Amphastar Pharmaceuticals, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Amphastar develops, manufactures, markets, and sells generic and proprietary injectable, inhalation, and intranasal pharmaceuticals, as well as insulin active pharmaceutical ingredients (API). Its reportable segments are finished pharmaceutical products and API.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Net revenue | $120.4 million | $103.0 million; up 17% |
| Gross profit / margin | $55.8 million / 46% | $44.9 million / 44% |
| Operating income | $21.6 million | $10.3 million |
| Net income attributable to Amphastar | $24.3 million; diluted EPS $0.47 | $5.0 million; diluted EPS $0.10 |
| Operating cash flow | $50.8 million | $22.8 million |
| Cash, cash equivalents and restricted cash | $172.9 million at March 31 | $126.6 million at December 31, 2021 |
| Total debt | $78.0 million | $78.6 million at December 31, 2021 |
| Working capital | $250.1 million | $214.3 million at December 31, 2021 |
Net cash used in investing activities was $9.1 million, including $6.1 million of property and equipment spending. Financing activities provided $4.6 million, mainly from equity-plan proceeds, partly offset by share repurchases and debt payments. The company reported compliance with all debt covenants and expects available cash, operating cash flow, and credit-facility availability to fund operations for at least 12 months from filing.
Material changes and operating drivers
- Finished pharmaceutical product revenue rose 19% to $116.5 million; API revenue fell 26% to $3.8 million. API segment gross loss widened to $1.1 million from $0.3 million.
- Primatene Mist revenue increased 34% to $24.7 million, glucagon 38% to $11.0 million, and other finished products 34% to $27.1 million. Management attributed growth principally to higher unit volumes, including Primatene Mist advertising, glucagon’s first full comparable quarter, and market shortages affecting calcium chloride and sodium bicarbonate.
- Enoxaparin revenue declined 5% to $10.1 million, primarily due to a competitor’s return to the market; epinephrine revenue declined 3% to $15.2 million. Management expects naloxone and enoxaparin sales to fluctuate with competition.
- Gross margin improved, helped by higher sales of Primatene Mist and glucagon. Higher labor and heparin costs and lower enoxaparin pricing partly offset the benefit. Management expects cost pressures but believes growth in higher-margin products and planned launches may offset them.
- Operating expenses were $34.2 million, roughly flat year over year: selling, distribution, and marketing expense rose 22% to $5.5 million, G&A fell 19% to $12.5 million, and R&D rose 10% to $16.2 million, primarily reflecting pipeline-related materials and supplies.
Outlook, unusual items, and risks
- Net income benefited from a $7.6 million net other-income result, versus $5.2 million of net other expense in Q1 2021. Q1 2022 included a $5.4 million Regadenoson litigation settlement and a $3.0 million gain on interest-rate swaps; Q1 2021 included an additional $4.4 million Aventis litigation expense. These items make the year-over-year earnings increase less indicative of operating performance alone.
- Management planned a Q3 2022 Vasopressin launch, subject to a confidential settlement agreement. Ganirelix acetate injection was approved in April 2022, with a planned Q2 launch.
- The company reported approximately $5.9 million of product backlog, partly associated with competitor shortages and supplier constraints, and said it was working to reduce it. Management cautioned that backlog has historically not been a meaningful indicator of revenue or financial performance.
- COVID-19-related clinical trial interruptions, supplier delays and longer component lead times remain risks. Shanghai port shutdowns and delays could affect operations; the extent was uncertain. Management also cited higher labor and component costs, potential increases in heparin costs, and supply-chain reliance on limited or foreign sources.
- The company had $72.9 million in equipment and raw-material purchase commitments at March 31, 2022, most longer-term commitments expected to be fulfilled by 2023. It planned increased 2022 capital spending to expand and upgrade U.S. and China facilities, funded with operating cash flow.
- Regulatory risk remains for the company’s epinephrine prefilled syringe, which is marketed without FDA approval. Q1 revenue from this product was $6.2 million, versus $9.3 million a year earlier. The filing says the FDA could require approval, recall, or cessation of marketing, among other enforcement actions.
- In Q1, the Chinese subsidiary ANP experienced a cybersecurity incident causing temporary disruption to some internal computer systems; the company reported response costs and said it was working to strengthen security measures.
- A May 2022 board authorization increased the share-buyback program by $25 million; this was subsequent to quarter-end. An April 2022 contract manufacturing agreement with related party Hanxin is also subsequent to quarter-end and is subject to required marketing authorizations and other terms.
Important facts for investors to verify
- How much of the earnings improvement reflects recurring product operations versus the litigation settlement, swap gain, and prior-year litigation expense.
- Whether the $5.9 million backlog is cleared and whether supplier, Shanghai logistics, labor, and heparin-cost pressures affect production or gross margins.
- Actual launch timing and commercial contribution from Vasopressin and ganirelix, and the status of other products in development and regulatory review.
- Developments in FDA policy or enforcement concerning the unapproved epinephrine prefilled syringe and the company’s NDA.
- Cash requirements for planned facility expansion and clinical development, including the $72.9 million of purchase commitments, and the availability of cash held by foreign subsidiaries, which management says is not available for U.S. parent operations.
- Customer concentration: AmerisourceBergen, McKesson, and Cardinal collectively represented a substantial share of revenue and receivables; verify the reported individual percentages and monitor changes in these relationships.