Amneal Pharmaceuticals, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited results; comparisons are with the corresponding 2020 periods. Amneal develops, manufactures, markets and distributes generic and branded pharmaceuticals through Generics, Specialty and AvKARE segments.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net revenue | $535.1M | $464.7M | $1,028.2M | $963.2M |
| Gross profit / margin | $212.5M / 39.7% | $144.2M / 31.0% | $404.1M / 39.3% | $327.7M / 34.0% |
| Operating income | $67.1M | $10.8M | $113.0M | $68.5M |
| Net income (loss), consolidated | $32.2M | $(23.9)M | $46.7M | $97.6M |
| Net income attributable to Amneal | $14.5M | $(12.0)M | $21.2M | $103.1M |
| Diluted EPS attributable to Class A | $0.10 | $(0.08) | $0.14 | $0.69 |
Cash flow and liquidity: For the six months, operating cash flow was $96.2M, investing cash outflow $95.6M and financing cash outflow $64.2M; cash, cash equivalents and restricted cash decreased $64.0M to $283.2M. Cash and cash equivalents were $278.3M at June 30. The company reported $498M of available revolving-credit capacity and said it believed liquidity sources were sufficient for planned operations and obligations over the next 12 months.
Debt: Current and long-term debt, net, totaled approximately $2.75B at June 30 ($30.5M current and $2.72B long-term). The filing reports approximately $2.6B fair value for the Term Loan and $168M fair value for the Rondo Term Loan. Net interest expense was $34.1M in Q2 and $68.0M for the six months.
Material changes versus prior periods
- Q2 revenue grew 15%, while six-month revenue grew 7%. Q2 growth reflected new Generics launches and AvKARE growth; six-month AvKARE results also benefited from the prior-year acquisition timing.
- Generics revenue increased 18% in Q2 and 2% for the six months. New products contributed $61M and $97M of revenue growth, respectively, partly offset by lower Oseltamivir sales of $10M and $33M, increased returns, and base-business price erosion.
- Specialty revenue declined 6% in Q2 and increased 1% for the six months. Growth in Rytary and Unithroid was offset by lower Zomig nasal spray and other non-promoted products; Zomig nasal spray lost market exclusivity in May 2021.
- Q2 operating income increased substantially, reflecting higher gross profit and improved gross margin, with lower cost of goods sold relative to revenue. Six-month operating income also rose, but attributable net income fell because the 2020 comparison included a $110M CARES Act NOL-carryback tax benefit.
- Operating cash flow fell $132M year over year, primarily due to the timing of customer collections and rebate payments, increased inventory, in-licensing and milestone payments, and other working-capital changes.
Outlook, commentary and risks
- The filing gives no specific revenue, earnings or EPS guidance. Management estimated 2021 capital expenditures of $60M–$70M and expected 2021 Term Loan principal and interest payments of $41M and $112M, respectively; Rondo Term Loan principal and interest payments were expected to be $9M and $6M.
- Amneal completed its acquisition of a 98% interest in Kashiv Specialty Pharmaceuticals on April 2, 2021. Consideration included $30.5M deferred cash due in January 2022 and contingent consideration; the acquired business contributed a reported $7M operating loss through June 30.
- COVID-19 remains a risk to supply, demand, costs and cash flows. The company cited lower influenza activity and elevated returns as factors reducing Oseltamivir sales, and warned that renewed disruptions could affect manufacturing and supply chains. It also noted potential inflationary pressure from material, transportation and labor costs.
- Significant risks include generic pricing and competition, reliance on a limited number of products and customers, supplier dependence, regulatory and product-liability exposure, and substantial indebtedness. Three customers each accounted for at least 10% of gross revenue; together they represented 83% in Q2 2021.
- Legal matters include opioid, generic-drug pricing, patent and other litigation, as well as government investigations. The company said it could not estimate possible losses for many proceedings. Recorded legal liabilities were $38M at June 30, including $33M for a securities class action; a tentative $33M settlement was described as fully covered by insurance, subject to conditions and court approval.
- A tax receivable agreement could require payment of 85% of certain realized tax benefits. The contingent liability, if recognized, was approximately $206M at June 30; future exchanges or an early-termination event could increase or accelerate obligations.
- Management reported disclosure controls and procedures were effective as of June 30, 2021, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether new-product launches and improved gross margins can offset ongoing generic price erosion and lower Oseltamivir demand.
- Working-capital trends, especially receivable collections, rebates and inventory, and their effect on operating cash flow.
- Debt service capacity, revolving-credit availability, and the timing and amount of the $30.5M KSP deferred payment and other acquisition obligations.
- Progress, costs and potential outcomes of material litigation and government investigations, including whether the insured securities settlement receives court approval.
- The potential liquidity impact of the tax receivable agreement and the effects of COVID-19, supply-chain disruption and inflation.