Amneal Pharmaceuticals, Inc. (AMRX) Q4 2020 Earnings Report, Transcript and Summary

Good morning and welcome to the Amneal Pharmaceuticals’ Fourth Quarter and Full Year 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to, Tasos Konidaris, Executive Vice President and Chief Financial Officer. Please go ahead.

Good morning and thank you for joining us for Amneal's fourth quarter and full year 2020 earnings call. Earlier this morning, we issued a press release reporting our financial results. The press release, as well as the slides that will be presented on this call are available on our website at www.amneal.com. We're conducting a live webcast of this call, a replay of which will also 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 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 on Forward-looking Statements in our press release and 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 on 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 and a reconciliations to U.S. GAAP in our earnings release. Included in the appendix of today's presentation, you will find U.S. GAAP financial metrics that correspond to some of our non-U.S. non-GAAP measures we reference throughout the presentation. On the call this morning are Chirag and Chintu Patel, our Co-CEOs; Andy Boyer and Joe Todisco, our Chief Commercial Officers of our Generics and Specialty segments, as well as Steve Manzano, General Counsel and Corporate Secretary. I will now turn the call over to Chirag.

Thank you. Good morning, and thank you for joining us in the review of Amneal’s fourth quarter and full year 2020 results. We are pleased with our strong finish in the fourth quarter with net revenue of $510 million, up 28% versus prior year and adjusted EBITDA of $107 million, up 33% and adjusted EPS of $0.14 up substantially versus $0.08. Our strong and consistent financial performance over the course of 2020 met or exceeded our guidance metrics and reflects the successful execution of our strategy despite the impact of COVID-19 pandemic. This performance could not have been possible without the resiliency and dedication of our global team whose commitment to meeting the needs of our patients has enabled us to drive continued growth throughout the public health crisis, and we are just getting started. We feel very optimistic about our opportunities in the months and years ahead as we enter 2021 with solid momentum and a clear vision for Amneal 2.0. It’s been a year-and-a-half since Chintu and I returned over the course of the years with a plan to reinvigorate our generics business, strengthen our specialty franchise, diversify our distribution channels and enhance operational execution. Since then, we have made significant progress to strategically position Amneal both operationally and financially toward the next phase of growth. I would now like to take few minutes to recap our evolution over the last year and outline our longer term Amneal 2.0 strategy. Let me start with our generics business, which delivered approximately $1.3 billion in net revenues in 2020. In the past 18 months, we have significantly strengthened our generics portfolio and we are confident in our ability to drive long-term sustainable growth for three main reasons. First, we will continue to leverage our broad commercial presence and growing portfolio of approximately 250 commercial products to increase our market share. Our success in 2020 was due to strong performance in both our base business and new product launches which are increasingly complex and have higher barriers to entry. These noteworthy launches include our generic versions of EluRyng, [Indiscernible] hydrochloride Lidoderm Patch, [Indiscernible] et cetera as we look forward to 2021 and beyond we remain extremely excited about our pipeline. Second, this is an innovation-driven business and we have already taken many steps to transition our R&D engine to focus on complex product developments such as injectables, ophthalmics and inhalers. This transition has been year’s long effort and it has only recently begun to bear fruit in our commercial portfolio. Put another way, the investment we have already made across R&D and manufacturing will generate substantial growth over the next few years and we have no intention of slowing down. Our talented R&D employees throughout the U.S., Ireland and India make this possible and our expected acquisition of Kashiv Specialty Pharma will further boost this already dynamic team. Chintu will touch on R&D momentarily. Third we are actively working on growing our business in ex U.S. geographies. As you know, today our sales are generated almost exclusively in the United States, but we have a fantastic portfolio of approved ANDAs and significant pipeline behind that. We have begun the process of leveraging these assets to commercialize generics internationally through partnerships, China, for example, is a massive market and we are acutely aware of the opportunity it represents. Through our partnership in Fosun Pharma, we have already filed four products in the Chinese FDA and plan to file up to ten more in 2021. We expect our China business to be commercial in 2023 and this is just one of the multiple strategies to outlicense our generics in new geographies. More to come here over the coming quarters. Let me now turn over – turn to our specialty business, which delivered approximately $356 million in net revenue in 2020. We are pleased with the prescription growth of our key promoted brands Rytary and Unithroid. We believe these brands address substantial unmet needs and we continue to invest in ensuring their long-term potential. At the same time, we are strategically building a deep R&D pipeline of projects focused on leveraging our commercial expertise and infrastructure in neurology and endocrinology. In the short-term, we remain very excited about our two CMS programs, IPX203 and K127. IPX203 is on track for Phase 3 top-line readout in the third quarter of this year and K127 is advancing well in the clinic. And the announced pending acquisition of Kashiv Specialty Pharma will provide us with two additional specialty programs, K114 and K128, which doubles our pipeline to four programs with launch potential in the next five years, while too early to project annual revenues our threshold for investing in new specialty programs is annual peak year sales of at least $100 million. Finally, we feel very good about our improved financial flexibility. As a comparison, at the end of 2019, the company’s net debt to adjusted EBITDA was 7.3 x. I am pleased to report that we finished 2020 at 5.3 x net debt to adjusted EBITDA, a two turn reduction in over 12 months. Our improved financial flexibility enables us to continue to look for accretive M&A transactions, which will leverage our commercial expertise, improve our growth profile and help us to build our specialty franchise. We are actively monitoring opportunities to make this segment a larger part of Amneal’s business in the coming years and we are evaluating multiple structures including both partnerships and M&A. Let me now move to our distribution business, which closed 2020 with $294 million in net revenue. We are pleased how the business perform as its first year as an independent subsidiary revenue despite headwinds from COVID-19. Looking ahead to 2021, our primary focus remains expanding our market share within AVKARE’s VA and DoD channels and expanding our Unithroid business. Over the next five years, we expect a large addressable market of branded products or in generics and we believe AVKARE is well positioned to it. Let me briefly touch on our effort to support domestic pharmaceutical production in this country. As we know, COVID highlighted the importance of local manufacturing and preparedness and strengthening the supply chain of essential medicines in the United States. Our operational expertise and quality record uniquely position us to be part of an expanded domestic drug manufacturing strategy further growing these savings, while providing Americans assurance that their essential medicines will be there when they need them. With that, let me turn the call over to Chintu, who will provide more color around our growth strategy.

