Business context and reporting period
Amphastar Pharmaceuticals, Inc. filed this Form 10-K for the fiscal year ended December 31, 2023; the figures below are annual, not standalone fourth-quarter results. Amphastar develops, manufactures and sells technically challenging generic and proprietary injectable, inhalation and intranasal medicines, as well as insulin APIs. It reported more than 25 marketed products and two reportable segments: finished pharmaceutical products and APIs.
A major 2023 development was the June 30 acquisition of BAQSIMI, a nasal glucagon product, for $500 million upfront. The company paid for the acquisition primarily with new debt and expects to assume distribution responsibilities in stages during 2024.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Total net revenues | $644.4 million | $499.0 million | +29% |
| Gross profit / margin | $351.1 million / 54% | $248.9 million / 50% | Gross profit +41% |
| Operating income | $197.0 million | $107.5 million | +83% |
| Net income | $137.5 million | $91.4 million | +50% |
| Diluted EPS | $2.60 | $1.74 | +49% |
| Cash from operating activities | $183.5 million | $89.2 million | More than doubled |
- FY 2023 total revenue included $51.2 million of BAQSIMI revenue recognized on a net basis under Lilly transition arrangements. Lilly reported $86.3 million in BAQSIMI sales for the period.
- Cash and cash equivalents were $144.3 million at year-end; current investments were $112.5 million. Working capital was $264.2 million, down from $283.5 million.
- Total debt was $590.0 million at year-end, compared with $75.9 million in 2022. This included $345 million of 2.00% convertible notes due 2029 and a $250 million secured Wells Fargo term loan due 2028. The company reported no borrowing under the Wells Fargo revolver and $204.1 million of unused borrowing capacity across revolving credit lines.
- Investing cash outflow was $649.1 million, mainly reflecting $506.4 million for the BAQSIMI acquisition; financing cash inflow was $454.1 million. Capital expenditures were $38.2 million.
Material changes versus FY 2022
- Finished pharmaceutical product revenue rose 19% to $579.1 million. Glucagon revenue increased 105% to $113.7 million, primarily due to competitors discontinuing products; BAQSIMI added $51.2 million of reported net revenue.
- Primatene MIST revenue increased 6% to $89.3 million; epinephrine rose 10% to $81.7 million; lidocaine rose 11% to $58.2 million. The company attributed several gains to higher demand amid supplier shortages.
- Phytonadione revenue fell 9% to $44.9 million, enoxaparin fell 10% to $31.5 million, and naloxone fell 28% to $19.0 million, reflecting competition, lower volumes and, for naloxone, lower pricing.
- Gross margin expanded to 54% from 50%, supported by product mix and higher sales of certain higher-margin products. Inventory and purchase-commitment charges included $9.1 million related to enoxaparin and $3.6 million for RHI API; the company also recorded a $2.7 million impairment of IMS (UK) product rights.
- Interest expense increased to $27.2 million from $1.8 million following the acquisition-related borrowing and issuance of convertible notes. FY 2022 other income included a $5.4 million regadenoson litigation settlement; FY 2023 instead reported net other expense of $3.9 million.
Outlook, commentary and risks
- Management expects to take over BAQSIMI distribution in the United States in Q1 2024, representing about 80% of worldwide BAQSIMI revenue, with other territories transitioning country by country during 2024. The company expects gross revenue and cost of revenue recognition once it assumes distribution. Lilly arrangements are limited to up to 18 months.
- The BAQSIMI purchase terms include a $125 million guaranteed payment due on the first anniversary of closing, a further $4 million contract-assignment payment, and potential milestone payments of up to $450 million. Lilly-related sales and distribution transition, integration, and the required payment are important execution and funding considerations.
- Amphastar planned a Q1 2024 launch of REXTOVY naloxone nasal spray and a Q1 2024 relaunch of medroxyprogesterone after qualifying its Chinese subsidiary to manufacture the API. It expects R&D spending to increase as insulin and inhalation candidates advance, and plans significant facility investment, including in China.
- The filing gives no numerical revenue or earnings guidance. Management states that cash reserves, operating cash flow and borrowing availability should fund operations for at least 12 months.
- Key risks include product and supplier concentration, single-source and contract manufacturing dependencies, generic pricing competition, regulatory approval and manufacturing compliance, customer concentration, and exposure to China-related operating and trade risks. The three largest U.S. wholesalers represented about 60% of 2023 net revenue.
- Other considerations include variable product demand and shortages, inflation and labor costs, HFC supply and regulation affecting Primatene MIST and pipeline inhalers, reimbursement and drug-pricing changes, foreign exchange, and debt covenants and cash obligations. The company reported compliance with debt covenants at year-end.
- Management and the auditor reported effective internal control over financial reporting; the financial statement audit opinion was unqualified. The auditor identified critical audit matters involving chargeback estimates, enoxaparin inventory valuation, and the BAQSIMI acquisition accounting.
Important facts for investors to verify
- BAQSIMI’s sales, margins and international distribution transition, including the $125 million guaranteed payment due June 2024 and any milestone obligations.
- Whether glucagon’s unusually strong growth and demand-related gains in other products persist as competitors restore supply, and whether declines in naloxone, enoxaparin and phytonadione continue.
- Debt service, interest expense, covenant headroom and liquidity after the acquisition-related payments, planned capital spending and any convertible-note conversion or repurchase obligations.
- Inventory valuation and chargeback assumptions, particularly enoxaparin net realizable value and the related purchase commitments.
- Regulatory and launch progress for REXTOVY, medroxyprogesterone and the filed insulin and generic candidates; the filing does not assure approval or commercial success.