Amphastar Pharmaceuticals Inc (AMPH) Q3 2018 Earnings Conference Call Transcript

This post was originally published on this site
Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Amphastar Pharmaceuticals Inc  (NASDAQ:AMPH)
Q3 2018 Earnings Conference Call
Nov. 08, 2018, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Amphastar Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

All statements on this conference call that are not historical are forward-looking statements, including, among other things, statements relating to the company’s expectations regarding future financial performance, backlog, sales and marketing of its products, market size and growth, the timing of FDA filings or approvals including the DMFs of ANP, the timing of product launches, acquisitions and other matters relating to its pipeline of product candidates, its share buyback program and other future events.

These statements are not historical facts but rather are based on Amphastar’s historical performance and its current expectations, estimates and projections regarding Amphastar’s business, operations and other similar or related factors. Words such as may, might, will, could, would, should anticipate, predict, potential, continue, expect, intend, plan, project, believe, estimate and other similar or related expressions are used to identify these forward-looking statements. Although not all forward-looking statements contain these words.

You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and assumptions that are difficult or impossible to predict and in some cases beyond Amphastar’s control. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in Amphastar’s filings with the Securities and Exchange Commission. You can locate these reports through the company’s website at amphastar.com and on the SEC’s website at www.sec.gov.

Amphastar undertakes no obligation to revise or update information in this press release or the conference call referenced above in to reflect events or circumstances in the future. Even if new information becomes available or if subsequent events cause Amphastar’s expectations to change.

I would now like to turn the conference over to your host, Jason Shandell, President of Amphastar.

Jason ShandellPresident

Thank you, operator. Good afternoon and welcome to Amphastar Pharmaceuticals Third Quarter Earnings Call. My name is Jason Shandell, President of Amphastar. I’m joined today with my colleague Bill Peters, CFO of Amphastar. We appreciate you joining us on the call today and look forward to speaking with you and answering any questions you may have.

I’ll now turn the call over to our CFO, Bill Peters to discuss the third quarter financials.

William PetersChief Financial Officer

Thank you, Jason. Sales for the third quarter increased 30% to $75.5 million from $57.9 million in the previous year’s period. Enoxaparin sales increased 183% to $18.6 million from $6.5 million in the third quarter of last year, as there was a market shortage in September, which led to an increase in non-contract sales at list prices. We were also able to take a price increase on enoxaparin to partially offset the increasing costs of heparin. Medroxyprogesterone, which was launched in the first quarter of 2018 had sales of $7.6 million.

Naloxone saw sales decline to $9.4 million from $12.7 million on lower unit volumes. Isoproterenol, launched in July, had sales of $2.4 million. Our insulin API business had sales of $5.1 million, up from $4.1 million last year. Cost of revenues increased to $46.3 million from $37.4 million, and gross margin increased to 39% of revenues from 35% of revenues in the third quarter of last year. The improved gross margin was related to increased sales of high-margin products, such as medroxyprogesterone and isoproterenol, as well as increased average selling prices for enoxaparin. An increase in units produced at our Amphastar facility resulted in efficiencies, which also helped our gross margins.

Increased wages, new quality requirements, which increased labor hours, and the increased price of heparin, partially offset these margin trends. Selling, distribution and marketing expenses increased to $2 million from $1.8 million, primarily due to higher freight costs. General and administrative spending increased to $13.4 million from $11.7 million, primarily because of higher legal expenses. Research and development expenditures increased 13% to $11.3 million from $10.1 million, due to the expansion of our ANP facility, and also due to increased FDA filing fees.

Looking ahead, we anticipate that fourth quarter spending will be materially higher than the third quarter, as we recently began clinical trials on two generic drug candidates. Additionally, we expect spending to increase significantly next year as well. Since we sold a 42% stake in our ANP facility, we will now begin reporting net income and per share statistics, based on the portion of the company’s income or loss, attributable to Amphastar Pharmaceuticals shareholders. On this basis, the company reported net income of $2.4 million or $0.05 per share, versus a net income of $99,000 or $0.00 per share in the third quarter of last year.

