Good morning, and welcome to Amneal's Second Quarter 2021 Earnings 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 Amneal's Head of Investor Relations, Tony DiMeo. Please go ahead.

Good morning, and thank you for joining Amneal's second quarter 2021 earnings call. Today, we issued a press release reporting our financial results. The press release and presentation are available on our website at amneal.com. We are conducting a live webcast of this call, a replay of which will also be available on our website after its conclusion. Please note that certain statements made during this call, regarding matters that are not historical facts, including but not limited to managing 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 the presentation, which applies to this call. Also please refer to our SEC filings, which can be found on our website and the SEC's website, for a discussion of numerous factors that may impact our future performance. We also discuss certain non-GAAP measures. Important information on our use of these measures and reconciliations to US GAAP maybe found in our earnings release and the appendix of today's presentation. On the call this morning are Chirag and Chintu Patel, Co-CEOs; Tasos Konidaris CFO; Andy Boyer and Joe Todisco, Chief Commercial Officers for the Generics and Specialty segments; and Steve Manzano, General Counsel and Corporate Secretary. Chintu and Tasos are in separate locations today, so hopefully we maintain good connectivity. I will now turn the call over to Chirag.

Thank you, Tony. Good morning, everyone. I'm pleased to share with you Amneal's strong second quarter results with net revenue of $535 million, adjusted EBITDA of $151 million and adjusted EPS of $0.25. As a matter of fact, these results are the highest levels our company has delivered since 2018 and a testament to the soundness of our strategy and excellence in execution by our global team. As you will hear from Tasos later on, all three business segments Generics, Specialty and Distribution performed very well. And at the halfway point of the year, we remain confident in our ability to meet or exceed our financial guidance for 2021. Let me now discuss each of these three segments and provide updates on key initiatives. Over the last two years, we have significantly strengthened our Generics portfolio through our core competencies in R&D, manufacturing and commercial excellence. As a result, we have seen an increased cadence of new more complex product introductions creating substantial value for Amneal as well as our customers and patients. Since we rejoined Amneal two years ago, we have demonstrated consistent Generics performance while increasing adjusted gross margins from 30% in third quarter of 2019 to 47% in this most recent quarter. That's a significant improvement. In Generics, we are often asked what makes our generic business durable? Fortunately, the answer is many things. Let me share a few highlights with you. First, a third of our current generics net revenue comes from products launched since 2019. That's a meaningful portion of the business. This fact reflects the robustness of our R&D engine. Second, for about half of these new products, Amneal was either first or second to be approved for that product, which speaks of the ingenuity of our team. Third, our business mix is increasingly…

Thank you, Chirag. Adding to those points around ESG, we always strive for improvements across the organization. For instance, Amneal is known for its best-in-class quality system and we are constantly looking for ways to push that quality bar higher. Most importantly, it is our people that drive the success of Amneal. As always, we would like to recognize the service of our nearly 6,500 associates who work very hard every day to make healthy possible. We thank them deeply. On our call last quarter, we shared how the pandemic was impacting our organization and team in India. Thankfully, the local situation has improved considerably. However, we are saddened by the toll the pandemic has had on our Amneal family and their loved ones. The India team has demonstrated tremendous courage and resiliency and we are very proud of our team. Now let me provide some key updates on our operations and our innovation agenda. Two years ago, when Chirag and I returned as co-CEOs, we stated our key priorities were to optimize global operations, improve supply chain and enhance margins. These goals continue to be a key area of focus. Two years later we are seeing considerable progress across all those initiatives. Most notably our product offerings are much more diversified across numerous therapeutic areas and multiple drug delivery mechanisms with much improved profitability. This is remarkable improvement in two years. Next our innovation strategy has been well, thought out and deliberate over the years. Looking back, we have a reach history of innovating across numerous drug dosage form categories. We believe Amneal is differentiated from its peers in its ability to deliver innovations across these complex dosage forms. Our internally developed R&D and manufacturing capabilities build methodically over time are driving the velocity of innovation we are seeing…