Good morning, everyone. Thank you, Chirag. To eco my brother’s sentiment, let me first acknowledge our talented and dedicated employees across every site and function. Together, they are working tirelessly to deliver smart business continuity strategies and a relentless commitment to employee health and wellness. We are especially grateful for our frontline teams whose determination and creativity ensures an ongoing supply of quality medicines to our customers and patients. Together, our team delivered strong results and progress in 2020. We continue to revitalize our generics R&D and commercial business; grow our specialty franchise and pipeline; and improve our margins and cash flow. As Chirag noted, these were the strategies we sat upon our return to the company in late 2019 and our execution has positioned us for continued growth and success in 2021and beyond. Our commitment to superb manufacturing and quality standards remain unwavering. Our manufacturing facilities are operating at a high capacity which is improving our gross margins. We also continue to uphold the highest standards of good manufacturing practices and integrity which have been hallmarks of our company since its founding 19 years ago. Our global R&D team is solidifying the foundation for sustainable long-term growth. Our generic pipeline now includes nine different drug delivery platforms. We are uniquely positioned to develop and commercialize complex dosage forms in-house and our integrated supply chain helps us bring complex products to market faster, more reliably and more cost efficiently. Let me spend a few minutes on our progress with generics R&D. Our generics business continues to improve across our top and bottom-lines. In late 2019, we promised to launch at least 15 high value complex generics within two years. We are on track to achieve this goal by August 2021 and we will not stop there. We also expect to launch at least six to seven high-value products on a yearly basis going forward. We ended 2020 with 29 new ANDA filings and we expect to file at least 30 products in 2021, of which, 80% will be non-oral solid dosage forms. As you can see, there is a clear momentum in our core business and the fantastic example of that is the role of our generics equivalent of Ortho Evra patch, which we announced this morning and will compete with Mylan and Xulane, the only other Ortho Evra equivalent on the market. We will have CGT exclusivity for six months on this product and it is further evidence of our portfolio transformation to complex products. And this is only one of several strong launches since the start of 2021. In just last two months, we have also launched generic Zytiga and three lower strength of truvada. We are focused on generating meaningful growth in our sterile products over the next 18 to 24 months, which will better meet the demands of our rapidly growing institutional and complex generics retail business. Over the next five years, we expect to launch, at least 50 sterile products including but not limited to Microspheres , Liposomes, Peptides, Auto Injectors, Ophthalmic and Otics. And our inhalation platform continues to make great strides. We have one inhalation product currently filed with several under development and we are targeting approximately three launches in this area through 2025. As we continue developing and commercializing complex generics, we will be sure to explore ex-U.S. opportunities for these products which can be very significant via partnership model. On biosimilars, we believe this will be a meaningful segment of growth for Amneal over time. While we are still in the early innings, we believe the biosimilar market will behave more like the complex generics market over time playing into Amneal’s strength of high quality manufacturing and nimble execution. We are actively evaluating lower risk partnership models that utilize scientific innovation and a cost-efficient development and commercialization strategies. We also remain focused on being first or second to market across all therapeutic areas in the second wave of biosimilars. I would like to take the opportunity now to walk through the growth opportunities that the Kashiv Specialty Pharma deal represents. Starting with generics, Kashiv has been one of our most successful R&D partner, acquiring KSP will provide us with a specialized and experienced team of 75 scientists and a pipeline of potential first to file opportunities in categories such as drug device combination, hot-melt extrusions and other modified release forms. The deal will also boost our operations network by adding an R&D and complex manufacturing center of excellence in Bridgewater New Jersey. Moving to Specialty, we are excited about Kashiv’s proprietary technology in a drug delivery. Let’s start with Grande, which the technology behind K114 and K127. Grande is a gastric retentive drug delivery technology, suitable for up to 20% of compounds that are typically absorbed in the upper GI track. Through this technology retention in the stomach last 18 to 24 hours compared to 8 to 10 hours of most commercialized drugs with similar release. The potential application for this technology which has safely been tested in all 300 human subjects is substantial. K127 is expected to allow for once-daily dosing of Pyridostigmine for Myasthenia Gravis and K114 is expected to provide 24 hours sustained delivery of P3 for hypothyroidism. Both are significant commercial opportunities, but these are just the tip of the icebergs. K128, which is Kashiv’s extended release trihexyphenidyl candidate for Sialorrhea allows for long-acting controlled release of drug. These are only the products that we have disclosed so far. Kashiv also has a set of early-stage products that are incredibly promising. For instance, their KRONOTEC platform is an advanced osmotic oral delivery technology that provides timed, customized and pulsatile drug release to match the timing of disease symptoms. The addition of these technologies will create a capable and sustainable organic growth engine for Amneal’s specialty. We also expect to increase the share of our internal R&D budget directed to branded product development in a measured and a responsible way, both K114 and K128 align perfectly with our existing therapeutic focus areas in neurology and endocrinology. So the cost to commercialize will naturally be lower and synergistic with our platform. Also these are 505(b)(2) program, so they naturally require lower development cost and carry lower approval risk versus novel molecule development. Our passion is patient-centric and we believe these technologies have the potential to meaningfully improve existing products and improve quality of life for patients following the expected growth of our acquisition of KSP we will be positioned to launch at least one specialty product per year starting in 2023. Across our company, we are pleased with our 2020 performance and results. Our collective efforts have also sparked remarkable momentum for continued growth in 2021 and for years to come. Together, we remain motivated and driven by our single purpose to make healthy possible. I will turn the call over now to Tasos.

