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Amneal Pharmaceuticals, Inc. (NYSE:AMRX)
Q4 2020 Earnings Call
Feb 26, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Amneal Pharmaceuticals Fourth Quarter and Full Year 2020 Earnings Conference Call. [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.

Tasos Konidaris -- Executive Vice President, Chief Financial Officer

Good morning and thank you for joining 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 we'll be presenting 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 in 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'll also discuss certain non-GAAP measures. You will find important information on our use of these measures and our 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 U.S. non-GAAP measures we reference throughout the presentation.

On this 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.

Chirag Patel -- Co-Chief Executive Officer and President

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 half since Chintu and I returned as Co-CEOs, 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, for the next phase of growth.

I would now like to take a 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. Recent noteworthy launches include our generic versions of NuvaRing, Carafate, Truvada, Zovirax, Lidoderm Patch, Ortho Evra patch, Prolixin, etc. 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 development, such as injectables, ophthalmics and inhalants. This transition has been a years-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 with Fosun Pharma, we have already filed four products with the Chinese FDA and plan to file up to 10 more in 2021. We expect our China business to be commercial in 2023, and this is just one of the multiple strategies to out-license our generics in new geographies. More to come here over the coming quarters.

Let me now 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 of 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 CNS programs: IPX203 and K127. IPX203 is on track for Phase III topline 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 times. I'm pleased to report that we finished 2020 at 5.3 times net debt to adjusted EBITDA, a 2-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 performed in its first year as an independent subsidiary of Amneal, 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 unit-dose business. Over the next five years, we expect a large addressable market of branded products, though, in generics, and we believe AvKARE is well-positioned to win.

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 to further grow the 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.

Chintu Patel -- Co-Chief Executive Officer

Good morning, everyone. Thank you, Chirag. To echo 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 specially grateful for our frontline teams whose determination and creativity ensures an ongoing supply of quality medicine 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 set upon our return to the company in late 2019 and our execution has positioned us for continued growth and success in 2021 and beyond. Our commitment to support manufacturing and quality standards remains 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 a fantastic example of that is the approval of our generic equivalent of Ortho Evra Patch, which we announced this morning and will compete with Mylan's 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 strengths of generic 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, liposomals peptides, autoinjectors, 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 is the technology behind K114 and K127. GRANDE is the gastric retentive drug delivery technology suitable for up to 20% of compounds that are typically absorbed in the upper GI tract. Through this technology, retention in the stomach last 18 to 24 hours compared to eight to 10 hours of most commercialized drugs with similar release. The potential application for this technology, which has safely been tested in over 300 human subjects is substantial. K127 is expected to allow for once-daily dosing of pyridostigmine for myasthenia gravis and K144 is expected to provide 24-hour sustained delivery of T3 for hypothyroidism. Both are significant commercial opportunities, but these are just the tip of the iceberg. 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 close 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.

Tasos Konidaris -- Executive Vice President, Chief Financial Officer

Thank you, Chintu, and let me start with our fourth quarter financials, then move 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. 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, Rytary and Unithroid; second, a large non-recurring return of a discontinued product from a single customer; and finally, lower Emverm due to 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 billion, 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 reclass, 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 REMS distribution and government segments. Adjusted gross margin for 2020 was 41.6%, in line with our expectations. This reflects a 280 basis points expansion for Generics to 38.3%, mainly due to new product launches; 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 stand-alone basis, AvKARE contributed $46 million. Adjusted diluted EPS for 2020 was $0.63, well ahead of our $0.35 reported in 2019. From a cost 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 December 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 times compared to 7 times a year earlier. And finally, we're 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 will accelerate from the 3% in 2020. Our 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 of Zomig 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 taking place, new 2021 launches and operating expense efficiency actions. Our guidance also includes investments in R&D to drive long-term value, higher SG&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. This is due to the fact our three segments have such diverse profiles that 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 Generics business, and we also expect stability with Specialty and AvKARE.

With that, let me turn it over to Chirag.

Chirag Patel -- Co-Chief Executive Officer and President

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.

