Amphastar Pharmaceuticals, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited results; dollar amounts are in millions unless noted. Amphastar develops, manufactures, and sells generic and proprietary injectable, inhalation, and intranasal medicines, as well as insulin API.
Financial highlights
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $112.2 | $83.4 | $316.9 | $253.9 |
| Gross profit / margin | $51.2 / 45.6% | $36.5 / 43.8% | $143.5 / 45.3% | $106.5 / 42.0% |
| Operating income | $24.8 | $3.5 | $45.6 | $8.1 |
| Net income attributable to Amphastar | $29.5 | $3.9 | $42.4 | $7.7 |
| Diluted EPS | $0.59 | $0.08 | $0.85 | $0.16 |
Q3 operating margin was 22.1%, compared with 4.2% a year earlier. Results include a $13.6 million gain from deconsolidating Hanxin; the gain boosted non-operating income and is not an operating revenue item.
- Revenue and mix: Q3 revenue rose 34%. Finished pharmaceuticals grew 34% to $109.0 million; API revenue rose 53% to $3.2 million. Glucagon, launched in February 2021, contributed $12.2 million in Q3. Epinephrine revenue increased 159% to $13.9 million, while Primatene Mist rose 28% to $16.6 million. Enoxaparin and naloxone declined 31% and 8%, respectively, amid competition and pricing pressure.
- Profitability: Higher sales of Primatene Mist, epinephrine multi-dose vials, and glucagon supported gross-margin improvement. Lower enoxaparin pricing and higher heparin input costs partially offset this benefit. API remained loss-making at the gross-profit level: a $3.4 million loss in Q3 and $6.0 million for the nine-month period.
- Cash flow: Nine-month operating cash flow was $57.6 million, versus $40.4 million in 2020. Investing cash outflow was $16.7 million, including $20.6 million in capital expenditures. Financing cash outflow was $28.3 million, including ANP restructuring payments and $15.4 million of share repurchases. Cash, cash equivalents, and restricted cash ended at $106.8 million.
- Liquidity and debt: Working capital was $205.7 million, up from $167.5 million at year-end 2020. Cash and cash equivalents were $106.6 million, with $8.0 million of short-term investments. Debt totaled $79.2 million before issuance costs ($77.8 million net carrying amount); $2.3 million was current. A new $70 million term loan was issued in August under a $140 million Capital One credit agreement, maturing in 2026; the agreement also includes a $70 million revolving facility. Management said cash, operating cash flow, and borrowing availability should fund operations for at least 12 months.
Material changes and unusual items
- Amphastar completed an ANP ownership restructuring, acquiring the remaining ANP interests and reaching 100% ownership. ANP’s interest in Hanxin was reduced; after further Hanxin capital contributions, Amphastar reported a 14% retained interest and deconsolidated Hanxin. The transaction generated the $13.6 million gain and involved related parties, including company executives, directors, and their relatives.
- Q3 product backlog was approximately $12 million, primarily glucagon, epinephrine, and phytonadione, due to higher-than-anticipated demand and competitor shortages. Management aimed to reduce it before year-end, while cautioning that backlog historically is not a reliable indicator of overall revenue.
- The company paid $14.5 million in Q3 to settle the Aventis attorneys’ fees and expenses claim; an additional $1.7 million had been recorded in other expense in 2021. The Ramirez labor case was settled and paid for $1.0 million. Regadenoson patent litigation remained pending, with trial scheduled for January 2022; the company said the unlaunched product had not exposed it to liabilities at filing.
- The Rancho Cucamonga FDA inspection resulted in multiple Form 483 observations; the company submitted its response and believed it would satisfy FDA requirements. The IMS and Armstrong inspections reported no Form 483 findings.
Outlook, risks, and contingencies
- No numerical revenue or earnings guidance was provided. Management expected marketing spending for Primatene Mist to rise and R&D spending to increase over time as biosimilar insulin and inhalation candidates progress; clinical timelines and costs may be affected by COVID-19.
- Management warned that enoxaparin and naloxone sales may fluctuate with competition, heparin costs could pressure margins, and API sales may vary with MannKind purchase timing and euro-dollar movements. A MannKind agreement amendment extended supply commitments through 2027 and included a $2.0 million fee.
- COVID-19, Delta-variant developments, supplier delays, availability of vials and needles, and clinical-trial interruptions remain risks. Facilities continued operating, and the company reported no significant pandemic-related supply disruption to date.
- The company disclosed that its epinephrine prefilled syringe remained marketed without FDA approval, with $19.3 million of revenue in the first nine months of 2021. The FDA could require approval, recall, or cessation of marketing, or pursue enforcement. An NDA had been filed.
- Other notable risks include reliance on a small number of major wholesalers, limited-source and foreign suppliers, China manufacturing and geopolitical exposure, product returns, and litigation. Purchase commitments for equipment and raw materials totaled approximately $56.2 million.
Investor facts to verify
- How much of the reported earnings growth reflects recurring operating performance versus the $13.6 million Hanxin deconsolidation gain and other unusual items.
- Whether the roughly $12 million backlog was resolved and whether elevated demand from competitor shortages persisted.
- Progress and financial terms of the ANP restructuring, including related-party transactions and the retained Hanxin investment.
- FDA status and enforcement exposure for the unapproved epinephrine prefilled syringe, and follow-up to the Rancho Cucamonga Form 483 observations.
- Debt repayment, variable-rate exposure, available revolver capacity, and cash needs for capital projects, R&D, and purchase commitments.
- Competitive pricing and input-cost trends for enoxaparin and naloxone, and the durability of growth in newer and higher-margin products.