Thank you, Chintu, and let me start with our fourth quarter financials, then walk to the full year 2020 and finally discuss our 2021 guidance. Net revenue for the fourth quarter was $510 million, up $113 million or 28% compared to Q4 2019. AVKARE accounted for $82 million, while the combined generics and specialty business grew $31 million or 8%. Generics’ net revenue of $342 million was up $42 million or 14% compared to Q4 2019. The majority of growth was driven by products launched in 2020, as well as EluRyng and Sucralfate, while solid growth in the rest of our portfolio offset declines in Levothyroxine and Diclofenac. Specialty net revenue of $85 million was down $12 million or 12% and essentially flat on a sequential basis. This performance reflects three factors; first, consistent double-digit growth of our promoted brands rise of inventories; second, a large non-recurring return of a discontinued product from a single customer; and finally, lower income due COVID-19. Adjusted gross margin of 40.6% was in line with our expectations. Generics were at 38%, compared to 33% in Q4 of 2019. While the adjusted gross margin for AVKARE specialty was 17% and 74% respectively, consistent with our overall 2020 average performance. Adjusted EBITDA of $107 million was up $27 million or 33% compared to Q4 2019, reflecting strong generic growth and tight expense management. Adjusted diluted EPS of $0.14 was well ahead of the $0.08 reported in Q4 2019, mainly driven by the adjusted EBITDA growth and lower interest expense. Let me now summarize our full year 2020 performance. Total net revenue was almost $2 billion, up $367 million or 23% versus 2019. Generics were $1.345 million, up $34 million or 3%. This growth reflects the 2020 new product launches EluRyng and Sucralfate offsetting Levothyroxine and Diclofenac competition and broad market share gains offset the Oxymorphone rate plus and COVID-19 headwinds we discussed in prior quarters. Specialty 2020 net revenue was $356 million, up $38 million or 12%. Oxymorphone added $28 million, while double-digit growth of Rytary and Unithroid offset declines in the non-promoted brands, as well as COVID-19 related disruptions. AVKARE 2020 net revenue was $294 million, driven by both the RMS distributions and government segments. Adjusted gross margin for 2020 was 41.6% in line with our expectations. This reflects the 218 basis points expenses for generics of 38.3%, mainly due to new product lines. Specialty of 74.2%, stable throughout 2020 and finally, AVKARE at 17.5% in line with full year average. Adjusted EBITDA for 2020 was $456 million, up $101 million or 28% compared to 2019. On a standalone basis, AVKARE contributed $46 million. Adjusted diluted EPS for 2020 was $0.63, well ahead of our $0.35 reported in 2019. From a cash perspective, we generated a record level of operating cash flow of $379 million. Excluding the $100 million tax refund we discussed in the second quarter, we delivered $269 million, compared to $2 million in 2019. This performance was ahead of our guidance range of $170 million to $220 million, partly due to favorable timing of collections and processing of expenses by key - certain customers. As a result of our strong performance, Amneal is in a much stronger financial position today. As a point of reference, our cash on hand in 2020 was $347 million, compared to $153 million in December 2019 and as Chirag mentioned, our net debt to adjusted EBITDA improved to 5.3 x compared to 7 x a year earlier. And finally, we are generating substantial amount of cash. Let me now turn to our 2021 guidance where we expect another year of growth. First, we expect net revenues in the range of $2.1 billion to $2.2 billion. Generics growth should accelerate from the 3% in 2020, as new product launches continue, legacy issues are behind us and less COVID-19 related disruptions. In specialty, Rytary and Unithroid growth will offset the exclusivity loss as the business begins to ready itself for future new product launches. AVKARE is expected to grow double-digits by leveraging long-term contracts and less COVID-19 disruptions. Second, we expect adjusted EBITDA in the range of $500 million to $540 million. Our growth expectations are balanced and include full year benefits of product launches already taken place, new 2021 launches, and operating expense efficiency actions. Our guidance also includes investments in R&D to drive long-term value, high risk G&A to increase our commercial footprint in neurology and endocrinology and higher expenses in general as economic activity picks up throughout 2021. Third, we expect adjusted EPS in the range of $0.70 to $0.85 at the current statutory federal tax rates, reflecting strong adjusted EBITDA growth. Fourth, we expect CapEx in the range of $60 million to $70 million as we continue to invest in new technologies to support our strategy of expanding our complex new product offerings. Finally, we expect operating cash flow in the range of $220 million to $250 million, which reflects the fourth quarter 2020 timing benefits I discussed earlier. As you may have noticed, we did not provide specific gross margin guidance. The significant part of three segments with such diverse profiles but the shift in the mix of business can have a substantial impact. Nevertheless, we expect gross margin expansion in 2021 that will be led by our generic business and we also expect stability with specialty and AVKARE. With that, let me turn it over to Chirag.