Questions and Answers:

Operator

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

David Amsellem -- Piper Sandler -- Analyst

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're thinking about approval and contribution from complex generics? Obviously, you had the news today on the Patch, so that's in there. But what else is in -- is baked into the top-line and EBITDA? I mean do you have risk-adjusted contribution from, say, Copaxone generic, which you talked about in the past, or Durezol? So just help us understand what's in there. And then secondly, on the biosimilars, I know you talked about the three, the pegfilgrastim, filgrastim and bevacizumab, but are you prepared to talk about additional products that you're investing in? And just talk about what we might see in the coming year in terms of additional opportunities. Thanks.

Chirag Patel -- Co-Chief Executive Officer and President

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 NPLs. As you know, generics NPLs, we do not list them out for competitive reasons. Our track record 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 pending pipelines for each major categories where we have been very successful, which now includes nine categories. So if we go to Slide 8, you have inserts, implants, the ring -- vaginal ring, all those we introduced on the top already. And the model, it tells you what's in the pipeline. Patches, we have gotten pretty much five patches approved, and it was a remarkable achievement to get the Zafemy, the Xulane patch approved. It comes right from our New England, New Jersey facility. So we have three in the pipeline there.

Topicals, we still have good products in oral liquids and topicals. Nasal spray, we still have, and all these infrastructures are in New Jersey manufacturing sites. The injectables, so now that's the big growth area as well. This year, we'll launch a few, but in coming years, as Chintu mentioned, we got multiple products, a subsector of Gx, which we would say injectables, we are only -- last year, we did $112 million, we have huge growth potential in coming years, including we just invested in large-volume parenteral products as well. And other sterile products like ophthalmics are coming as well. We expect the first launch of our inhalation products from our Irish plant. And we have typically few OSD products.

And Page 9 shows you what's pending at FDA, and we further broke down which we consider, the exclusive FTF, the single-source, high-value, launch on approval, and then a bunch of Paragraph IV. 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. In our active product pipeline of 93 products, only 80% are -- I mean, 80% products are non-oral solids. So hopefully that answers your question. I did not give you specific products, but I gave you enough to give you 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 the years, we look at biosimilars as part of that. So within Gx, we have nine categories. We started in 2012, '13 investing in complex generics products and all of the platforms, and they're all in-house. Biosimilars, we're doing the same. We start -- we're starting out slow. We believe it's more of a complex generics market. It will behave like that. The payers will have a lot of say on it based on their hospital-based products. You got to deal with that. The buy-and-bill model, you would have to deal with the clinics.

So eventually, based on which payer 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 a third, fourth, fifth, you will have a much lower market share than the first two. So going forward after these three products is just cost-efficient way; develop the products, we've been working with FDA on it; less of clinical trials; have commercial strategies which doesn't break our bank, because it's competitive marketplace. And the next -- just like we build the complex generics, the next set of biosimilars -- and we are here to play in this for 10 years, so we don't even look at quarter or one year. We will build this, and we will be the leading players in coming years.

So we're more focusing on how can we first or second on the next wave of our own biosimilars. And eventually, we are looking at building our manufacturing facility in the United States because that's our key advantage is we're a high-quality manufacturer, and it will matter a whole lot as we progress through the biosimilars. As you know, market is really good over the next 10, 15 years. Tasos, you want to add?

Tasos Konidaris -- Executive Vice President, Chief Financial Officer

Yeah, no, this is -- hey, David, Good morning.

David Amsellem -- Piper Sandler -- Analyst

Good morning.

Tasos Konidaris -- Executive Vice President, Chief Financial Officer

Just a couple of thoughts. We feel great about the top-line, number one. So let's talk a little bit about Generics, which is a little bit like running 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 of 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. Right? So the base business, that's going to do very well, very high resiliency, number one.

