Amneal Pharmaceuticals, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results; financial amounts below are in U.S. dollars, generally millions. Amneal develops, manufactures and sells generic and specialty pharmaceuticals and operates its AvKARE government-focused distribution business.
Financial performance
| Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 |
|---|---|---|---|---|
| Revenue | $559.4 | $535.1 | $1,057.0 | $1,028.2 |
| Gross profit / margin | $200.5 / 35.8% | $212.5 / 39.7% | $375.1 / 35.5% | $404.1 / 39.3% |
| Operating income (loss) | $(198.6) | $67.1 | $(175.3) | $113.0 |
| Net income (loss) | $(240.1) | $32.2 | $(246.5) | $46.7 |
| Net income (loss) attributable to Amneal | $(120.8) | $14.5 | $(123.0) | $21.2 |
| Basic and diluted EPS | $(0.80) | $0.10 | $(0.82) | $0.14 |
Revenue increased 4.5% in Q2 and 2.8% in H1 year over year. Q2 growth came from all three segments. In H1, Generics and AvKARE growth was partly offset by lower Specialty revenue. Segment revenue for Q2 was Generics $364.9 million, Specialty $97.0 million and AvKARE $97.5 million.
Profitability weakened as cost of goods sold rose faster than revenue, reflecting volume and business mix, price erosion, and a $5.1 million product-rights impairment. AvKARE’s lower-margin distribution mix also weighed on gross margin. SG&A increased to $98.8 million in Q2, principally on compensation and freight costs. The reported operating loss was dominated by $251.9 million of net legal charges, mainly the Opana ER antitrust settlement charge, net of securities-litigation insurance recoveries.
Cash, debt and liquidity
- Cash and cash equivalents were $92.0 million at June 30, 2022, down from $247.8 million at December 31, 2021; restricted cash was $6.2 million.
- H1 operating cash flow was negative $5.2 million, versus positive $96.2 million in H1 2021. Management attributed the deterioration primarily to a $100 million deposit into escrow for the Opana ER settlement.
- H1 investing cash outflow was $113.5 million, including $84.7 million for the Saol acquisition; financing cash outflow was $38.3 million. Cash, cash equivalents and restricted cash declined $158.6 million.
- At June 30, carrying-value long-term debt, net of issuance costs, was $2.652 billion, with an additional $85 million drawn on the revolving facility. The company prepaid $42.8 million of Rondo Term Loan principal during June.
- A new $350 million secured revolving facility, maturing in June 2027, replaced the prior facility. Amneal reported $260.6 million of available capacity at quarter-end. Management said cash, operating cash flows and available borrowing capacity should fund planned operations and obligations over the next 12 months, while noting liquidity depends on economic conditions and product demand.
Material changes, outlook and notable items
- Opana ER litigation: Preliminary settlement agreements provide for $265 million of payments through January 2024, plus interest on specified installments. Amneal recorded a $262.8 million pre-tax charge in Q2. It deposited $100 million in escrow by June 30 and a further $15 million in July. The agreements remain subject to conditions, including court approval for class settlements.
- Products and acquisitions: FDA approved bevacizumab-maly, a biosimilar to Avastin, in April and pegfilgrastim-pbbk in May. The company acquired Saol’s baclofen franchise in February for $84.7 million cash plus contingent royalties; it contributed $9.3 million revenue and a $2.0 million operating loss through June 30.
- Cost pressures and investment: Management estimated approximately $30 million of inflationary impact for full-year 2022, excluding higher interest rates, and warned input-cost inflation could exceed expectations. Planned 2022 capital expenditures were estimated at $65–$75 million.
- Other material obligations: The company disclosed an approximately $206.3 million contingent tax receivable agreement liability that was not recognized because use of the related tax attributes was not considered more likely than not. Certain change-of-control or termination events could accelerate payments.
- Risks: Key exposures include generic-drug competition and price erosion, reliance on a limited number of customers and products, customer concentration, supply-chain disruption, regulatory and product-liability matters, substantial debt and interest-rate exposure, and ongoing antitrust, opioid and other litigation. Four customers each represented at least 10% of Q2 revenue; the largest represented 21%.
The filing does not provide a specific full-year revenue or earnings guidance range. It describes capital-spending and inflation expectations, and management’s liquidity assessment.
Most important facts for investors to verify
- Whether the Opana ER settlement receives required approvals, and the timing and funding of remaining payments.
- Whether revenue growth can translate into improved gross margins amid price erosion, inflation and shifts toward lower-margin distribution.
- Cash generation, revolver availability and debt-service capacity, especially after settlement payments and planned capital expenditures.
- Commercial uptake and economics of newly approved biosimilars and acquired products, including milestone, supply and royalty obligations.
- Developments in significant legal proceedings and any resulting changes to accruals, insurance recoveries or cash obligations.