Thank you, Tasos. We are pleased with the strong performance delivered over the last year and are confident. We are well positioned to drive growth in 2021 and beyond with our Amneal 2.0 strategy. I would now like to turn the call over to the operator to take your questions. Thank you.

[Operator Instructions] The first question comes from David Amsellem of Piper Sandler. Please go ahead.

Hey, thanks. Just a couple. So, wanted to first get some additional color on the top-line guidance and particularly, can you talk about how you are thinking about approval and contribution from complex generics? Obviously, you have the news today on the patch. So, that’s in there. But what else is baked into the top-line and EBITDA? I mean, do you have risk-adjusted contribution from say, a COPAXONE generic, which you talked about in the past and grew this up. So just help us understand what’s in there. And then, secondly on the biosimilars, I know you talk about the three, the pegfilgrastim, filgrastim and Bevacizumab, but are you prepared to talk about additional products that you are investing in? And just talk about what we might see in the coming year in terms of additional opportunities? Thanks.

Well, thank you, David. Let me start first and then I’ll turn it over to Tasos for more details. So, your first question is on NPOs. As you know, generics NPOs we do not list them out for competitive reasons. Our track records speaks for itself. We did our best this time to give you more color in slide number 8 and 9 of the presentation. So if you look at those, it gives you the trending pipelines for each major categories where we have been very successful, which now includes nine categories. So, if you go to Slide 8, you got insert implants the ring, vaginal ring, all those we introduced on the top already. And the bottom end tells you what’s in the pipeline. Actions we have broadened pretty much five patches approved and it was a remarkable achievement to get the Zafemy, Lidocaine Patch approved. So it comes right from our New England, New Jersey facility. So we are filling the pipelines. Topicals, we still have good products and in oral liquid is in topical. Nasal spray, we still have. And all these infrastructures are in New Jersey manufacturing sites. The inejectables, so, now that’s the big growth area, as well. This year we’ll launch few, but in coming years as Chintu mentioned, we have multiple products, subsector of GX, which we would say, injectables were only last year we did $112 million. We have huge growth potential in coming years including we just invested in the large volume parenteral products as well and other sterile products like ophthalmics coming as well. We expect the first launch of our inhalation products from our Irish plant. And we have typically few OSC products. And page 9 shows you what standing at FDA and we further broke down which we consider the exclusive FDA, single sourced, high value, launch on approval, and then a bunch of paragraph 4. So it’s a very nicely architected pipeline to give six, seven high value launches every year. We still expect another six, seven this year and next year even more. And our active product pipeline of 93 products, only 80% are – I mean 80% products are non-oral products. So, hopefully, that answers your question. I did not give you specific products, but I gave you enough to give the color on our new product launches. I’ll answer the biosimilar question first and then Tasos can add a bit more. So, and it’s a broad question and I know, I’ll get this question repeatedly, what is our strategy. So, as we have built ourselves as an affordable medicine company over years, we look at biosimilars as part of that. So within GX, we have nine categories. We started in 2012, 2013 investing in a complex generics products and all this like ones and they are all in-house. Biosimilars, we are doing the same. We are starting out slow. We believe it’s more of a complex generics market, it will behave like that. The players will have lot of – based on their hospital-based products. We go t to deal with there the buy and bill model you would have to deal with the clinics. So, eventually, based on which player influence it will have, it will become more complex generics. We all know that it will