Good morning and welcome to the Amneal Pharmaceuticals’ First Quarter 2020 Earnings Conference Call. Please note this event is being recorded. At this time, I'd like to turn the conference over to Tasos Konidaris, Chief Financial Officer at Amneal. Please go ahead.

Good morning. Earlier this morning, we issued press release reporting our quarterly results. The press releases as well as the slides on this call are available on our website at www.amneal.com. We are conducting a live webcast of this call and a replay of it will be available on our website after its conclusion. Please note that today's call is copyrighted material of Amneal and cannot be rebroadcast without the company's expressed written consent. I would also like to remind you that statements made during this call, stating management's outlook or predictions for future periods 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, cautionary statements and forward-looking statements in our earnings release in presentation, which applies to this call. Our future performance may differ due to numerous factors, many of which are listed on our most recent annual report on Form 10-K and are revised and updated on our quarterly reports on Form 10-Q and current reports and Form 8-K, which you can also find on our website, or on the SEC's website at sec.gov. We also discuss certain non-GAAP measures. You will find important information on our use of these measures in our reconciliations to use GAAP in our earnings release. Included in the appendix of today's presentation, you will find U.S. GAAP financial statements that correspond to some of our non-U.S. GAAP measures we referenced throughout the presentation. On the call this morning are Chirag Patel and Chintu Patel, our Co-CEOs. In addition, Andy Boyer, our Executive Vice President of Commercial Operations; Joe Todisco, Senior Vice President of Specialty Commercial; and Steve Manzano , our General Counsel and Corporate Secretary are on the line, and will be available for the Q&A session. I would like to note that all of us are at different locations due to COVID-19. So, please bear with us if there are any technical issues. And with that, I'd like to turn the call over to Chirag.

Thank you. Thank you, Tasos and good morning everyone. Tasos joined Amneal as a CFO in March and we are pleased to have him on our team. I will begin by addressing our response to COVID-19. First, I want to acknowledge the difficult environment we are all navigating, as individuals, as a company, and in our communities around the world. Our thoughts go out to those impacted by this global pandemic and we hope all of you are healthy and safe. We are deeply proud of how Amneal has and continue to respond to the COVID-19 crisis. We were proactive and mobilized quickly to evolve our business to protect the health of our colleagues and communities, while sustaining the supply of medicines for patients. We established the strategic task force made up of top leaders across all business functions to ensure our preparedness, oversee our response, and enable mitigation and continuity across our business operations. I want to recognize the exceptional efforts of our employees. Our operational teams have kept our facilities running to ensure our products get across the finish line. We have also ramped up production in certain areas to help meet new demand. Our distribution teams have done a terrific job getting our products out to our customers. In addition, our sales and marketing teams have been innovative and productive as they work remotely. For example, they have created new procedures and automated processes to deliver samples to physicians and launched virtual launch and learns to continue physician engagement. Importantly, our supply chain also continued to perform well. Our procurement teams have done a great job of sourcing and assuming that the pharmaceutical ingredients needed to keep our manufacturing and production operations running as smoothly as possible. As we continue strengthening our supply chain, we are pleased…

Good morning everyone. Thank you, Chirag. I would also like to acknowledge the tremendous efforts of our team during the COVID-19 pandemic. We have taken a number of actions to help mitigate the impact of the crisis on our company and stakeholders and to provide support to the industry and government where we can. This includes strengthening our own supply chain and working closely with federal and local agencies to avoid shortages of essential drugs. At our core, we have always been a mission-driven organization and our culture of making healthy possible has never been more important than today. As you can see from our first quarter results, our focus on operational excellence is bearing fruit. We have strengthened our supply chain and improved the processes and systems by which our products come to market. We have managed inventory more efficiently and worked with customers and suppliers to manage volume forecast. While these efforts are not done, we are proud of our progress to-date. Our generic business is firing on all cylinders and we have seen very strong results in both our base business and recent launches. We have worked aggressively to expand sales in the base business where we have approximately 250 products currently marketed. We continue to work closely with our customers and analyze opportunities to grow market share. At the same time, we remain hyper-focused on new launches. Over the last six months, we have launched 16 products including multiple high-value complex generic, these efforts have substantially improved our gross margin. Finally, as the current crisis has demonstrated, in-house manufacturing and quality infrastructure are more important than ever. Our ability to develop and manufacture products in-house positions us to take advantage of changes in the market very swiftly. As a result, in the last few months, we…