The company reported adjusted net income of $5.7 million or $0.12 per share, compared to an adjusted net income of $3.4 million or $0.07 per share in the third quarter of last year. Adjusted earnings, excludes amortization, equity compensation and impairment of long-lived assets. In the third quarter, we had cash flow from operations of $15.8 million. During the quarter, we used a portion of our cash to buyback approximately $7.6 million of stock.

I will now turn the call back over to Jason.

Jason ShandellPresident

Thanks, Bill. We are extremely happy about our announcement that our NDA for Primatene Mist was approved by the FDA. This represents a very important milestone for the company, as it further validates our strong capabilities to develop complex combination products and innovative inhalation delivery systems, as well as perform sophisticated clinical and human factor studies. Amphastar is very proud to bring this new and improved product back to the over-the-counter market, and to be able to provide people who suffer from intermittent asthma with an OTC option to manage their mild symptoms.

We are grateful to the FDA for the close and productive collaboration we shared throughout the approval process of this NDA, and for the agency’s robust scientific review to ensure that the product can be used safely and effectively by consumers in an OTC setting. Amphastar’s continued mission is to lead in the development of innovative pharmaceutical drugs and delivery systems, that will help to meaningfully improve people’s lives, and we believe Primatene Mist will do just that.

We ordered labels and card-ins for Primatene, after an earlier communication with the FDA, but they take several weeks to receive and then pack into the product. Our plan is to ship to major retailers in late December or early January. Based on this schedule, we expect to be on the retail shelves in January of 2019. All of our approvals over the past year had a positive impact on both sales and gross margins.

As Bill discussed, in addition to our new launches in 2018, our average selling price of enoxaparin increased on higher volume in the third quarter. Now with the approval of Primatene Mist, we believe that the company is poised for significant sales growth and continued profitability in 2019. We are happy to report that our pipeline continues to make good progress. We had two more ANDAs accepted for filing by the FDA, both of which are Paragraph IV challenges, and for which there are currently no generics on the market.

According to IQVIA data for the 12 months ended September 30, 2018, the market value of these two ANDAs represents approximately $500 million in annual branded sales. We also made progress on our inhalation pipeline, as we recently began the clinical trial for our first inhalation ANDA. That trial is expected to end in the second quarter of next year, so we anticipate filing our first inhalation ANDA shortly thereafter.

With respect to the two previous ANDAs filed with the agency, we just received a CRL today and are still assessing it. We have one more GDUFA date, later this year, but that is for a less significant product. In terms of our unapproved products on the market, we now have all, but one on file with the agency, and demand remains very strong for our critical care products. With respect to our intranasal naloxone NDA, the FDA contacted us in late October, to let us know that they have completed their review of our submitted materials regarding the appropriate volume for the pediatric population. We were informed that the agency is now in the process of finalizing its recommendations and we should be receiving a response soon.

With that update, I will now turn the call over to the operator to begin Q&A.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from the line of David Amsellem from Piper Jaffray. Your line is open.

David AmsellemPiper Jaffray — Analyst

Thanks. Just a few questions here. So on Primatene, can you talk about pricing? And how we should think about gross margins of the product relative to some of the newer launches that you’ve had. So that’s number one. Number two is, regarding the Depo-Provera generic with the additional competition, I mean what are your thoughts on, how that’s going to trend in 4Q and also in 2019?

And then lastly, I know that this is a recent news on the CRL and I would — is it fair to say that is the higher value generic that you had been alluding to. In other words, one that where there is no generic available, and do you have a sense of what you need to do to get that across the finish line? Thanks.