Number two, in the latter part, and you saw the Generics growth rate in Q4, it was up 14%. So a big part of it is the benefit of the new product introductions that have already taken place, right, already taken place in the second half of last year. And now those are feeding into the top-line revenues, right? And then number three, we continue to innovate. Right? So Chintu and his team of 900 scientists have not stopped generating new ANDAs and getting approvals. Xulane was a great success this morning. So the 2021 new product launches will continue to drive growth in the generic 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 have done a great job, 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 it was just COVID-19 implications. So we expect another double-digit growth for AvKARE in 2021. And finally, our Specialty business. So Specialty business is in a bit of a transition, right? Rytary and Unithroid are going to grow double digits, the same way they grew in 2020. And we're also making investments in that space in terms of expanding our field force and our commercial footprint, as I mentioned. At the same time, Zomig was -- is going to go off-patent. We have a thoughtful 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, the business is going to grow. It's 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 -- 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, we were in the thick of things and we end up increasing both top-line and bottom-line guidance. Our expectation this year is COVID-19 issues will persist. Right? We're not anticipating magically going away. At the same time, though, we expect less of an impact. If you remember last year, in Q2 and Q3 alone, I spoke about $30 million of top-line orders we could not fulfill because of the stress of the supply chain. Chirag, Chintu and his team have done a great job rebuilding our pipeline. So we're expecting headwinds, not quite as much as 2020. So a little lengthy, but hopefully that addressed your question.

David Amsellem -- Piper Sandler -- Analyst

Helpful. Thanks, guys.

Operator

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

Gary Nachman -- BMO Capital Markets -- Analyst

Hi, good morning. First, Kashiv is a very good source of pipeline for you. Are there are 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 areas, neurology and endocrinology, or would you consider going beyond that? And then, ex-U.S., aside from expanding 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're going to be to diversify the business geographically? Thank you.

Chirag Patel -- Co-Chief Executive Officer and President

Thank you, Gary. So KSP has an excellent pipeline in the drug delivery platform, which allows us to grow in our current two areas, which is neurology and endocrinology. We are targeting the products where -- in the older molecules, where we can use our drug delivery technologies to improve vastly the all unmet needs over 30 years, 20 years ignored by big pharma because these are not big revenue products. It would become somewhere between $100 million to $300 million. So we could look into other specialty if we find more opportunities through our drug delivery technologies. But right now, we're solely focused on neurology and endocrinology. And we would add commercial assets, as well as pipeline assets. We are -- we want to make Specialty a much larger portion of Amneal's business going forward. And as we launch these products and even on Specialty, we would be out-licensing it globally ex U.S., the Specialty product as well.

The second question on China. China is very attractive because, as you know, Fosun has a vested interest in Amneal. They have a significant position, equity position in Amneal. So we have a trusted partner in China, and they are in top-3 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'm pleased to see the forecast currently on China. So in 2023, it looks better than United States for certain generics molecule. We expect to have a meaningful presence in China and continue on to building our partnership and portfolio.

The second market will be naturally Europe, and it will be just for our high-value products within our pipeline, like inhalation, certain injectable products, technology-driven products. So we're not looking to have hundreds of ANDAs out in international market. It's very targeted because, as you know, it's crowded. So we just want to take our best assets and increase -- it'd be additional revenue to our U.S.-based revenues. Thank you.

Gary Nachman -- BMO Capital Markets -- Analyst

Okay. There was one other just on Kashiv. Are there a lot of other deals like that, that you've identified potentially?

Chirag Patel -- Co-Chief Executive Officer and President

Right now we are more focused on commercial. So we have good targets on commercial and we're 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.

Gary Nachman -- BMO Capital Markets -- Analyst

Okay, got it. Thank you.

Operator

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

Elliot Wilbur -- Raymond James -- Analyst

Thanks and good morning. Congratulations on the Ortho Evra Gx approval. Make sure I am pronouncing it right, is it Zafemy? Curious as to what your capacity is to supply that market. What you think you can obtain 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'm wondering if you think there is potential for that to actually accelerate now with a second product in the market. And I just want to follow up by -- I know you've given us quite a bit of detail in terms of potential launch cadence and some of the constitution of the products over the balance of the year. But previously you said you were cautiously optimistic, you'd see a generic Copaxone in second half of 2021 and also a respiratory product. I'm 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 toward that 30% or 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? Still seems like there's a lot of room for upward movement in gross margin metrics, but I'm not sure ultimately if 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.

Chirag Patel -- Co-Chief Executive Officer and President

Thank you, Elliot. So your first question on Zafemy, the Ortho Evra, our manufacturing capabilities, as you know, we always say that all these complex manufacturing we do not build out 100% capacity. The capex will not justify, as we always expect competition to come in. So in this case, we're 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, Carafate, the market grew. So we expect the market to grow when generics options are available.