have competition, sometimes three, sometimes four, five, six unlike complex generics, if you are at third or fourth place, you will have a much lower market share than the first two. So, all going forward after these three products it should cost-efficient way, develop the products. I’ve been working with the FDA on it. So that’s all off of clinical trials and have commercial strategies which doesn’t break our bank. Because, it’s competitive marketplace, and the next - just like we built the complex generics, the next set of biosimilars, and we are here to play in this for ten years. So, we don’t even look at a quarter or one year. We will do this and we will be the leading players in the coming years. So, we are more focusing on how can be first or second on the next wave of known biosimilars. And eventually, we are looking at building our manufacturing facility in the United States, because that was our key advantage as well a high quality manufacturer and it will matter whole lot as we progress through the biosimilars. And as you know the market is really good over the next 10 to15 years. Tasos, go ahead.

Yes. No. Hey, David, good morning.

Good morning.

A couple of those. We feel great about our top-line, number one. So, I’ll talk a little bit about generics, which is a little bit like riding on a treadmill, right, because all of us know the continued price pressures. However, I think over the last 18 months, Andy’s team has done a great job gaining market share, and leveraging their commercial skills and leveraging the strong pipeline we have built. So, as a result, we are not just simply looking to replenish revenue and solely rely on new product introductions, all right? So, the base business is going to do very well, very high resiliency, number one. Number two, in the last quarter, you saw the generics growth rate in Q4, it was up 14%. So a big part of it is definitely of the new product introductions have already taken place, right, already taken place in the second half of last year and now, those are feeding in – into the top-line revenues, right. And then, number three, we continue to innovate, right. Chintu and his team of 900 scientists have not stopped generating new NDAs and getting approvals. Xulane was a great success this morning. So, the 2021 new product launches will continue to drive growth in the generics space, which is why we expect growth rate in generics to accelerate from the 3% of this year. That’s point number one. Point number two, AVKARE had a great jump growing at double-digit growth rates on the top-line. We talked about the EBITDA on the bottom-line is not as high, but a lot of which was just on COVID-19 implications. So, we expect another double-digit growth for AVKARE in 2021. And finally, our specialty business. So, specialty business is in the middle of a transition, right, Rytary and Unithroid are going to grow double-digits, the same way they grew in 2020 and we are also making investments in that space in terms of expanding our field force in our commercial footprint as I mentioned. At the same time, as Xumane is going to off patent, we have a historical strategy in terms of capturing the majority of the generic market share. So that’s going to offset some of the headwind. But at the same time, that business is going to grow – not going to grow at 12% it grew in 2020, which is why, but it’s going to grow and it’s also in transition as the team is getting ready for new product launches such as IPX203, K127, over the next couple of – next few years. And then, finally, right, we expect, I know some folks are wondering, hey, how do you think about the COVID-19 assumption? Listen, last year, in the thick of things, and we ended up increasing both top-line and bottom-line guidance. Our expectation this year is COVID-19 should not persist, but we are not anticipating margins grow in our way. At the same time though, we expect less of an impact. If you remember last year, in Q2 and in Q3 alone, I spoke about $30 million of top-line orders in sales, encouraged on the stressing of the supply chain. Chirag, Chintu and his team have done a great job of building our pipeline. So, we are expecting headwinds not quite as much as 2020. So, a little lengthy, but hopefully that address your questions.

