Amneal Pharmaceuticals, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited consolidated results. Amneal develops, manufactures, markets and distributes generic and specialty pharmaceuticals, and supplies pharmaceutical and medical products through its AvKARE segment.
Financial performance
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Net revenue | $528.6M | $519.3M | $1,556.8M | $1,482.5M |
| Gross profit / margin | $198.5M / 37.6% | $133.6M / 25.7% | $602.6M / 38.7% | $461.3M / 31.1% |
| Operating income / margin | $28.5M / 5.4% | $2.4M / 0.5% | $141.5M / 9.1% | $71.0M / 4.8% |
| Net income (loss), consolidated | $(6.1)M | $(22.0)M | $40.6M | $75.5M |
| Net income (loss) attributable to Amneal | $(4.2)M | $(9.0)M | $17.0M | $94.1M |
| Diluted EPS attributable to Class A holders | $(0.03) | $(0.06) | $0.11 | $0.63 |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $178.6M | $273.0M |
At September 30, 2021, cash and cash equivalents were $302.7M (plus $8.0M restricted cash); total current assets were $1.57B and current liabilities $667.3M. Long-term debt, net, was $2.69B and current debt $30.5M. Stockholders’ equity totaled $383.2M. The company reported $469M of available revolving-credit capacity.
Changes versus comparable periods
- Revenue increased 2% in Q3 and 5% year to date. Q3 growth reflected new generic launches and higher Rytary and Unithroid sales, partly offset by generic base-business price erosion and weaker oseltamivir demand. Nine-month revenue also benefited from AvKARE growth and an additional month of AvKARE results versus 2020.
- Gross margin improved substantially, with management citing lower material costs, better plant utilization, favorable product mix and lower impairment charges than in 2020.
- Nine-month operating cash flow fell $94.5M year over year. Management said that excluding the $110M federal tax refund and related interest received in 2020, operating cash flow increased $16M, supported by income and improved receivables, partly offset by rebate payments and inventory rebuilding.
- Nine-month net income declined despite higher operating income. The 2020 period included a $110M discrete tax benefit from the CARES Act NOL carryback; 2021 recorded a $7.1M tax provision.
Outlook, risks and unusual items
- Management said available cash, operating cash generation and borrowing capacity should fund planned operations and obligations for at least the next 12 months, while noting liquidity depends on demand, economic conditions and COVID-19 impacts. No specific revenue or earnings guidance was provided. Estimated 2021 capital expenditures were $50M–$60M.
- Q3 included $19M of charges for a commercial legal proceeding and $8.2M of property losses and related costs from Tropical Storm Ida flooding at two Branchburg facilities. Operations were closed for most of September, but management reported no material business disruption; no storm-related insurance recovery had been recorded by quarter-end.
- Ida damaged inventory and equipment. Insurance recovery timing and amount remain uncertain. Management added severe weather as a risk factor.
- Legal and regulatory exposures include generic-drug pricing antitrust matters, opioid litigation and investigations, Opana-related antitrust proceedings, and other product and securities litigation. The company recorded $57M of legal-proceeding liabilities at quarter-end, including $33M for an insured securities class action; it stated that losses on various matters cannot be estimated. A separate $19M commercial legal charge was recorded in Q3.
- Three customers each represented at least 26% of Q3 gross revenue; together they accounted for 80%. Three customers also represented 83% of gross receivables at quarter-end.
- The company acquired a 98% interest in Kashiv Specialty Pharmaceuticals for preliminary fair-value consideration of $103.5M, including deferred and contingent consideration. A $30.5M deferred payment was due in 2022. KSP contributed operating losses of $8M in Q3 and $14M for the nine-month period.
- After quarter-end, Amneal agreed to acquire Puniska Healthcare in India for $93M, funded from cash on hand. It paid $73M for approximately 74%; further payments were expected for land and the remaining interest, subject to approval. Also after quarter-end, a biotechnology license agreement included contingent milestones of up to $231M and a low-double-digit sales profit share.
- A potential tax receivable agreement liability of approximately $206M was not recognized because use of the associated tax attributes was not considered more likely than not. Payments could be 85% of applicable tax savings and could increase with future exchanges; certain events may accelerate payments.
- Other principal risks include generic pricing pressure and competition, product concentration, development and regulatory outcomes, reliance on third-party suppliers, COVID-19 disruptions, substantial debt and interest-rate exposure. Management reported disclosure controls effective as of September 30, 2021.
Investor verification priorities
- Reconcile reported earnings and margins to the $19M legal charge, Ida-related costs, and prior-year impairment and tax-benefit effects; assess whether improved gross margins are sustainable.
- Review debt amortization, interest-rate exposure, revolving-facility availability, and cash needs for the KSP deferred payment and Puniska acquisition.
- Track customer concentration, generic price erosion, oseltamivir demand and returns, and the contribution and profitability of recent product launches and KSP.
- Monitor the timing and amount of insurance recoveries for storm damage and developments in material litigation, investigations and associated accruals.
- Assess the assumptions behind the unrecognized tax receivable agreement exposure and contingent acquisition consideration, including KSP milestones and royalties.