Your second question on Copaxone and respiratory products, we are optimistic this year to be -- launch both. And your third question, I just want to historically point out that we -- because of our efficiencies and the new product launches, we always enjoy higher gross margin. And most of the products, 90%-plus, we make by ourselves. So we do not share in profits with other partners. So we expect the gross margins to grow, but Tasos will give you more color.

Tasos Konidaris -- Executive Vice President, Chief Financial Officer

Yeah. Hey, Elliot, good morning. So a couple of thoughts. Generics gross margin, listen, I think the business did great this year, right? So we have, for the year, full year gross margin of about 38%, 38.3% actually, versus 35% last year. So there was almost a 300 basis points improvement in one year. And we're only just start scratching the surface in terms of new product introductions. And as you know, new products for us is a substantially higher margin than the 38%, right, which gives us the confidence to say that we'll continue to go after generic gross margin in excess of 40%. Right? 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 Amneal gross margin was substantially in excess of 40%. So long term, we're 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 twofold. Number one is new product introductions. As I mentioned before, they have an average gross margin substantially more than 70% -- I'm sorry, substantially more than the 40%, number one. But also there is substantial amount of cost efficiency which we'll continue to go after. The cost of goods line is about $1 billion, right? So we're actively looking for efficiencies, whether or not it's pushing our purchasing pace, right, to improve our purchasing power, whether or not it's great in-house, right, manufacturing -- products manufactured by third-party. 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're looking for stability for next year. And over time, right, as the new pipeline plays out, I think we're looking to expand those margins as well.

Chirag Patel -- Co-Chief Executive Officer and President

Did that work for you, Elliot?

Elliot Wilbur -- Raymond James -- Analyst

Yes, perfect. Thank you.

Operator

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

Eason Lee -- SVB Leerink -- Analyst

Hi, this is Eason Lee on for Ami. Thanks for taking the questions. Maybe two if I can. Just on NuvaRing, curious, how are you thinking about the durability of this product in 2021, given some -- there is additional generic entrants? And then Carafate, you expect another generic this year. And maybe just more bigger picture, we're in the early days of the new U.S. presidential administration, I'm just curious if there's been any updated views or discussions around initiatives on domestic manufacturing for essential medicines and how you guys could participate in this? Thank you.

Chirag Patel -- Co-Chief Executive Officer and President

Well, thank you very much. On NuvaRing, as you know, Teva launched their product, so we already have a competition. We may get another competitor as well. As a reminder, we -- our market share was 20%. Now we grew to 30%. So volume is offsetting the pricing pressure, and we still see it as a durable good product. It's complex. So this year, contribution is great. And going forward, it will be a good contribution, as all these complex products provide.

Carafate, 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 Biden administration, they already gave 100-days review for pharmaceutical manufacturing supply chain and specifically focusing on essential medicines 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 in -- especially in the last four years, more -- I remember, in 2016, '17, we used to -- total as an industry used to make 60 billion unit dose in oral solids in the United States, with some 100-plus facility. I bet that number is much lower. I would say, less than probably 20 billion in 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 -- I'm not against the global supply chain, that is going to happen, it's needed. We buy ourselves at 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 of aisle, to making this happen, and the states. Many states are stepping up to have manufacturing and these high-end capabilities. And universities are supporting the initiatives. And why not, right? It's simple. It's a generics biosimilars products. Why don't we make them in the United States?

Eason Lee -- SVB Leerink -- Analyst

Great, thank you.

Operator

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

Gregg Gilbert -- Truist Securities -- Analyst

Hi, good morning. Can you offer us an enrollment update for 203? And when you expect -- when do you expect to file the ANDA? Secondly, I have a question on generic Vasostrict. I'm 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 your strategy longer term? Should we think about it as just something that kind of chugs along as it's 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.

Chirag Patel -- Co-Chief Executive Officer and President

Thank you, Gregg. Go ahead, Joe.

Joseph Todisco -- Executive Vice President, Chief Commercial Officer-Specialty

Sure. I'll just touch on IPX203, Gregg. We're not going to comment on specific patient numbers, but we are on track to have topline results by the fourth quarter of this year. There is a safety follow-up, and we do expect to be in position to file the ANDA by the middle of '22.

Chirag Patel -- Co-Chief Executive Officer and President

Chintu, you want to add anything?

