -- it is early to your point, but we're seeing very good indication that the ads are working. We saw very big surge in sales with that. So we get lagging data from the major retailers and one of the major retailers, we saw the highest weekly sales since launching at the major retailer following the advertisement. We've also seen a significant increase in traffic to our websites. So, we do believe that the ads are working and we're getting more consumer awareness.

And to your question on stocking, if I had to characterize, the fourth quarter sales were entirely stocking. First quarter sales were primarily stocking with a little bit of reorders and this quarter was a little bit of stocking, but it was primarily reorders.

Okay. And then for Enox, so, is this a normalized run rate now going forward? It was down significantly from 1Q. So, did you lose share or the price contract? And then G&A was a lot lighter like you said than 1Q. So, I just want to get a sense if that's a new run rate now that you have some of the litigation spend out of the way? Thank you.

So first of all on the enoxaparin, we did -- there is increased competition in the market now. So that took a toll and will continue to take a toll on both the number of units we sell and the pricing. So that did come down over the course of the quarter. So, there is that. On the G&A, our legal expenses will come down pretty significantly from where they were, especially in the first quarter, where they were very high, but we do have some increased spending on some compliance costs as well and that will ramp up a little bit more and offset part of that in the second.

Our next question comes from David Steinberg with Jefferies. Your line is now open.

Great. Thanks. I have a couple of questions. First on business development. I know that you have been an acquirer in the past but you typically had not used debt thankfully and equity but instead you've used cash. So, now you just got I think $50 million in cash and most of your transactions have been relatively small. So does this increase the likelihood of something near term? Does it increase your appetite? And if you are in fact looking for assets, what sort of pricing have you been saying the valuation is still high? And then just to clarify what Gary had asked before on Primatene and regarding Walmart, you said the launch would be in Q4, does that mean the load will also be in Q4 or the pipeline still be in Q3 for the Walmart Primatene? Thanks.

Sure. Yes. So, with respect to business development, we do have a strong balance sheet now and it does increase our appetite. We are seeing better valuations. We're very disciplined. When we do an acquisition, it has to be very synergistic. There are some opportunities out there. It's just the matter of valuation. So we're continuing to look and we'll provide updates as we go. For now though, obviously our core competency is organic growth and we do have some expensive clinical trials. So we'll put some of the money toward that. But yes, we definitely have increased our appetite for some business development at the right price and the right products that would be synergistic.

And just to clarify, it was really closer to $60 million because we are utilizing the tax credit. We really did have a nice -- we'll have a nice cash flow in from that settlements. And as far as the load into Walmart goes, it's probably going to be a fourth quarter event.

Okay. Just a couple of quick follow-ups. So on your gross margin, it looks like it was a decent clip weaker than perhaps one would expect. Any reasons for that? And secondly, you mentioned the PDUFA for -- in the second half of the year for that large undisclosed product. So just to ask you about that. Could you clarify the timing in the second half of the year? It's a big window. And secondly, in the past, you've described it I think is close to a $300 million product, off patent for a while, no generics. Has anything changed either in terms of, has there been a generic approved or is the sales size still about $300 million?

So. Sure. Yes. So that we have two PDUFAs in the second half of this year. The one is for the epinephrine. The other is for this large undisclosed product. We'd rather just keep a general since -- yes, at this point it's August. So, we have four months remaining. But in the next four months, we will have two PDUFA dates and we're excited by the possibility and perhaps the probability of getting both of these approved. So, those could be drivers. We are confident in the approvals. So we're trying to see if we could launch soon thereafter and then we can get sales for the fourth quarter, which would be great. And then with respect to the next question, I'll turn back to Bill.

Gross margins, yes. So, on the gross margin, it is higher than we had been experiencing. So we did have higher sales of products that were higher margin products like the Primatene and the [Indecipherable] medroxyprogesterone. But then we did have a little more weakness on enoxaparin this quarter with that price coming down and also the naloxone price coming down a little bit. So, there was definitely some offset there. But just take a look at the drivers of growth for the rest of this year and the quarters to come, we expect Primatene Mist to keep ramping up and that's very high gross margin product. And we expect that the new products that we hope to launch the two products that have PDUFA dates later this year, we would expect to have both of those have very high gross margins as well. So, we think that that gross margin trend continues to go up as we go on.