William PetersChief Financial Officer

Sure. As far as Primatene goes, we’ll be having that go out with a WAC price of $24.80. And so the major retailers will be getting a discount off of that, as far as pricing goes, and also the normal — the terms discounts. We also anticipate — considering strongly doing some couponing at least in the first year as well. So depending on how much that goes that — that can bring down the price. And remember that as an OTC product or certain promotional spending that you do at drug stores, which actually is the price reductions that have a marketing spend, so that further brings down the price from there.

Gross margins, initially, remember that we made several hundred thousand units in the second quarter, up to the point that they were filled, but not labelled or packaged yet. So we expense the full — the entire cost of that manufacturing at that time, since the product was not approved. Therefore, the only expense on the first several hundred thousand units that we sell is going to be the labeling, cartoning and packaging for them. So the initial growth margins are going to be extremely high. Remember also that the facility there right now contributes about $1 million to the cost of goods line without any revenues. So that — that’s already built into the — our current cost of goods line. So, the margins will improve once we start absorbing that — the overhead that’s currently being charged that way.

So, initially, this was an extremely high margin product and then once we’re actually taking the full expense for it, it just becomes a high margin product. So, either way, it’s very good. The MPA or the medroxyprogesterone of the market competition, yeah, we have seen some competition there and we think it will affect our sales slightly. However, there is three players in the market and we have less than one-third of the market right now. So, I don’t think it will affect us as much as it will affect Pfizer’s share of the market. So, there will be a change, but not as material as other people.

Jason ShandellPresident

Yeah. And then finally, with respect to the CRL, you are correct, it’s the higher value product of the two that were pending, the one in which there is no generic. We literally got the CRL today and so, our scientific team is assessing it. What I’ve heard from the initial assessment is that we are confident that it’s addressable.

David AmsellemPiper Jaffray — Analyst

Okay. That’s helpful. Thanks.

Jason ShandellPresident

Thank you.

Operator

Your next question comes from the line of Elliot Wilbur from Raymond James. Your line is open.

Elliot WilburRaymond James — Analyst

Thanks, good afternoon. I just — I believe there is an error in the press release. It says something about higher average selling prices on enoxaparin.

Jason ShandellPresident

Yes, seems strange.

Elliot WilburRaymond James — Analyst

Yes, indeed. So, the question is obviously what led to that? Is that an innovator driven price action or is there –?

Jason ShandellPresident

No, — well, there is a couple of things going on there. One was that, as we saw the price of heparin going up as quickly as it was, we knew that we had to either take a price increase or we were going to be selling it not only below our cost but below our variable cost. So, we were able to take a price increase in the quarter. And where we’ve — that did stick. I think as we think that other people also increased price in the quarter, it helped that Sandoz dropped out of the market at the same time this was happening. So, it was good timing from that standpoint.

Secondly, because Sandoz dropped out, they stop shipping or I think left the market early in the quarter. At the end of the quarter there was a market shortage. And we saw — normally most of our sales are two customers that are on some sort of contract or discount off WAC and sales are negligible of anything at the list of the WAC price. And we saw that the WAC price sales actually ticked up into the high-single digit percentage of our sales, that might not sound like much, but that pricing is two to three times higher than what other people are paying. So, that was enough to really bump up the average price. So, that really happened in September, but we saw that trend continue into October, and it’s because the October sales were shipped to — October pull from the channel, it was on units that were shipped in September. It actually affects the September pricing because of the way we do the charge back accrual. We do it based on the price that we believe that the products will be sold to use the actual data from early October to help determine that accrual. So, the pricing impact in October was actually in this quarter.

Additionally, we saw that, we started the fourth quarter with fairly low volumes in the wholesale channel. So, the unit demand in October has remained fairly strong, but we’ve seen in the last weak or so, that I think it’s kind of moderated now. So I think we’re not really getting those non-contract sales anymore, but the good thing is that we were in fact able to pick up a little bit of market share on contract. So our volumes will be higher than they were in the second quarter, on a going forward basis. And the price will be higher than it was in the second quarter. So, it might not be as high as it was this quarter, but definitely much significantly higher than the second quarter.