Chintu Patel -- Co-Chief Executive Officer

No. Yeah, we expect to file in '22. And on vasopressin, 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 we are equipped well to swiftly answer any CR response that comes from FDA. And on biosimilar, this is a broad-term play for us long term, and we'll be focused on science and manufacturing capability to 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 this is a long haul for next five to 10 years, but these markets are must market to have.

Chirag Patel -- Co-Chief Executive Officer and President

And Gregg, on your question for AvKARE, so AvKARE, we bought -- we brought them as part of Amneal is because of two main reasons. One is the set business with VA/DoD. We like that segment, and there are multiple products coming off-patent for VA/DoD, so we expect that to grow. And second is unit-dose business, which is at its nascent stages. We are launching eight-plus unit-dose in liquid from our branch with New Jersey facility, so that should grow on unit-dose. And the third one is how do we get closer to -- one step closer to customers. So we may use AvKARE platform, which we are not ready to talk about it on how it will play, but we're always looking to get one step closer to customer.

Gregg Gilbert -- Truist Securities -- Analyst

Okay. Thank you.

Chirag Patel -- Co-Chief Executive Officer and President

Thanks. Yeah.

Operator

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

Balaji Prasad -- Barclays -- Analyst

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 has been alone in this market for the past six years, is it fair to assume that there's no other competitor on day 181 or anytime in the near future? That is one. Two, on biosimilars, you've given a lot of color, Chirag. But also one of your peers on the biosimilar side recently signaled a strategic reversal in this 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.

Chirag Patel -- Co-Chief Executive Officer and President

Thank you, Balaji. So Ortho Evra, the competition would be very limited, if any, this year, and we'll leave it there for now. It's extremely complicated, complex product. On biosimilars, the competitor is right. It is -- you can't invest $150 million per product. The return will not be there. It has to be the strategy that we have taken. It's cost-efficient development and cost-efficient commercialization. What is the meaning having 150, 200 people to do sales for the same product, biosimilar generics products? So we believe it's just going to play more like complex generics in coming years, and the player, the company, that invests in manufacturing, in science, is integrated, not sharing two 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 to have a broader portfolio of five, 10, 15, 20 products, and those are the companies -- it's right in what we do. It's in our niche and it's in our DNA as an affordable medicine company leading in the United States. And that's how it'll play out. Thank you, Balaji.

Balaji Prasad -- Barclays -- Analyst

Thanks, Chirag. 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?

Chirag Patel -- Co-Chief Executive Officer and President

I think, Balaji, it's similar to complex generics like transdermals, and it's more complex even then, and all these microsphere injectables and there's a peptide. I mean, in many peptides, the biologics manufacturing is not an easy task. It's -- a lot is involved there. So yeah, there will be competition, but who can consistently supply is going to be the key, high-quality product.

Operator

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

Dana Flanders -- Guggenheim -- Analyst

Great. Thank you for squeezing me in. I just had two quick ones. Maybe just 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're 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.

Chirag Patel -- Co-Chief Executive Officer and President

Thank you, Dana, and good to hear from you. The first one is the Generics business. You're right, few years ago we were highly concentrated on a few products. Since we have launched many complex products now, it's highly diversified. And the key thing is we'll keep launching six, sev en 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're expanding to offset the continuous pressure, which is lower than previous years on the base business. On R&D, as you know, it's 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're not NCE kind of expenses. So I hope that answers your question.

Dana Flanders -- Guggenheim -- Analyst

Great. Thank you.

Chirag Patel -- Co-Chief Executive Officer and President

Thanks.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Tasos Konidaris -- Executive Vice President, Chief Financial Officer

Chirag Patel -- Co-Chief Executive Officer and President

Chintu Patel -- Co-Chief Executive Officer

Joseph Todisco -- Executive Vice President, Chief Commercial Officer-Specialty

David Amsellem -- Piper Sandler -- Analyst

Gary Nachman -- BMO Capital Markets -- Analyst

Elliot Wilbur -- Raymond James -- Analyst

Eason Lee -- SVB Leerink -- Analyst

Gregg Gilbert -- Truist Securities -- Analyst

Balaji Prasad -- Barclays -- Analyst

Dana Flanders -- Guggenheim -- Analyst

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