Thank you, Chintu. Let me just dive straight into the results. From a topline perspective, net revenue in the first quarter of 2020 was $499 million, up 4% compared to Q1 2019 and up 25% sequentially. This growth was driven by the acquisition of AvKARE and the growth of new generic products and specialty brands, which offset generic competition and the sale of our international business last year. Hydrochloroquine sales were not a meaningful factor in the quarter as we mostly donated our production. Our net revenue was slightly ahead of our expectations, mostly at AvKARE, and it reflects strong execution by our commercial and supply chain teams in meeting substantial volatility of customer needs. Wholesaler inventory levels for our products were at normal levels at the end of Q1 2020. But there may have been some early filter prescriptions due to customer supply concerns with COVID-19. Adjusted gross profit of $225 million was up 5% compared to Q1 2019 and 30% sequentially driven by the topline growth. First quarter 2020 margin of 45% was down from Q1 2019, as higher profitability of our new products and higher manufacturing absorption rates, partially offset price erosion and the inclusion of AvKARE who has a lower margin profile. The sequential margin expansion reflects favorable product mix, partially offset by the addition of AvKARE. Moving on to operating expenses. R&D of $35 million and SG&A of $69 million declined in the first quarter, due to our efforts to reduce unproductive activities and focus our R&D spend. R&D expense was slightly lower due to COVID-19 disruption and timing of project spend has been geared more towards the latter part of the year. Adjusted EBITDA $134 million is up from $112 million in Q1 of 2019 and the $81 million of the fourth quarter last…

Thank you, Tasos. Before we open the floor to Q&A, I want to emphasize that we are relentlessly focused on reinvigorating the company and building a new 2.0. Despite the added complexity and uncertainty created by COVID-19, we delivered a strong quarter. And thanks to the hard work and resiliency of our team, we are positioned to achieve our goals and to drive growth in 2020 and beyond. Thank you. With that, I'll turn the call to the operator to open it up for questions.

[Operator Instruction] Our first question comes from Greg Gilbert from SunTrust. Please go ahead.

Hi, good morning, guys and welcome Tasos. I wanted to start with you Chirag. On your comments about a U.S. centric supply chain, how feasible and practical is it to have a more U.S. centric supply chain? And what do you plan to do as a company to make that happen in a bigger way than you already have? And my follow-up will be for Chintu, since you brought up the first to file opportunity. Is there anything more you can say about that inhaled product? Presumably you filed and we're not sued. Can you give us any more color about that? Thank you.

Thank you, Greg, and good morning. The U.S. centric supply chain, look, it took years to get to this level, this position where supply chain is highly reliant and there are reasons and you guys know the history for last 50 years, how it moved overseas, antibiotics in China, the concentrated there and then a lot of finish goods production in India, then Europe and U.S. we have no -- not much of API manufacturing. It is a long-term event. It is not going to happen overnight. But what we are hearing from the -- from the Congress and administration is that they do want to bring back certain essential medicines, such as, a not maybe 100% capacity, obviously, but let's say 30%, 40% or 50%. So, we can in case of emergency ramp-up the production, and we are not completely reliant on foreign sources. So, the essential drug list would be probably, we don't know how big that could be 50 products, 100 products. It would -- have to have incentives for the manufacturers to invest in the United States supply chain and those cannot be temporary. It has to be long term permanent changes. We as Amneal are well position because we already have a large production facilities here. We do not have API facility. We do have API facilities in India and we would build those whether it is fermentation site or on a small molecule. Again, it will, it's a project that would have to start with the support of Congress. And then it will continue on for three years certain production then after that five years, seven years, 10 years, but we believe that in that timeframe, we can bring back certain capacity and capabilities as well because we need to train the people and bring the skill sets here as well. Chintu, do you want to answer the FTF?

