Amphastar Pharmaceuticals, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; financial statements are unaudited. Amphastar develops, manufactures and sells generic and proprietary injectable, inhalation and intranasal drugs, and insulin active pharmaceutical ingredients (API).
Financial performance
Amounts below are in millions of dollars, except per-share data. Comparisons are with the corresponding 2020 period.
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net revenue | $101.7 | $85.8 | $204.7 | $170.5 |
| Gross profit / margin | $47.4 / 47% | $33.2 / 39% | $92.3 / 45% | $70.0 / 41% |
| Operating income (loss) | $10.6 | $(2.9) | $20.9 | $4.6 |
| Net income (loss) | $8.6 | $(1.4) | $12.6 | $2.1 |
| Net income attributable to Amphastar | $7.8 | $(0.2) | $12.8 | $3.8 |
| Diluted EPS | $0.16 | $(0.00) | $0.26 | $0.08 |
- Revenue rose 18% in Q2 and 20% in the first half. Finished pharmaceuticals contributed $94.7 million in Q2 (+17%) and $192.6 million in the first half (+19%); API revenue was $6.9 million (+42%) and $12.1 million (+46%), respectively.
- Q2 finished-product growth included glucagon, launched in February 2021, and higher Primatene Mist, lidocaine and epinephrine sales. First-half growth also reflected the prior-year launch of epinephrine multiple-dose vials. Lower sales of naloxone, phytonadione and other products partly offset growth; competition pressured naloxone and enoxaparin pricing.
- Gross margin improved as higher-margin Primatene Mist, epinephrine and glucagon sales increased. Lower enoxaparin pricing and higher heparin costs were offsets. API generated gross losses of $2.2 million in Q2 and $2.6 million in the first half.
- Operating expenses were $36.8 million in Q2 (+2%) and $71.5 million in the first half (+9%). First-half R&D increased 5% to $32.9 million; management expects annual R&D spending to rise, particularly for biosimilar and inhalation candidates. Management also expects Primatene Mist marketing expenses to increase.
Cash, debt and liquidity
- First-half operating cash flow was $55.0 million, compared with $31.6 million in 2020. Investing cash outflow was $12.9 million, including $13.4 million of property and equipment purchases; financing cash outflow was $11.8 million.
- At June 30, cash and cash equivalents were $105.4 million and restricted cash was $19.2 million. Current assets were $311.0 million, current liabilities $124.5 million, and working capital $186.4 million, up from $167.5 million at year-end 2020. Restricted cash included an approximately $18.9 million bond posted for Aventis litigation.
- Total debt was $38.5 million, down from $46.4 million at December 31, 2020; the company reported compliance with debt covenants. Management said available cash, operating cash flow and borrowing capacity should fund operations for at least 12 months from filing.
- After quarter-end, Amphastar entered a Capital One credit agreement with a $70 million term loan and a $70 million revolving facility. Term-loan proceeds were intended to repay certain debt; the loan matures in August 2026. A $55 million interest-rate swap fixes a portion of the term loan at 0.9274%.
Material changes, outlook and risks
- In July 2021, the ANP restructuring closed: Amphastar’s ANP ownership increased from approximately 58% to 86%, while ANP retained approximately 20% of Hanxin. The transaction involved approximately $29.4 million cash and a contribution of 80% of Hanxin; certain sellers were related parties, including company officers and directors.
- The Aventis fee litigation settled in June for $14.5 million. A $4.4 million charge recorded in Q1 was partly reversed by a $2.7 million credit in Q2. A separate labor-law settlement for $1.0 million remained subject to court approval. Regadenoson patent litigation remained pending, with trial scheduled for January 2022.
- No quantified company-wide revenue or earnings guidance was provided. Management reported no significant backlog and cautioned that backlog is not a reliable indicator of future performance. API sales may fluctuate with customer order timing, MannKind commitments and foreign exchange; the MannKind supply agreement was extended through 2027 and includes a $2.0 million amendment fee.
- Key risks include competition and price pressure, rising heparin costs, reliance on limited or single-source suppliers, clinical-trial delays and costs, and uncertain COVID-19 effects on suppliers, customers and demand. Management said facilities continued operating, but warned that future disruption could affect production and sales.
- An FDA inspection of the Amphastar facility in June resulted in multiple Form 483 observations; the company submitted its response in July and believed no significant further action would be necessary. A separate inspection of the IMS facility reported no Form 483 findings.
- The company’s epinephrine prefilled syringe remained an unapproved product marketed under FDA enforcement discretion; it generated $12.3 million of first-half 2021 revenue. The filing warns FDA could require cessation, recall or other enforcement before approval.
- In August, the board authorized an additional $20 million for share repurchases. The first-half repurchases totaled $9.3 million. This followed quarter-end and is not reflected in June 30 balances.
Most important facts for investors to verify
- Whether revenue and margin growth from newer and higher-margin products can persist as competitors return and pricing changes.
- The timing, cost and regulatory progress of the development pipeline, including possible COVID-related trial delays.
- Execution and financial effects of the ANP restructuring and the new Capital One borrowing, including repayment terms and leverage.
- Resolution of FDA observations and the regulatory status and continued marketability of the unapproved epinephrine prefilled syringe.
- Final outcomes and cash consequences of litigation, purchase commitments and supply-chain risks, including heparin availability and cost.