AMRX - Amneal Pharmaceuticals Could Have An Upbeat Q2

2023-07-10 08:00:00 ET

Summary

• A Complete Response Letter from the FDA temporarily tanked AMRX stock.
• New launches and established products should contribute to Amneal Pharmaceuticals' Q2 growth.
• A generic to blockbuster sets Amneal up nicely for Q3 and onward.

July 3 was a volatile day for Amneal Pharmaceuticals ( AMRX ), a small ($956 million market cap) global pharmaceuticals company. The self-styled #4 U.S. generics retailer received a Complete Response Letter ('CRL') from the Food and Drug Administration (FDA) regarding their IPX203 New Drug Application ('NDA') for the treatment of Parkinson's disease ('PD'). But they earned Abbreviated NDA approvals for five complex generics products. They also launched an authorized U.S. generic for Jazz Pharmaceuticals' ( JAZZ ) Xyrem (sodium oxybate) CIII oral solution. Investors should note that the loss of IPX203 income doesn't impact guidance, or the prospect of a good second quarter earnings report.

The CRL

IPX203 is an oral capsule containing immediate-release granules and extended-release coated beads. The IR granules of consisting of carbidopa ('CD') and levodopa ('LD') include a disintegrant polymer to allow for rapid dissolution. The ER beads are coated with a sustained release polymer to allow for slow release of LD, a mucoadhesive polymer to keep the granules adhered to the area of absorption longer, and an enteric coating to prevent the granules from disintegrating prematurely in the stomach. This novel formulation is distinct from Amneal's RYTARY ER capsules.

The CRL indicated that a scientific bridge for the safety of CD was not adequately established, based on pharmacokinetic ('PK') studies, and FDA has requested additional information. No efficacy or manufacturing issues with respect to IPX203 were noted. There were two completed PK trials , Study B14-02, which compared IPX203 180mg and 270mg against Sinemet (IR CD-LD) and Rytary 145mg and 195 mg; and Study B16-01, which compared IPX203 only to Sinemet. While LD dosing is more crucial due to the challenge of maintaining plasma levels within a narrow therapeutic window, its absorption becomes harder because the body clears it faster when taken with CD. Although PK trials are relatively short and need few participants, hopefully another won't be necessary; otherwise, approval will be delayed by more than a year.

The Future

Xyrem

The blockbuster central nervous system depressant is indicated for cataplexy or excessive daytime sleepiness in patients with narcolepsy. Jazz Pharmaceuticals' lead product earned $1.02 billion in 2022 , although by Q4, it was overtaken by Xywav, a low-sodium follow up. Xyrem had fallen to 3rd position behind Epidiolex, but its $178 million in Q1 from patients still on it is up for grabs, which is a major opportunity (Figure 1). Formulary changes will likely be immediate.

Figure 1. Amneal Portfolio Catalysts

Other Q3 entrants

Among the 5 ANDAs was dexmedetomidine injection, which according to IQVIA (IQV), generated $102 million in U.S. sales for the 12 trailing months ended April 2023, despite a shortage. If they launch quickly, Amneal may be able to corner the market for this badly-needed sedative as early as Q3. As a hospital staple, this won't need formulary approvals.

In May, Amneal launched FYLNETRA (pegfilgrastim-pbbk), a biosimilar referencing Amgen's ( AMGN ) Neulasta in a pre-filled single-dose syringe. Per IQVIA, U.S. sales for Neulasta biosimilars for TTM ended March 2023 were $908 million . Don't expect much from this 6th biosimilar entry, or from the company's previous two oncology biosimilars, Alymsys, referencing Roche's ( RHHBY ) Avastin, and Releuko (Amgen's Neupogen), launched in October and November 2022, respectively. They came very late to the game.

New for 2024

Last month, the FDA approved the NDA for PEMRYDI RTU, the first and only ready-to-use presentation of pemetrexed for injection and does not require reconstitution, dilution, or refrigeration. Amneal expects to launch this product in Q1 of 2024 with a J-Code from the Centers for Medicare & Medicaid Services. The injectable is indicated as first-line treatment of metastatic non-squamous non-small cell lung cancer with no EGFR or ALK mutations and for first-line treatment of patients with unresectable malignant pleural mesothelioma or who are not candidates for surgery. With meaningful efficiency and safety advantages, PEMRYDI RTU will be competitive in the pemetrexed market, which according to IQVIA, recorded $532 million in U.S. sales for TTM ended March 2023.

Financials and Takeaways (for Q2 Earnings)

In Q1, Amneal grew its cash position from a precarious $26 million at the end of 2022 to $144.7 million . Adjusted diluted earnings per share of $0.12 and net revenue of $557.5 million both beat Wall Street estimates. Revenues increased 12% year over year, contributing to an A- Profitability grade in Seeking Alpha's Quant system, even with gross margins falling to 35%. Analysts now peg Q2 revenues at $565.11 million , a mere 1% YOY increase. Two factors make estimates beatable. First, at least 12 new products were approved since Q2 2022 and should've contributed to the past quarter's earnings. In Q4, Amneal launched 8 products, including prednisolone sodium phosphate oral solution. The generic for Orapred provided an alternative to the prednisolone syrup shortage, and more than doubled the Respiratory Segment to $12.8 million in Q1 (+126%). Last August, the company marketed four more generics, including clindamycin phosphate topical gel, which sparked the Dermatology segment to $18 million in Q1 (+35.6%), and vasopressin injection, which has a relatively large market (IQVIA saw $624 million in U.S. TTM sales ended June 2022). The biosimilars and leuprolide (a prostate cancer injection approved in November) may actually help just by improving on the paltry $10.6 million oncology sales in Q1.

Growth from established products provide the next impetus. Prescription demand in the Specialty segment remained strong, led by thyroid med Unithroid ( $25 million in Q1 , +38.5% YOY ) and Rytary ($44 million, +14.1%). Zafemy, the second approved generic to the discontinued Ortho Evra contraceptive patch behind Mylan's Xulane, pushed the Specialty Hormonal/Allergy segment to $24.8 million (+28%). Finally, Amneal investment in AvKARE and R&S Northeast LLC is paying off. AvKARE is one of the largest private generic distributors to the U.S. federal agency sector, primarily the Department of Defense and the Department of Veterans Affairs, while R&S is a national pharmaceutical wholesaler primarily catering to 340b-qualified institutions. The AvKARE Segment is profitable, earning $406.1 million in 2022 (+16% over 2021) and $122.1 million in Q1 (+28.8% YOY), driven mostly by expansion of Amneal's distribution channel to $83.2 million (+38.1%).

To conclude, Amneal shrugged off the 9.5% drop the next trading day to continue its Quant A grade for Momentum. Chief Financial Officer Tasos Konidaris promised a return to 42% gross margin in Q2. All in all, 7 of 17 Generics and Specialty Segments declined in Q1 compared to last year to the tune of $22.2 million total decrease in revenues, but was completely offset by AvKARE's $23 million increased distribution to 340B entities. Not counted among those Segments is a major risk: the likely decline in oseltamivir (generic Tamiflu) sales as a result of decreased influenza activity this flu season compared to 2022, which could possibly reach >$10 million. However, Rytary and Unithroid are reliable and should pick up the slack, and the past two years, Q2 sales have been higher than Q1. A similar performance to Q1's 25% EPS and $18.4 million YOY beats could spur a further rally.

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