It’s helpful. Thanks guys.

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

Hi, good morning. First, Kashiv is a very good source of pipeline for you. Are there a lot of other small companies you’ve identified to potentially do deals with? As you look to expand in specialty, would that just be in the current area of neurology and endocrinology or would you consider going beyond that? And then, ex-U.S., aside from extending in China, which you highlighted, where else would you go in terms of other regions? And just talk about the pace of that expansion? How aggressive you are going to be to diversify the business geographically? Thank you.

Thank you, Gary. So, Kashiv has excellent pipeline in the drug delivery platform, which allows us to grow in our current way which is neurology and endocrinology. We are targeting the products where and the older molecules where we can use our drug delivery technologies to improve vastly the all unmet needs over thirty years, twenty years ignored by big pharma, because these are not big revenue products, it would become somewhere $100 million to $300 million. So, we could look into those specialty if we find more opportunities to the drug delivery technologies. But right now, we are solely focused on neurology and endocrinology. And we would add commercial assets, as well as pipeline assets. We want to make specialty a much larger portion of Amneal’s business going forward. And as we launch these products on specialty, we would be outlicensing it globally ex-U.S. the specialty products as well. The second question on China. China is very attractive, because as you know Fosun has vested interest in Amneal and they have a significant position, equity position in Amneal. So we have a trusted partner in China and they are in top three in China, which allows us to – we have worked on it over two years now since we came back identified a great pipeline and I am pleased to see the whole gas currently on China. So, in 2023, it looks better than United States with certain generics molecules. We expect to have a meaningful presence in China and continue on to building our partnership and portfolio. The second market we mentioned Europe, and it will be just for our high value products within our pipeline, right, inhalation, certain injectable products, technology-driven products. So, we are not looking to have hundreds of ANDAs out in international markets, very targeted, because as you know, it’s crowded. So, we just want to take our best assets and increase it via additional revenue to our U.S. based revenues. Thank you.

Okay. There was one other just on Kashiv. There are lot of other deals like that that you’ve identified potentially?

Right now, we are more focused on the commercial. So we have good targets on commercial and we are actively pursuing. Then we will look into pipeline and we – that’s our passion. So, it’s both, R&D and commercial. But right now, commercial for few quarters.

Okay. Got it. Thank you.

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

Thanks, and good morning. Congratulations on the GX approval we’ll make sure I am pronouncing it right, is it Zafemy? I am curious as to what your capacity is to supply that market. What do you think you can clean in terms of market share? And also, interestingly it’s been a market that’s been growing at 15% to 20% year-on-year. And I am wondering if you think there is potential for that to actually accelerate now with a second product in the market. And then I just want to follow-up by – you’ve given us quite a bit of detail in terms of potential launch cadence in some of the constitution of products over the balance of the year. But previously, you said, you were cautiously optimistic in seeing generic COPAXONE in second half of 2021 and also a respiratory product. And I am wondering if that’s still the case. And then, just a quick follow-up question for Tasos on gross margin dynamics in the generic business. I know that you’ve been kind of working towards that 30 – that 40% mark and aren’t quite there yet. But in thinking about that number going forward, are we at a point where new product dynamics are really the sort of the driver of incremental improvement in that metric? And how can we think about that number longer term? It still seems like there is lot of room for upward movement in gross margin metrics. But I am not sure ultimately of this – you think this business can be a 45% margin business or maybe even something better if we think out three to five years? Thanks.

Thank you, Elliot. First question on Zafemy, Ortho Evra, our manufacturing capabilities. As you know, we always say that. All these complex manufacturing, we do not been out 100% capacity. The CapEx will not justify as we always expect competition to come in. So, in this case, we are starting out at around 35% going to 50% in few months. So it’s a good capacity and that’s how we have allocated our CapEx there. And we – as we have always seen, when we launched Sucralfate market grew. So we expect the market to grow in generics options that are available. Second question on COPAXONE and that’s medical products and we are optimistic this year to be launched both. And your third question, I just want to historically point out that –because of our efficiencies and the new product launches, we always enjoy higher gross margin and most of the products 90% plus remain by of itself. So, we do not share in profits with other compartments. So, we expect the gross margins to grow. But Tasos will give you more color.