Elliot WilburRaymond James — Analyst

Okay. Question for yourself, Jason. You mentioned, you referred to obviously the two new additional ANDA filings in the quarter (inaudible), where are you sort of in the process there in terms of notification? Have we passed the 45 day notification period here and have there — I haven’t picked up any litigation being filed, but just sort of curious kind of where we are in that process?

Jason ShandellPresident

Yes. So, one of them, we are well past that 45 days. We sent out the notice and actually, there is only several days remaining before the innovator can sue us. So, we’ll see what happens there. And then on the second one, the notice has not gone out yet, but it will be going out in the next couple of weeks.

Elliot WilburRaymond James — Analyst

Okay. And then, just, congratulations of course on the Primatene approval. I know that’s been a long 10-year journey.

Jason ShandellPresident

Thank you. Yes.

Elliot WilburRaymond James — Analyst

Exciting to see that return to market, I mean, anything else you can share with us with respect to sort of the go-to-market strategy or return to market strategy here in terms of some of the initial engagement you had with retailers and just of their perceptions and recollections of the product, and it may just seems like it’s one of the very few OTC drugs that sort of can truly drive incremental traffic in the front of the store. And I got to believe that it is a fairly high level of interest among the large change out there. So, I’m just sort of curious kind of on the qualitative commentary, you’re getting from the retail trade and sort of what you’re thinking about in terms of some of the initial upfront investment getting that back on the shelves and whether or not — and how quickly we may see things such as media campaigns and the like post-launch?

Jason ShandellPresident

Yeah, good question. So you’re exactly right with respect to getting foot traffic into these major retailers. They are extremely excited, I mean over the years, they have kept in contact with us and have been very anxious to see this approval. And so they are going to make a big push, they want us to really beef (ph) up the spending on advertising. And as we’ve discussed on past calls, they’ve talked about having it in multiple sections of their stores, cough and cold, behind the counter, as the allergy sections. So, this is going to be a big product for the retailers and they are very excited and we have engaged in advertising agency.

And we’re looking to spend in the high single-digit millions of dollars. This will mostly be a digital campaign and a lot of paid search. So, we’ve engaged them. We’re going to start this right away in terms of our digital campaign. We’re excited, because the last full years of sales for Primatene was $65 million. But, when we used to sell this product, we bought it in 2008 from Wyeth and then essentially sold it for three years, knowing that it was going to sunset part of the Montreal Protocol.

So, we really did not spend any marketing dollars or do any advertising for those three years and that’s where the $65 million came from. So it’d be interesting to see with an advertising campaign and whether or not we increased some of the ad spending during certain seasonal times of the year where there’s more allergies. It may be interesting to see how much marketing can help sell this product, but overall the retailers are very excited. And in terms of getting it on the shelve, typically they don’t want to really do anything in the first quarter, they — after Thanksgiving, they’ve got their shelves all setup for the holiday season, but they want to make an exception for Amphastar. So we are looking to ship in December, and then they want to move fast to breakdown the shelves and get it up there as fast as possible, which we’re targeting January.

Elliot WilburRaymond James — Analyst

Okay. And just one final question for you, Jason. You mentioned the $24 retail price. How does that —

Jason ShandellPresident

Not retail, wholesale price.

Elliot WilburRaymond James — Analyst

Wholesale, sorry. How does that compare to the per unit price that was in place when Wyeth generated the peak number of $65 million?

William PetersChief Financial Officer

Well first of all, it’s us, that generate when we talk about 50%, that was Amphastar.

Jason ShandellPresident

That’s right.

William PetersChief Financial Officer

But it was about 50%.

Jason ShandellPresident

A little, a little less than 50%. Yeah, of the (inaudible).

William PetersChief Financial Officer

However, the other thing is that when Amphastar is doing it, they weren’t couponing, they weren’t doing some of the discounting that goes against sales, that helps drive traffic. So, there is very little promotion going on, so I think you’re going to see a bigger gross to net adjustment now than you would have back then.