Sure. Hi, Greg. Good morning. As I mentioned in my opening remarks, we have procured the exclusive FTF on one of our first inhalation product. We have not been sued as we can see from public events. So, it is a potential launch and approval. We are beautiful infrastructure in Ireland both for MDI and DPI and hydride an appropriate time we will disclose and do a press release on this product. But at this time, we are not disclosing the name of the product.

Should we think about this as a potential 2021 opportunity?

Yes.

Okay. Thanks, gentlemen. I'll get back in line.

Thank you, Greg.

Thank you.

The next question comes from Randall Stanicky from RBC. Please go ahead.

Great. Thanks, guys. Hey, Chirag. I want to pull up on the last question. You called out Amneal being one of the largest U.S. generic manufacturers. Is it your view that any economic incentives from the government could be limited to us domiciled companies? So that's the first question. And then Tasos on the generic gross margin coming in at 42%, can you get into some more detail on what you're expecting around some of the puts and takes them margin for this year? It sounds like you're still holding to that 40% target. Now, what are the factors that could push that generic gross margin higher? Thanks.

So, Randall, good morning. The U.S. domiciled is where the largest us domiciled company, I don't believe, yes, there will be certain incentives given to and this is all work in progress. We are part of a dialogue. But it's going to need, obviously more than U.S. to sell companies, it's going to need the companies that already have certain expertise and capabilities somewhere else to bring back production faster ways at a faster pace rather than slower pace and this is we need the entire industry to work together to make this happen. Tasos?

Hey, Randall, this is Tasos. So a couple of things. So as you as you said Q1 generic adjusted gross margin was 42%. And just to kind of put it in context that's essentially flat to same period last year. And the dynamic there is we had overall price pressures. As you know, that came-in in the latter part of last year. We had some of our key products will launch last year generic competition. And the offset to that was the launch of our new products, generic Carafate and Sucralfate. So that's, that's one drive. The second thing is in Q1 also we benefited for some favorable manufacturing, absorption. So our manufacturing teams worked incredibly hard to keep up with the demand in the marketplace. So that kind of benefited us in Q1. And there may be no slight offset in Q2. So that's more of a timing Q1 Q2 on the generic gross margin. But just kind of stepping back for a second is feel great about the gross margins. We're still targeting, this year, making a meaningful progress in terms of adjusted gross margin growth. Last year, as you know, we were 35.5%. This year, we're looking for a meaningful increase towards the 40% plus, and the key driver to that, I think it's twofold. Number one is our ability to get new products to the market. So we feel good about that. That's what seemed to talked about focus of the R&D to produce and get good approvals of hard to make generic products that will feel good about that. That's going to be a key driver. The second key driver, frankly, is, we're hoping to see lower price erosion this year as what we had seen prior year. So this is a competitive marketplace, or commercial teams are spending a lot of time bidding for new projects. So that's going to be the second driver is the price erosion in the in the marketplace. Now, it's one man's opinion, that's my opinion, which says, this COVID-19 has put a premium on companies that have diversified -- diversified supply chains, and at some point in time that has to show up in the pricing of those products. So let me stop here. And hopefully that answered your question.

Yes, are you seeing the ability to take price in this current market is COVID-19 maybe brought back from the pricing power, the generic seem to have lost over the last couple years?

So Randall, I will take that one. So, just to reiterate the gross margin increase as you know, we focused on increasing our base business since August of last year that has now ramped up and we continue to do that along with new launches and fourth quarter as well as the first quarter, which we have a higher utilization at every plant. The price increase is not a visit the market is still there, we are facing price increases from our API suppliers and freight costs, but we are not able to pass those increases to our customers. We are in a dialogue with them. And hopefully, we will work to get that done. The industry still is highly concentrated from the buying power. So, what we are not seeing is many challenges, which is a good news. And that could be two reason ones is -- one is that already prices are way down rock, bottom prices. So, there is no more place to go down and most of the products or many products. And second reason is customers are now thinking about more about securing the supply chain, reliable partners. So we're seeing more partnership to do that and that may improve the pricing environment in generics.

