Amneal Pharmaceuticals, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. The filing is unaudited. Dollar amounts below are in millions unless stated otherwise.
Business context
Amneal develops, manufactures and distributes generic, specialty-branded and biosimilar pharmaceuticals, principally in the United States, India and Ireland. Its reportable segments are Generics, Specialty and AvKARE, a distributor serving government and other customers. The company noted that generic pricing and competition, product launches, supply costs and product exclusivity can materially affect results.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net revenue | $545.6 | $528.6 | $1,602.5 | $1,556.8 |
| Gross profit | $194.2 | $198.5 | $569.3 | $602.6 |
| Gross margin | 36% | 38% | 36% | 39% |
| Operating income (loss) | $44.4 | $28.5 | $(131.0) | $141.5 |
| Net income (loss), consolidated | $(2.4) | $(6.1) | $(248.9) | $40.6 |
| Net income (loss) attributable to Amneal, Inc. | $(2.7) | $(4.2) | $(125.7) | $17.0 |
| EPS attributable to Class A holders | $(0.02) | $(0.03) | $(0.83) | $0.11 |
Revenue rose 3% in both the quarter and nine-month period. For the nine months, operating results included a $262.8 million charge related to Opana ER antitrust litigation; this was the principal driver of the year-to-date operating loss. The difference between consolidated net loss and the loss attributable to Amneal reflects non-controlling interests.
Nine-month operating cash flow was $88.4 million, down from $178.6 million. Investing cash outflow was $162.8 million and financing cash outflow was $84.5 million. Cash, cash equivalents and restricted cash declined by $160.8 million to $95.9 million, including $87.3 million of unrestricted cash at September 30. Operating cash flow was reduced in part by $115 million paid into escrow for Opana ER settlements.
At September 30, the company reported $2.637 billion of debt, net of issuance costs, plus $60 million drawn on its revolving facility. The $350 million secured revolver had $285.9 million of available capacity. Interest expense, net, was $42.4 million for Q3 and $111.3 million for the first nine months, compared with $34.4 million and $102.4 million, respectively, in 2021.
Material changes and segment performance
- Generics: Revenue increased 1% in Q3 and 1% year to date. New products and volume were partly offset by continued price erosion. Nine-month gross margin declined to 37% from 41%, reflecting higher volume and freight costs, lower operating efficiencies and impairment charges.
- Specialty: Revenue declined 4% in Q3 and 2% year to date, as Zomig nasal spray lost exclusivity and other non-promoted products declined. Promoted Rytary and Unithroid grew; year-to-date revenue increased 7% and 33%, respectively. Nine-month segment operating income increased to $48.4 million from $34.6 million.
- AvKARE: Revenue grew 19% in Q3 and 15% year to date, led by distribution. Lower-margin distribution mix and weaker higher-margin government-label sales reduced nine-month gross margin to 14% from 19%.
- Interest expense and foreign-exchange losses increased year over year. Q3 foreign-exchange loss was $5.5 million, versus $0.03 million in Q3 2021; the nine-month loss was $12.9 million.
Outlook, risks and unusual items
- Management said available cash, operating cash generation and borrowing capacity should fund planned operations and obligations for the next 12 months, while noting liquidity depends on economic conditions, product demand and the effects of COVID-19.
- The company estimated an approximately $30 million inflationary impact on 2022 income before taxes, excluding rising interest rates, and warned that higher input, transportation and labor costs could exceed expectations. Planned 2022 capital expenditures were estimated at $65–$75 million.
- The Opana ER antitrust settlements are expected to total $265 million, with payments extending through January 2024. The company recorded a $262.8 million pre-tax charge for the nine months. The direct-purchaser settlement received court approval on November 3, 2022; other class settlement approvals remained subject to court conditions as described in the filing.
- The company reported $5.8 million of nine-month product-rights impairment charges, including products affected by lower expected demand or price erosion. It also recognized $2.5 million of income under India’s Production Linked Incentive Scheme for the nine months; eligibility for up to approximately $122.7 million over a maximum six-year period depends on investment and sales conditions.
- Amneal cited substantial indebtedness, variable interest-rate exposure, competitive pricing and product concentration, reliance on suppliers and distributors, inflation and supply-chain disruption, and significant litigation and regulatory matters as risks. Four customers each represented at least 10% of nine-month revenue; together they accounted for a substantial portion of sales.
- No specific revenue or earnings guidance was provided in the supplied filing text. Management stated it believed liquidity was adequate for the next 12 months, subject to the risks above.
Most important facts for investors to verify
- Progress and cash-payment timing for the Opana ER settlements, including remaining court approvals and the potential for further litigation costs.
- Whether generic price erosion, AvKARE’s lower-margin distribution mix and inflation continue to pressure gross margins.
- Debt service costs, exposure to higher rates and continued availability under the revolving credit facility.
- Realized performance and commercial uptake of new products and biosimilars, including whether launches offset exclusivity losses and research and development spending.
- Operating cash conversion, inventory growth and liquidity after settlement, acquisition and capital-expenditure payments.