Thank you, Chintu. In the second quarter of this year, we reported total company net revenues of $535 million up 15% versus Q2 2020. Adjusted EBITDA of $151 million up 50% and adjusted EPS of $0.25 up 92%. Our growth was balanced and driven by strong commercial execution across our three business segments operational efficiencies and targeted investments to drive long-term value. In addition, we continue to improve our balance sheet and further reduce net leverage to adjusted EBITDA to 5 times compared to 5.3 times in December 31, 2020 and 7 times in December 2019. Starting with generics. Second quarter net revenues of $360 million were up $54 million or 18% year-over-year. The strength of new product launches and resiliency of our portfolio offset lingering COVID-19 headwinds and price deflation. Our quarterly growth rate of 18% also reflects favorable comparison to prior year where COVID-19 disrupted our supply chain. From a product perspective, Zafemy, Abiraterone and EluRyng were strong contributors to revenue growth. On a year-to-date basis, generics recorded $673 million in net revenues up 2% organically year-over-year. As we have discussed in the past, a productive R&D pipeline is critical to ensuring a robust generics business. We continue to be pleased with the performance of new product launches and products launched in 2020 and 2021 accounted for $61 million of revenue growth this quarter. As a result of the performance of new products and the resiliency of our more complex product portfolio, we're driving profitable growth while bringing more value to our patients and customers. Adjusted gross margin for generics was 47.1% in the second quarter substantially higher than the 35% of the prior year quarter and ahead of our expectations. This 12 percentage point expansion reflects two key components. First, about half of the growth is due…

Thank you, Tasos. To close, Amneal is driving strong performance, across our businesses, which reflects, the diversity and durability of our product portfolio. The story this year is the success of new complex product launches, which we believe will continue to differentiate Amneal. As a direct result, we see sustainable growth and profitability going forward. We would now like to open the call to questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Gary Nachman with BMO Capital Markets. Please go ahead.

Hi. Good morning guys. First, on the plan to double the generic injectable business in several years, is that all organic, or are you assuming some inorganic growth as well? So talk about, how much is in the pipeline there and some of the bigger drivers over the next few years? And then, just on, the specialty business. Talk about the additional Endo reps on Unithroid. How much of a benefit are you seeing from that? Do you hope to leverage that with more assets through business development? And then, just the expectations for IPX203 Phase III data in -- coming soon, just what you're, hoping to see from the data that would be meaningful in terms of that product? Thank you.

Thank you, Gary. Good morning. Let me start with your first question which is on injectable. So currently our expectation is all from the organic growth. We do have a solid pipeline of 75 injectable products, as Chintu mentioned, across the various complexities such as, peptides, long-acting depot, the drug device combination. So it's a very rich pipeline, we have in injectables. And we have three plans to deliver that. So capital investments have been already made, over the years. And we are ready to become a serious player in injectable market in coming years and really highly valuable player. So that is your answer to the first question. For the second one, I would like to turn the call over to Joe. And you may want to address the third one and Chintu you may want to add on to the IPX203 as well.

Sure. Thanks Chirag. So we started building up the endocrinology field force. We're increasing the size in March of this year. And we get a hiring and training around 25 new sales reps, which doubled the size of that team. They essentially went live in the field in June. And we saw an immediate uptick in scripts. We do expect that trend to continue in the back half of the year. So we're very pleased with what we've seen, with the promotion sensitivity of Unithroid. On IPX203, we expect to announce the top line results in the next couple of weeks. We're hoping to show a statistically significant improvement and good on time. We're also meaningfully reducing the dosing frequency versus IR. Beyond that I don't think we're going to comment on -- this one time.

Not at this -- only a couple of weeks left. Yes. Thank you Joe. Chintu, would you like to add anything for Gary's question?

No you guys covered it. Thank you.

Excellent. Fantastic. Let’s move to the next question, please

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

Hey, thanks. Just a few. So first as the business evolves, what are your thoughts on potentially divesting some or parts of the legacy oral solids business and just getting out of oral solid or the more commoditized piece of the business. How do you think about that, or how should we think about that? That's number one. Number two is, can you just give us a road map regarding the competitive landscape for Zafemy? How we should think about other entrants coming in particularly in 2022? And then lastly on the DHE opportunity is it your view that this could be bigger than what -- than the footprint for the Zomig nasal spray. And what I guess, I'm trying to get at here is not just how you're framing the opportunity but how you see the acute migraine landscape evolving given the new entrants? So help us understand your thinking there. Thanks.

Good morning, David good to hear from you. So let me start with the first question, which is a very strategic question you did ask. And as you know Endo adopted the strategy to divest out of the OFC more on diverse and -- more of a complex generics portfolio. We do not like that strategy. We are a meaningful player in generics business. We have a base of about $1.4 billion. So we have a long runway we can grow. And our customer appreciates when we are bringing oral solids the commoditized product as well as complex products. We are -- as well as our operational efficiencies are also increased by doing so. Of course we have lowered our commoditized products development to almost 20% and 80% still focus on the complex products. So we like to remain as an essential meaningful company for the United States, which is driving the patient's need reducing the cost creating more access. So we believe, we would play in oral solids as well. Your second question on Zafemy, I'd like to turn it over to Andy Boyer, over Commercial Head of Generics business.