Our next question comes from David Amsellem from Piper Jaffray. Your line is now open.

Thanks. So I joined late, so you might have addressed this already, but just an update on the specific inhalation products in the pipeline and the -- and your thoughts on filings for later this year? And just thinking higher level, this is more beyond this year is how we should think about the pace of filings or the advancement of inhalation products? I mean, you have Primatene but how should we think about the longer term expansion of the inhalation portfolio? Last question on Depo-Provera, the generic, just any color on the competitive dynamics there and where you think that product will trend back half of the year and into next year. Thanks.

Sure. Yes. I was wondering if anyone would pick up on actually what was a new disclosure related to our first inhalation ANDA. For competitive reasons, we've always been pretty close to the vest on that and have never disclosed whether it's dry powder or a metered dose inhalers. So, today in my prepared remarks, I did say that it will be an HFA metered dose inhaler. So that's, as everyone knows, that's an area of expertise for Amphastar. We've got a lot of expertise in -- with Primatene in terms of reformulating the CFC to HFA. And so that is something new that we've disclosed that it is an HFA MDI. Now on the last call, we had discussed filing it late this year, but in my prepared remarks, I was discussing that we have an ongoing clinical trial, and after further discussions with the FDA, we decided to increase the number of subjects in order to provide more confidence in meeting the endpoints. So now we're making good progress, but we are now forecasting to file that ANDA in 2020 as opposed to the end of 2019. And then, let's see -- in terms of the sort of the future of the pipeline, we want to keep a similar cadence to what we've had over the last couple of years. So what we're seeing is about three approvals, our hope is to get to two to three approvals on an annual basis and then we're looking to file on an annual basis approximately three products every year. And we think for a company of our size, given the complexity and the large markets that these products are focusing on, it will be very large opportunities for a company with our market cap. And then finally...

Specifically on inhalation through -- on inhalation, I is that going to be more of the filing mix.

Yes. So we are focused right now -- I talked a lot about this one MDI that has got ongoing right now in the clinical trial targeting filing that next year. There is another inhalation product that we're working on in parallel. So that will be part of the mix as well. But as you know, we've got a large number of inhalation and you'll see more of those coming into the mix next year and 2021. And then the generic Depo-Provera, there is more competition in the market, but we've always felt this is a great product to produce because it's so difficult to manufacture and so we think we have a really good process in place that will allow us to produce quality product for many years to come. So we do expect as a generic company to see more competition, but we think we can strongly compete, especially with respect to this product.

Okay. Thanks.

Our next question comes from Serge Belanger with Needham. Your line is now open.

Hey, thanks for the question, guys. This is Tian on for Serge. So besides Walmart, which you secured for the fourth quarter, is there any other retailers that you're looking at, big discount retailers or even supermarkets that you're looking for? And then in terms of the independent pharmacies and the smaller chain pharmacies, how big are these markets relative to the big three pharmacies like CVS, Walgreens and Rite Aid? And then lastly, I think you mentioned about online sales of permitting. So do you have any breakdown in terms of sales of in-store versus online that you're expecting to reach in the near future? Thank you.

Sure. Yes. So we're really excited by Walmart. I mean, as I said earlier, that made up 35% historically of our sales. And so when it comes to the independent pharmacies, we're exploring all avenues. We want to get this out across the board online independent pharmacies. We are in discussions with other large retailers and groceries. But really we see it is like the 80/20 rule. You get Walmart, CVS, Walgreens and that's a huge percentage of the market, but we are exploring all opportunities, including in the long run Amazon as well. So we see this as a very exciting product and are very encouraged by the upcoming launch to Walmart.

At this time, I'm showing no further questions. I would like to turn the call back over to Jason for any closing remarks.

Thank you, operator. I want to thank everyone again for joining us today. We are pleased with the progress that we've recently made and remain confident in achieving our long-term goals and enhancing shareholder value. We look forward to talking with you in the future and hope everyone has a great day.

Ladies and gentleman thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have great day.