Yes. Hey, Elliot, good morning. So, a couple of thoughts. Generics gross margin. Listen, I think the business is great this year, right. So we have for the year, full year gross margin of about 38%, 38.3% versus 35% last year. So there was almost a 300 basis points improvement in one year. And we are only just started scratching the surface in terms of new product introductions and as you know, the new products for us gives us substantially higher margin than the 38%, right, which gives us the confidence to say that we continue to go after generic gross margin in excess of 40%. But whether or not we will get to the excess of 40% plus in 2021, not quite sure, but the trajectory is definitely positive, number one. And number two, as Chirag and Chintu remind me the legacy annual gross margin was substantially in excess of 40%. So, long-term, we are chasing excess of 40% whether or not it’s 45% or so, that’s probably a good target over time. That’s number one. Number two is, one of the key drivers of gross margin improvement is actually two-fold. Number one is, new product introductions, as I mentioned before, they have an average gross margin substantially more than 70% - I am sorry, essentially more than the 40%, number one, but also there is substantial amount of cost efficiencies to continue to go after. For the cost of goods line, it’s about $1 billion, right. So we are actively looking for efficiencies whether or not it’s pushing our purchasing teams, right, to improve our purchasing power, whether or not it’s baked in-house, right, manufacturing – our products manufactured by third-parties. So I think that continues to represent a good opportunity for us over time. And then, finally, as you know, AVKARE gross margins, I still believe there is room for improvement there. And then specialty, I think we are looking for stability for next year and over time, right, as the new pipeline plays out, I think we are looking to expand those margins as well.

And that works for you Elliott?

Yes. Perfect. Thank you.

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

Hi this is [Indiscernible] on for Ami. Thanks for taking our questions. Maybe two if I can. Just on EluRyng, I am curious how you are thinking about the durability of this product in 2021 given there is additional generic entrants. And then, do you expect to add a generic this year? And then, maybe just more bigger picture, we are in early days of the new sort of U.S. President administration, I am just curios if there has been any updated views of the discussions around initiatives on domestic manufacturing for essential medicines and how guys could participate in this? Thank you.

Well, thank you very much. On EluRyng, as you know, Terra launched their product. So we already have competition. We may get another competitor, as well. As a reminder, our market share was 20%, now we grew to 30%. The volume is offsetting the pricing pressure and we still see as a durable. Good product. It’s complex. So this year contribution is great and going forward, it will be a good contribution as always complex products the like. We haven’t heard any competitors. If it comes, still it’s a large market and it will be a meaningful contributor this year. And your question on the Biden administration, they already gave 100 days review for pharmaceutical manufacturing and supply chain and specifically focusing on essential medicine and what we make in America and what we don’t. And the 100 days review will reveal that we don’t make much here due to the competitive pressure everybody has and especially last four years more manufacturing. I remember in 2016, 2017, in total as a industry is to make 60 million unit dose in oral solids in the United States with some hundred plus facility. But that number is much lower, I would say, less than probably 20 billion in the United States. So, that’s just one example. Biologics, we don’t make much here, as well. So we need to have 35% 40% of capacity and capabilities to – in case of any emergencies, whether it’s pandemic, whether it’s – so I am not against the global supply chain. That is going to happen. And it is needed. We by ourselves have a global supply chain, but why not have at least 35% to 40% capabilities and capacity right here in our own country? And that’s what Biden administration is reviewing. Also, the Congress is utmost interested, both sides as well to making this happen and the states, many states are stepping up to have a manufacturing and this high end capabilities and universities are supporting the initiatives. And why not, right, which is simple as is generics, biosimilars products, why don’t we make them in the United States.

Thank you.

The next question comes from Greg Gilbert of Truist. Please go ahead.

Hi, good morning. Can you offer us an enrollment update for 203? And when do you expect to file the NDA? Secondly, I have a question on generics, I am curious, if immunogenicity or other technical questions might make that a difficult approval to get soon. I assume it’s a when not an if, but maybe you could share your thoughts on the approvability and the hurdles there? And lastly, on AVKARE, Chirag, you talked about how that’s going. How does that play into strategy longer term? Should we think about it as to something that kind of chugs along assets going and participates in growth of the industry? Or does it play a bigger role in your longer term strategy and are there other ways to leverage it? Thank you.

Thank you, Greg. Go ahead Joe.

Sure I’ll just on – I’ll take two or three, Greg. We are not going to comment on specifically patient numbers but we are on track to have top-line results by the fourth quarter of this year. There is a safety follow-up that we do expect to be in a position to file the NDA by the middle of 2022.

Chintu, do you want to add anything?