Good morning. Thank you. So Zafemy, had performed extremely well this year. We're up to almost 35% market share and we continue to grow our opportunity. We do expect additional competition at some point later this year. And as far as 2022 we haven't commented on that yet but has performed extremely well.

Thank you, Andy. And Joe, would you like to touch on the DHE business?

Sure. Thanks, David. So we know that the migraine space is getting increasingly more competitive with all the new CGRPs that are launching. We've developed over the last few years Zomig nasal spray a large amount of intelligence in the migraine space. We're not looking to position DHE as a first-line therapy that goes out and competes head-to-head against the larger CGRPs. We know that it's going to be more of a niche second third-line therapy. We're going to position it accordingly and that's how we'll be marketing it. I'm not going to comment beyond that on any other pricing or commercial strategy, at this time. But we're mindful, of the competitive nature of that space.

Okay. Thanks, guys.

Thank you, David

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

Hi, good morning. This is Balaji. A couple of questions from me and congrats again on the results. Firstly on the generics industry, the -- while generic see a lot of churn annually, the fact that you called out around one-third of revenues from new generic launches over the last 2.5 years, how does that compare to the industry standard? And kind of an extrapolation of the same question, new launches going by what you called out, seems to be running at a $200 million run rate from 32 products on average of $6 million per product. Despite most of these being first or second market, is that how we should think about the contribution from complex generate, or should we be expecting higher revenue per product, especially from the complex wings? Thanks.

Good morning, Balaji. Excellent question. So, in comparing the generic industry other players, may not be a good comparison because, some are already at $3 million, $4 million range like Teva and Viatris. So they will have a harder time to match the one-third of our new product launches within two years. As we keep saying that, we are at the right revenue base as a total of $1.4 billion. And we see tremendous growth in our generics business from now to next five years. As you know, we built the company over time. And we're very excited about that. So that's -- and we have this wheel of innovation where we have 100 products pending at FDA, 100 in pipeline. Every year, we are launching 20 to 30 products. Out of that six to seven are high-value products. The rest are highly competitive products. And then, every year we're filing 25, 30 products. We are increasing our complexities of filing. It's more higher -- potential higher revenue drivers we are filing, drug device combination, inhalation products, the long-acting depot injective was, the bag, some of the 505(b)(2) in the injectable space as well. So we expect the contribution, which is you did the math, it could be $200 million, could be $250 million, could be $180 million, could be $300 million. It all depends on which products get approved within that year. But the key message is that, we have enough to rotate every year into new products launches, as we constantly face competition in our base business and reduction in prices due to the highly competitive nature of the generics business. The complex products are also driving more durability. So, even if we lose in revenue, when the competition came like alluring, we still -- we increased our market share and still maintaining the same revenue as last year. So, we're building this durable portfolio as well. Did I miss anything, Tony?

No. That was good.

So, thank you, Balaji. Hopefully, that answers your question.

Thank you, Chirag. That's very helpful. If I could just squeeze in a follow-up, based on the guidance, can you also just describe the pushes and pulls towards the implied second half run rate? Thank you, very much.

Thank you, Balaji. So, we're very pleased with our progress and continued momentum. And remain very confident, that we will deliver at the high end of our guidance or even above. For more details and as you know, there are variables that go in the guidance, I'll turn it over to Tasos.

Thanks, Chirag. Hey, good morning, Balaji. As Chirag said, first half and I think we feel great about the performance. And as you think about the second half, I don't think you should expect anything substantially different, right? So, I think you're going to have the normal play out of typical competitive pressures being offset by continuous new product introduction, number one. Number two, I spoke a little bit about the generics gross margin kind of tapering off a little bit, because in the first half, we were at 46%, 47% for the first half. So that's going to taper a little bit and continue to be thoughtful about the investments we're making to our business, because it's all about driving topline and bottom line growth next year and the year after that. So, I think the first half is a good indicator of how the second half is going to play out, a slight acceleration on revenues, little tapering down on gross margin. And I think, when you look at the adjusted EBITDA, I think we have a good opportunity to be on the high end or exceed the high end of our guidance. I hope that helps the outcome.

Thank you.

Okay. Was there a follow-up?