Got it. Thanks guys.

The next question comes from Balaji Prasad from Barclays. Please go ahead.

Hi. Good morning, everyone. Thanks for taking the questions. Good to speak again, Chirag. So a couple of questions on the generic side. Firstly, since you commented on the pricing erosion of lead on from there, so what kind of erosion did you see on your existing products as it started to recede versus what you're seeing the last one or two years? And just on the question that Randall had just asked now, are you seeing any fundamental dynamics change between the buyer-seller relationships? And how should we think of these going forward? Lastly, can you also just comment on what you’ve thought of competitor launches into the guidance especially into NuvaRing and Carafate and how it may impact the range of providers? Thanks.

Hi, Balaji. Good morning. So let me take your first question. The price erosions, as I said, we are seeing less than the prior years and we hope that we continue to see that trend, because frankly, there's not any room left. Otherwise we would have to discontinue products. And the fundamental change, you talked about is happening. I don't know is that which phase it's going to go to, but there are now evaluating all three big customers on their supply chain having more API, having partnering for longer-term so we don't need to worry about losing your product with them in six months. So we can plan properly. So longer-term contracts are in works as well. More diversified so having alternate sources of API, having alternate sources of finished products, so all those questions are being asked where Amneal places real with the strength. And obviously the quality track record, because we have multiple products with dual API sources, dual manufacturing in India and U.S., so we are able to win business, more business than maybe our competitors. But I do believe that certain long-term fundamental changes are coming as we focus more on securing the supply chain and partner with reliable sources. Your third question on NuvaRing and Carafate, we had a solid first quarter and continue to build on it. So Carafate we already have a great market share almost 60%. NuvaRing, we build the capacity to get up to 30%, which we'll start doing that now. We have the automated process approved by FDA and already producing more products. Thank you.

The next question comes from Ami Fadia from SVB Leerink. Please go ahead.

Hi. Good morning. Thanks for my question. Just with regards to bringing manufacturing back to the U.S. Can you talk about the -- can you help me sort of quantify the increase in cost, if manufacturing of certain products, what do we brought to the U.S. and what's the appetite either in the government or kind of the key buyers with regards to that increased cost? And with regard to just timelines, you mentioned that this is a long-term process, but is the new physicians to respond faster on certain products or certain trans given an existing manufacturing footprint in the U.S.? And then separately, what are your current thoughts with regards to business development or partnerships? And where would you prioritize that? Would it be in the specialty side or generic, if you could sort of elaborate on that? Thank you.

Good morning, Ami. So, back to the U.S. manufacturing, as I said, it is certain capabilities and capacity needs to be built here and Congress is exploring various bills. They may be putting -- as I said, work in progress, putting some task force with National Academies of Science and coming up with essential product list. As I said, it will involve the entire industry. It's a pretty large undertaking, but it is being considered seriously. Again, it's in early process. I don't know the timing. When they ask for our input, we provide our input. And the cost analysis would have to be undertaken. The basic material and raw material costs should be the same, whether it's in Europe, China, or U.S. The cost of operating would be higher here and labor costs. So we haven't quantified that how many products we need the list of essential products, which one Amneal would be playing a role in it, and it will be a competitive process as in a free enterprise world. And Amneal would act fast, because Amneal is solely focused on U.S. market. So everything we do is always geared toward United States market and we have a strong manufacturing position on a finished dosage form. And we are known for our execution for this is how we built Amneal 1.0, and doing it again in Amneal 2.0. So we would act faster and participate in a competitive process. On the business development front, specialty remains our focus. We would -- look, we are looking for a complementary assets to a movement disorder franchise, as well as endocrinology. It would have to be accretive not looking for, again, I said it before, looking to hit still some singles and doubles and not going for bigger transaction at this point. We already have so many assets that we can execute upon within our R&D both on genetics and specialty. So, very focused there as well. Thank you, Ami.