No, we expect to file in 2022 a non-res oppressing. We are awaiting further FDA comments. We haven’t heard anything on immunogenicity or any other roadblocks. But we have in-depth understanding of the peptides and other biosimilars and other areas of expertise in-house. So, I think you are equipped, Greg to swiftly answer any CR response that comes from FDA. And on the biosimilar, this is a broad term play for us – long-term and we will be focused on science and manufacturing capacity. We evolve further into biosimilar and as Chirag mentioned, we will focus on first or second company to come out in the second wave of biosimilar and it is a long haul for next five to ten years. But these markets are must market to have.

And Greg, your question for AVKARE. So, AVKARE, we embark – we brought them as part of Amneal is because of two main reasons. One is, seg business that VA VOD. We like that segment and there are multiple products coming up, right, for VA VOD. So, we expect that to grow. And second is you need those business which is at its nascent stages. We are launching eight plus unit dose in liquid from our Branchburg, New Jersey facility. So that should grow on a unit dose. And the third one is, how do we get closer to one step closer to customers. So we may use the AVKARE platform, which we are not ready to talk about on how it looks like, but we are always looking to get one step closer to customer.

Okay. Thank you.

Thanks, Greg.

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

Hi, good morning, everyone. Thanks for the questions. A lot of them have been answered. Just on Ortho Evra. So, I saw that you have a CGT designation giving you 180 days exclusivity. But seeing that Mylan is being alone in this market for the past six years, is it fair to assume that there is no other competitor on day 181 or anytime in the near future? That is one. Two, on biosimilars, again a lot of color, Chirag. But also, one of your peers on the biosimilars side, recently signaled a strategic reversal in the segment and what does this imply for you in terms of the opportunities? How does it influence future thoughts around investments into the space? That will be helpful. Thanks.

Thank you, Balaji. So, Ortho Evra, the competition would be very limited if any this year. And we’ll it that for now it’s extremely complicated complex product. On the biosimilars, the competitor is right. It is you can’t invest $100 million, $50 million for a product. It is – the returns will not be there. It has to be the strategy that we are making. It’s cost-efficient development and cost-efficient commercialization. What is the meaning having 150, 200 people to do some – where it’s the same product, biosimilar and our generics product. So, we believe it’s just in play more like complex generics in coming years and the play area the company that invests in manufacturing, in science, it’s integrated not sharing to margins, high quality, manufacturing will matter a whole lot here. And I believe domestic manufacturing will make a big case, as well and you have your broader portfolio of five, ten, fifteen, twenty products. And those are the company will – it’s right and what we do. It’s in our nation - in our DNA as a affordable medicine company leading in the United States.

Thanks, Chirag.

And that’s how it will play out. Thank you, Balaji.

Just one follow-up, maybe on that. If the cost of investments are significantly lower, and should be lower, do you anticipate more competition or more companies exploring or entering the field, let’s say, in two, three years from now?

I think, Balaji, it’s similar to complex generics like Transdermals and it’s more complex than in all these microsphere injectables and there is a peptides, I mean, in peptides. The biologics manufacturing is not an easy task. It’s a lot is involved in it. So, yes, there will be competition, but we can consistently supply, is going to be the key high quality product.

And due to time constraints, the last questioner will be Dana Flanders with Guggenheim. Please go ahead.

Great. Thank you for squeezing me. And I just had two quick ones. Maybe, I guess, first on the generics base business, just wondering if you could comment how you see it positioned from a diversification standpoint. I know there are always upside and downside risks to guidance, but to me, at least it seems like, just from a revenue and gross profit perspective, you are just much better diversified than a few years ago. And then, just my second quick question on R&D spend, just as you increase investment and focus on the branded business, what does that mean for total R&D spend over time? Should we think of some upside bias to that number? Or do you shift some value from kind of lower – or shift some spend from lower value generics over to brands? Thank you.

Thank you, Dana and good to hear from you. The first one is the generic business, you are right. Few years ago, we were highly concentrated on few product since we have launched many complex products now. It’s highly diversified and the key thing is we are keep launching six, seven more complex products every year. So refreshing the pipeline and also finding opportunities within base business as we have more capacity for Transdermals, Topicals, liquid or injectables, so all the subsectors of GX, we are expanding to offset the continuous pressure which is lower than previous years on a base business. On R&D, as you know, this is 505(b)(2) R&Ds and we will be allocating more and more dollars to specialty than generics. But we will stay around 160, 170 for now. As we grow, we will invest smartly in more. But, again, it’s 505(b)(2) so they are not any kind of expenses. So I hope that answers your questions.

Great. Thank you.

Thanks.

This concludes our question-and-answer session and the Amneal Pharmaceuticals’ fourth quarter and full year 2020 earnings call. Thank you for attending today's presentation. You may now disconnect.