Elliot WilburRaymond James — Analyst

Okay. Thank you.

Jason ShandellPresident

Sure.

Operator

Your next question comes from the line of David Maris from Wells Fargo. Your line is open.

David MarisWells Fargo — Analyst

Hi, congratulations on the approval yesterday. That’s great news. I have a bunch of short answer questions, first on the CRL, was this a first cycle review or second cycle?

William PetersChief Financial Officer

This was second cycle.

David MarisWells Fargo — Analyst

Okay. On the sustained profitability for 2019, would you expect that to progress through the year? Or is it going to be lumpy, just given the timing of spending and the like?

Jason ShandellPresident

That’s going to be a little bit lumpy, but right now our forecast is that all quarters will be profitable. What will be lumpy is the timing of certain clinical trials. In particular, the ones for the respiratory ANDAs, because those are extremely expensive. And in fact, they’ll probably be more expensive than we had originally anticipated, which is why, if there’s two going on, in one quarter, there will be a lot of spend. So in our fourth quarter we’ll have one respiratory trial going on in our first or probably only be one, but in our second quarter it’s probably going — although there is plan to have two different respiratory trials going at once. And since they’re both very expensive that quarter could be lumpy, just as an example.

David MarisWells Fargo — Analyst

Okay. And is it fair to think of the profitability, that this is still a building period for the pipeline that it’s not, you’re not managing for maximizing profitability but investing in the pipeline?

William PetersChief Financial Officer

Absolutely, very much.

David MarisWells Fargo — Analyst

Okay. Other respiratory trials, how long should those last? Eventually they might start, one starts in the fourth quarter and the two, on the first but when should they end?

Jason ShandellPresident

So, yes, this one, that I was referring to already started and we’re expecting it to end in the second quarter.

David MarisWells Fargo — Analyst

And so what’s the anticipated filing for those? Assuming (multiple speakers)

Jason ShandellPresident

Assuming that it is successful and ends in the second quarter, we should be able to file in the third quarter.

David MarisWells Fargo — Analyst

And what’s the branded value of those products?

Jason ShandellPresident

We, of the total, I don’t have the one product in front of me right now, but hold on, yeah, it’s a multi-billion dollar product.

William PetersChief Financial Officer

Yes.

David MarisWells Fargo — Analyst

Okay. On the Paragraph IV challenges are you partnered on those? Or are you alone? Are those your own?

Jason ShandellPresident

Yeah, it’s a good question. We’ve talked about our partnership on Paragraph IV, but those are all for inhalation, so this is our injectable and so this is our own Paragraph IV.

David MarisWells Fargo — Analyst

Great. Thanks again and congratulations, great quarter. And the big news obviously, Primatene. So, thanks.

Jason ShandellPresident

Thank you.

William PetersChief Financial Officer

Thank you.

Operator

Your next question comes from the line of David Steinberg with Jefferies. Your line is open.

David SteinbergJefferies — Analyst

Thanks. I guess I’m semi-amused, you got this approval after (inaudible). I was just reading an email from the FDA that they put out this morning, it looks like the FDA Commissioner and also Janet Woodcock caught involved sending out an email which begs the question, did — would they involved in the process? And today, at the end of the day, did they end up over ruling other people of the agency given the panel where you had some of the safety concerns?

Jason ShandellPresident

Yeah, we don’t know about the internal process, I mean we do know that Dr. Woodcock is acting Director of new drug. So that is under her spell. So we mostly dealt with the division. And as we’ve said on previous calls, it was very collaborative, we had multiple meetings last year, we had a face-to-face and I think the dialog back and forth and really the discussion is around the product and the bench studies that we’ve done. And as that email from the FDA this morning conveyed, was really a rigorous evaluation on the human factors. Because of the Advisory Committee decision in 2014, we really had to focus on the comprehension of the label and getting it right.