No. I think, he said, thank you.

Thank you. [Operator Instructions] The next question comes from Greg Fraser with Truist Securities. Please go ahead.

Good morning guys. Thanks for taking my questions. Can you speak to the level of competitive intensity that you're seeing for your key generics and how price erosion has been trending relative to expectations? And then my second question is on FDA. Are you anticipating that Q3 will be strong as it has been historically driven by the back-to-school demand? And how are you thinking about that the FDA market beyond this year? Do you think the market can continue to grow, or do you think erosion is more likely at least in 2022 due to vaccine-related demand declining?

Hey, Greg, good morning. This is Chirag. I'll take the FDA question and then pass it to Tasos for the generics price pressure that we see every year. So I think we're doing good. We had a growth and it's growing compared to last year and we expect that to grow slightly as we improve our supply chain. We're working with both of our partners diligently Pfizer and Philips, and we're seeing good results. So we're upbeat. And yes, Q3, Q4 would be higher as well due to the back-to-school and higher demand. So, it's more of our getting ahead on the supply chain. The market is there for us. And for your key generics competitive landscape, let me turn it over to Tasos.

Thank you, Chirag. The second question was more around pricing, Greg. So our price outlook has not changed since last time we spoke in May. So the oral solids, the older part of the portfolio we continue to see low double-digit price erosion. So in terms of the overall portfolio, I think, we're high single-digits so kind of in line with our conversation in May, so that's how this kind of plays out. But more importantly, right, you know in our business this is part of the business, which is why we have invested substantially in complex in R&D pipeline. So, as a result in cadence of new products allows us to offset the price deflation and the comparative pressure is number one, but at the same time more importantly increase the profitability of the business, which is exactly how things have played out over the last two years, because over the last two years we increased our generic margins from 35% in 2019 to 38% last year, and this year will be substantially over 40%. So we think that creates a lot of value for our patients for our customers, but also for our shareholders. Around comparative pressures, we don't see anything that can substantially change our view of the business. At some point in time Zafemy is going to have competition, the same way levothyroxine had competition the same way EluRyng had competition. But our ability to provide excellent quality products, a very strong supply chain will allow us then to continue to grow our business. So hopefully that helps.

Very helpful. Thank you.

Okay

The next question comes from Daniel Busby with RBC Capital Markets. Please go ahead.

Hi. Good morning. I've got a few questions on biosimilars. First, could you provide us with an update on your biosimilar Neupogen candidate? I think last quarter you guided to a potential 2021 launch. It looks like that's been pushed to 2022. And then more broadly, can you talk about the time lines and level of investment needed to place Amneal in a position to develop and manufacture biosimilar products in-house? Is this something that you're actively pursuing now, or is this more of a longer-term aspiration? And finally, to what extent, are there potential business development targets that could help accelerate the development of in-house capabilities? Thank you.

Excellent. Daniel, good morning. An excellent question, we always get the biosimilar question. We love it. So Neupogen, the only reason it has moved to 2022 is the facility inspection in Chicago. FDA has resumed inspections and they're prioritizing it. So hopefully they get to the facility as soon as possible. So that's for the Neupogen. So we do expect, which is a much smaller product as you know the Neulasta, which we expect next year and Avastin if the site inspection goes on time, since it is approved in EU already by our partner mAbxience. We are very hopeful that we can launch Avastin as well next year even though it may get pushed to 2023. So, very exciting all three. As we have mentioned, we build everything in the long-term. So, of course, we are thinking to build the in-house capabilities. We have started certain activities, but we are at a nascent stage at this point. As we see this next 10, 15 years, the roadway we want to do it smartly. We want to be efficient. We do not and cannot spend $100 million for product development. We have to spend $30 million, $35 million. We know that this is a highly competitive market and it will remain so. And that was the purpose to have a biosimilars act, but we'll definitely do what we do best is to manufacture high-quality products and do great science on biosimilars coming in next one, two, three, four, five years. As far as the business development, it's going on. We expect to in-license maybe two to three new products this year. And next year, we will do the probably similar two to three external partnership, while we start developing in-house as well. And yes, we could afford the CapEx and R&D, as we smartly allocate the money towards next generations of manufacturing, which is biologics and next generations of R&D, which is biologics as well. I hope that answers your question Daniel.

Yes, it did. Thanks for the color.

Thank you.

This concludes our question-and-answer session and Amneal's Second Quarter 2021 Earnings Call. Thank you for attending today's presentation. You may now disconnect.