The next question comes from Elliot Wilbur from Raymond James. Please go ahead.

Thanks. Good morning. Just wanted to ask a couple of questions around future pipeline opportunities and specifically thinking about potential disruption to ongoing review. Just wondering if you're seeing, noticing any impact in terms of FDA timelines, particularly with respect to some of your higher barrier to entry or complex generic products, certainly seems like the FDA continues to approve a lot of generics, but just wondering if you're seeing timelines maybe slow for review of some of the more complicated products considering issues, such as inability to conduct inspections and the like. And then maybe just an update on some pipeline products that you've talked about previously, but maybe haven't been mentioned in the last couple of calls and specifically thinking about generic versions of Copaxone, Restasis, whether or not you still see those as 2020 opportunities. Thanks.

Chintu, you want to--?

Hi, Elliot. Yes. Hi, good morning, Elliot. Regarding your first questions, we have not seen any delays on our goal dates from FDA. As you see that it will be a company specific, and Amneal enjoys a fantastic quality track record over the last 18 years, and I think that goes a long way. And whether it's a complex or regular product, we have not been any shift in our goal dates and FDA is working really diligently and I really want to thank agency for doing all the work they are doing in given circumstances and situation. So we remain positive on our new launches for the remainder of the year. Regarding your second question on Copaxone and Restasis; Restasis is kind of in a regulatory limbo. So I'm not in a position to pay what ways it is. It’s regarding the entire industry and whatever the decision comes out of agency would be applicable to everybody. So I don't have a timeline for the Copaxone is a 2021 launch for us.

The next question comes from David Amsellem from Piper Sandler. Please go ahead.

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Yes. Hi, David. This is Chintu. Good morning. Regarding Durezole is a very complex product and you don't see that much competition. It has many barriers of entry. We are tracking nicely with FDA and we expect maybe late fourth quarter or next early 2021 launch. Regarding our injectable pipeline, as I mentioned, we are building our injectable portfolio and we are excited about our pipeline. We have different areas within injectables today and we are working aggressively on certain DEPO to complex injectable in a suspension drug-device combination products, many ophthalmic products, so we are focused including certain 505 (b)(2) products in our injectable pipeline that opened up many more hospital chains. So, we are looking at all aspects. Same time, we are also expanding on manufacturing in the U.S. and India for injectable pipeline. We already have about 30 to 40 products in pipeline for injectable portfolio, but it's going to be a very differentiated high-end injectable product that will bring certain key value to the patient and doctors.

Thank you.

Our next question comes from Gary Nachman from BMO Capital Markets. Please go ahead.

Thanks. Good morning. First, can you quantify how much COVID benefited in 1Q? How much stockpiling there was in the quarter? And how much could that reverse in the coming quarters, few more color on that would be helpful? And now that you've owned AvKARE for two months, what are some of the opportunities you've identified for that business? How much could you potentially drive incremental volume for Amneal Phase 2 AvKARE's network? Thank you.

Good morning. From a COVID-19 support, it was no material impact to Q1. We were very socially responsible in the way we managed our inventory to try to avoid stockpiling at the commercial marketplace. So there was no material impact in Q1 from COVID-19.

Tasos, you may want to give more color on COVID-19 impact.

Yes. So I've just to reiterate what Andy said, so this can provide a little bit more color on some of the puts and takes. So number one is, we do get the same wholesaler inventory data out in the trade and there was nothing abnormal in terms of total company. So, weeks on hand actually declined at the end of Q1 versus the end of the year, which is typical because the end of the year they typically order an extra week, so there is nothing abnormal there, number one. Number two, internally because of the discrepancy in the impact of the business, we had a number of open positions that we did not fill. However, we had substantial more overtime with the manufacturing plant, so the substantial overtime with the manufacturing plants offset some operating expense, favorability related to headcount related costs. We also have incremental -- substantial incremental costs regarding freight, which I think every company was impacted by that. The final thing is we saw our R&D expenses were slightly favorable in the quarter and that's because we couldn't get as much active material that we wanted for some of the trials and some of the projects. So overall, I would say the input to the quarter was no material and there is nothing in our head that says that will be reversing in Q2.