And we really do want to give credit to the FDA, who helped us with those studies by suggesting that, we put the label on the actuator itself, and this was a really unique idea and we think once it’s in the retailer, they will be really helpful for people, because typically you buy a product, you throw the box way, throw the instructions away, but those critical task will be right there on the actuator for people to see.

So, as I said in my prepared remarks, we believe it was very collaborative, obviously it’s always frustrating to get two CRLs, but we understood the issue that the agency was grappling with, and we really work together to get this to the finish line.

David SteinbergJefferies — Analyst

Great. So I know you’ve been asked a few questions on the commercialization strategy, just wanted to delve into a little bit more. So all your products are generic, this is completely different, an OTC brand. So, could you help us with a couple of things, one, I would think this might have a different launch trajectory. Could you help us with sort of how many years you think you might get to peak? Number two, it was one of the most widely recognized brands, when it was a CFC product, given the advertisements and could you just remind us and give us some granularity on sort of what kind of, what level of advertising will you use to pull patients in to buy this?

And then thirdly, roughly what sort of sales levels would you estimate, you need to breakeven on Primatene?

Jason ShandellPresident

Okay, great. So yeah, let’s start out year’s peak. You know, that’s an interesting question, and yeah, we’ll have to sort of continue to assess as we do the ad campaign. We want to be conservative and assume that it could be 2 to 3 years to get to peak sales, but hopefully with good ad campaign, we can actually exceed those sales in a shorter period of time. And that goes to your second question in terms of sort of what is our plan for advertising? And as I was saying earlier, we’re not looking to spend 10s of millions of dollars, but definitely in the high single-digit. But unlike back in the ’60s or ’70s with some of the commercials back then which are very expensive to run. This is a new era of the Internet and online advertising.

We see companies like Google and Facebook is the biggest companies in the world and we are now realizing why a lot of our spend will go toward digital search and we’ll have to assess that as we go in terms of when to put the most money into that, if it’s seasonal or not, but, so basically we will be paying. So when somebody puts a search term into Google, Primatene will pop up. There is going to be a lot of online campaigns using social media such as Facebook. And then of course, we’re working with the retailers and in the couponing and some of the local papers that can also be helpful. But, the real focus will be a digital advertising campaign.

William PetersChief Financial Officer

Yeah. And as far as the break-even, as I mentioned, initially there is almost no cost associated with the sales, we are having for the first several hundred thousand units. So it’s not going to take much to break-even. And we do have a little bit of a spend in the fourth quarter, but we’re not exactly sure whether we’ll be able to ship products in December, whether that might slip to January, just based on the timing of getting the labels, getting the boxes, packaging of things and having them ship out with the holidays and all. But this is going to be extremely profitable and even with a multimillion-dollar ad spend that we have planned over the next 12 months, I think, is will be very profitable.

David SteinbergJefferies — Analyst

Great. Thanks very much.

Jason ShandellPresident

Thank you.

Operator

Your next question comes from the line of Gary Nachman from BMO Capital Markets. Your line is open.

Gary Jay NachmanBMO Capital Markets — Analyst

Hi, good afternoon. My congrats as well, on the Primatene approval.

Jason ShandellPresident

Thank you.

Gary NachmanBMO Capital Markets — Analyst

So first, a few there. Should we expect a big stocking number, when you ship to pharmacies. And Bill, could you quantify what the gross to nets might be settled be reasonably high, just maybe put a number or a range on it? And then can you supply the market to meet demand, assuming there is significant demand for it? Talk about your manufacturing capability for it.

William PetersChief Financial Officer

So, as far as stocking goes, there will be initial stocking. However, it’s unlikely that much of that will happen in the fourth quarter, as there could be a little bit of stocking in the fourth quarter, more of it will happen in the first quarter of next year. And as we’ve said on previous calls, we know this product is going to be very easy to get into the retail channel. So our problem is not getting on to the shelves and paying for shelves space or anything like that. So it really just pulling it off the shelves once it’s there. So we have in our website is already live Primatene.com and on the bottom — it’s coming soon to Walgreen and CVS. So it will be at those two chains initially, one of them in early January, the other hopefully the late January. And then there’ll be at other retailers once we’ve had enough — once we’ve done enough manufacturing to be able to start all of their needs in some of the wholesale needs. So, I do anticipate that first quarter we’ll have a lot of stocking them.

Jason ShandellPresident

Yeah. And then in terms of meeting market demand, we have really good capacity at Armstrong, so we believe that we will be more than able to meet the demand.

Gary NachmanBMO Capital Markets — Analyst

Okay and Bill, I also asked about the gross to net, so I don’t know if you could put, just to frame that a little bit. Is it like 30%, 40%, 50% like just give a range?

William PetersChief Financial Officer

Yes. So I think it’s going to be — I’ll say it’s going to be more like 30% to 40%, maybe 50%. So, yes in that. (multiple speakers)

Gary NachmanBMO Capital Markets — Analyst

I got it right.

William PetersChief Financial Officer

Yeah. So it just going to depend on the retail — the larger the retailer, the two chains will have, two biggest chains will have a pretty big discount. And as I said, we will also have some couponing, we don’t know how much couponing will go in, but it’s going to be some test. We’re going to do some tests with that and see how that goes. And then also some of the spend at the retailers is actually a sales deduction depending on what type of spend it is. So depending on what those, how that goes and how we allocate, we have certain amount of money that we’ve allocated toward expenditures at the retail level. And so some of that will turn out to be a sales reduction, some of that will turn out to be a marketing expense and we haven’t finalized, which will be which. So in either case, it’s going to be a highly profitable product in either case, so it doesn’t matter where it comes from.

Gary NachmanBMO Capital Markets — Analyst

Right, OK and then to that point. Just on the gross margin, it sounds like directionally going into next year, it should definitely improve. And I know if you want to give us sort of magnitude, I know there is so many moving pieces in there. Enox is going to help and Primatene for sure, but maybe you could speak to some of the other products that might weigh it down a little bit, just so we have the right expectations?

William PetersChief Financial Officer

Yeah, well so, first of all Enox done a — did very well this quarter because of the large surge in the non-contract sales, so that will not continue into next year. So we expect that trend to moderate. And so that the gross margin on our spend drops. And then once again I’ll say gross margin on that. We did make a profit on that this quarter, but that was only because of the reserves that we put on the inventory at the last year, where last quarter we’re a little bit higher than necessary, given the average selling price was higher than anticipated. So, that still is a product which loses money.

And while we are making more units of it and selling more of it, that will actually help offset that and help make it so that we’re losing less money per unit, we are still losing money on that product. Primatene as I said, it will be extremely profitable for the first several hundred thousand units, because there is almost no expense associated with them. After then it will become a product that still has gross margins that are well above our average. In either case so as that grows, so will our gross margins. And if we’re able to get one or two of these other generic products on the market next year, the one that’s the bigger opportunity that we got the CRL on today, we think we will be very high margin product as well given the lack of — there are no generics on the market now. And we don’t anticipate there will be many — if any, by the time we get to the market.

Gary NachmanBMO Capital Markets — Analyst

Okay. Yeah, that was actually going to be my last question, just on that CRL, that you got today and you mentioned before that it was your second CRL. So, and assuming it’s addressable, you don’t think that anyone is going to front run you there, you’re pretty confident that you could be first to market on it?

William PetersChief Financial Officer

Yeah, we’re very confident. This is an extremely complex product and we do believe we’ll be first to market.

Gary NachmanBMO Capital Markets — Analyst

Okay. Alright. Thanks guys.

Jason ShandellPresident

Definitely. Thank you.

Operator

Your next question comes from the line of Serge Belanger from Needham & Co. Your line is open.

Serge BelangerNeedham & Company — Analyst

Hey, good afternoon. A couple of questions on the ANDA pipeline. It looks like you met your goal for 2018 filings. What do you think in terms of the cadence for filings in 2019 as well as potential approvals in 2019 outside of this recent CRL?