Does it cover?

Yes.

Thank you, Tasos. This is Chirag, Gary?

That's helpful.

Gary, I just want to add that yes, that's a good question. The first quarter performance is solely is Amneal's performance is what we've been doing since last August. It is a -- treated like increasing base business, launching new products, higher efficiencies, all these having a superb performance by specialty with their marketing initiatives. And AvKARE which adds excellent add on to Amneal very complimentary. Carafate is not being sold yet by AvKARE, with Carafatehas increased demand due to the renovated in products Zantac was pulled out of market and that has diverted more demand to Carafate. Hopefully this answers your question, Gary?

Yes. And just a little more on AvKARE going forward, is there anything more you could do with that business to drive more growth and what I was saying previously, just how we should think about that trajectory for that business?

Yes, so that is one of our strategic initiatives along with growth in generics and growth in specialty. AvKARE, they're very well set in government to sell generics product, but now they're looking at selling more often are getting in long-term contracts with biosimilar products and specialty products as well. And then there is other initiatives that BARDA has used a bit stockpile or is concerned about any future or current demand through the pandemic, so they're looking to stockpile more products as well. So, all these, these are opportunities for AvKARE and the unit dose businesses small at this point, but we are putting up a liquid infrastructure, which will then take the unit dose liquid business by -- the growth will come by probably next year in unit dose liquid business. Multiple avenues to grow AvKARE.

Okay. Thank you.

Thanks.

The next question comes from Chris Schott from JPMorgan. Please go ahead.

Great. Thanks so much for the questions. Just two for me. First, you mentioned some share recapture on the base businesses helping the generic results. Can you just elaborate a bit more on the trends you're seeing there? And more importantly, as we think about, is there more opportunity going forward to further improve share on the existing portfolio? And then my second question was on biosimilars, and I think you referenced a desire to pursue licensing deals or partnership deals here, just a little bit more color there? Should we think about these as near-term product launches or longer-term opportunities and do you think about the company targeting assets that have already completed clinical programs or conceptually could these deals resulting in a step up in R&D spends, do you think about the go forward business? Thanks so much.

Good morning, Chris. Your first question on base business, the trend continues as Amneal has a diversified supply chain and with COVID-19 actually, customers are looking to diversify. So if they're buying 100% of their products from India or Europe or vice versa, they want to diversify. And if you're U.S. based manufacturing, they're looking to add certain percentages of their business in the U.S. as well. So trend is very positive as we have a very large portfolio of 250 plus products and keep launching new products, a very strong generic business and we are continue to win new businesses and our quality track record also comes in handy because of the liability of our products as well. Biosimilars, we have three products in the pipeline. We expect launches 2021, 2022 for those products and we are carefully adding products as we are learning more and more about the market and how it behaves. It's quasi -- I call it quasi-branded market, so you need lots of effort. So, our focuses more on oncology where we would have started building some small infrastructure and we will add-on to, we already have a very nice specialty branded infrastructure. So we'll leverage that as well without adding any further cost there. So our goal is to in-license the products where we are and this is 10 years view. We are always we build company over a long time that we would in-licensed products which were our potentially we could be, first is going to be hard at this point, but let's say second, third, fourth, we do not want to be after that. So, because it becomes very competitive beyond fourth layer, so that is what we are looking to build oncology pipeline going forward or any other interesting IP driven opportunistic pipeline as well. Thank you, Chris

Thank you.

I'm sorry. This concludes our question-and-answer session. I would like to turn the conference back over to Tasos Konidaris for any closing remarks.

I really want to thank number one, our team for doing an incredible job in Q1 and staying focused on the business for the rest of the year. And I really want to thank our investors for being with us and our customers that rely on our products and services. Thank you and have a great night.

Thank you.

Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.