Jason ShandellPresident

Yeah, sure. So the way we talk about filings is, filings that are accepted. And so we actually plan on filing more this year, but we will count that for 2019 by the time that they’re accepted. And so in terms of our cadence, we’re looking at 3 to 4 ANDAs for 2019. And was there a second part to that question?

Serge BelangerNeedham & Company — Analyst

Yeah. Potentially (inaudible)

Jason ShandellPresident

Yeah, so I mean we’re really encouraged with the FDA as the new GDUFA and the 10-month approvals even with multiple cycles — you sell with our generic Isuprel, we got a CRL, we turned it around in a matter of weeks and had an approval several months after that. So looking at our pipeline and sort of the trajectory for approval, we’ve talked about this on past calls. We want to continue to replenish our ANDA pipeline with three to four products a year. And we want to continue and we hope to achieve three to four approved approvals per year.

Serge BelangerNeedham & Company — Analyst

Okay. And have you got any updates on the intranasal naloxone product? And any visibility on when we can could see that back, I guess in clinical development or a filing?

William PetersChief Financial Officer

Yeah. So we did get an update, I believe it was in May when we had first submitted our actual use data. So that was where we went around the country and collected information from pediatricians regarding the volume that we proposed to FDA. And so after collecting that on other intranasal products, it was very compelling to show that the concern regarding our volume is not a concern with pediatricians around the country. So we had submitted that and we’ve been waiting for a response. We finally got an update just a few weeks ago, at the end of October, where they explain that they actually have completed their review. And they said that they would be providing recommendations, I believe, they said in several weeks. So we now, we always know that the agency is busy and sometimes things get delayed, but we do think that we will get a response on that soon, and hopefully can provide an update on the next call.

Serge BelangerNeedham & Company — Analyst

Okay. And one last one on the $100 million bond any new developments on the, if and when you can collect?

William PetersChief Financial Officer

Sure. So on that one, I think I might have given an update in the past but just to refresh, basically Momenta is appealing the patent case, which is as expected. And so we’ve been going through that briefing, you never know how long it’ll take for an appellate decision, but based on historical data, we believe that we could get a decision in the summer of 2019. And so on the $100 million bond, we had moved on that immediately after the final judgement with the court, Momenta petition the court that they should wait, pending the appeal and the court agreed. So with respect to the $100 million, it would have to be after the appeal is resolved, which would be the summer of 2019, is my estimation. However, in parallel, the momentum is really building in our antitrust case. We completed discovery in that case that the end of October and now we are going through depositions and the trial for that case is in September of 2019. So it’s a matter of whether they want to go to another trial with us. This time, we are the plaintiff, and we are willing to accept a global settlement, where we would dismiss the antitrust case. And basically all cases would be dismissed for some substantial amount of money to Amphastar. But if that does not happen we are prepared to go to trial in the antitrust, which would provide treble damages, which would be much in excess of the $100 million bond.

Serge BelangerNeedham & Company — Analyst

Thanks for the update, and congrats on the Primatene approval.

William PetersChief Financial Officer

Thank you.

Jason ShandellPresident

Alright. Thank you.

Operator

I’m showing no further questions at this time, I would now like to turn the conference back to our host.

Jason ShandellPresident

Thank you very much, operator. This concludes our call. Hope everyone has a great day.

Operator

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.

Duration: 44 minutes

Call participants:

Jason ShandellPresident

William PetersChief Financial Officer

David AmsellemPiper Jaffray — Analyst

Elliot WilburRaymond James — Analyst

David MarisWells Fargo — Analyst

David SteinbergJefferies — Analyst

Gary Jay NachmanBMO Capital Markets — Analyst

Gary NachmanBMO Capital Markets — Analyst

Serge BelangerNeedham & Company — Analyst

More AMPH analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Most Popular Posts: