Amphastar Pharmaceuticals, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 1, 2023. This is an annual report, not a stand-alone fourth-quarter report. Amphastar develops, manufactures and sells generic and proprietary injectable, inhalation and intranasal medicines, as well as insulin active pharmaceutical ingredients (API). Its reporting segments are finished pharmaceuticals and API.
Key financial results
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net revenue | $499.0 million | $437.8 million | +14% |
| Gross profit / margin | $248.9 million / 49.9% | $199.7 million / 45.6% | Margin +4.3 percentage points |
| Operating income / margin | $107.5 million / 21.5% | $69.9 million / 16.0% | +54% |
| Net income attributable to Amphastar | $91.4 million | $62.1 million | +47% |
| Diluted EPS | $1.74 | $1.25 | +39% |
| Cash from operations | $89.2 million | $98.0 million | -$8.8 million |
At year-end, cash and cash equivalents were $156.1 million, working capital was $283.5 million, and current assets were $378.3 million versus current liabilities of $94.9 million. Balance-sheet debt was $75.9 million; unused revolving credit capacity was $84.6 million. Operating cash flow exceeded net income, but was lower year over year, partly reflecting higher receivables and inventory and lower accounts payable and accrued liabilities.
Business performance and changes
- Finished-pharmaceutical revenue rose 16% to $486.5 million; API revenue fell 31% to $12.5 million. The API segment reported a gross loss of $7.9 million, compared with a $10.0 million loss in 2021.
- Revenue increases included epinephrine (+29%), Primatene MIST (+15%), glucagon (+16%), lidocaine (+18%) and other finished products (+25%). Epinephrine and some other products benefited from competitor supply shortages; Primatene MIST growth reflected higher volumes and advertising. Glucagon benefited from having a full year of sales after its 2021 launch.
- Enoxaparin revenue declined 3% and naloxone declined 5%. Management cited competition and pricing pressure as ongoing factors, particularly for these products.
- Gross margin improved as higher sales of Primatene MIST, epinephrine and glucagon offset some higher labor and input costs. R&D expense increased 23% to $74.8 million, largely due to materials and clinical work for insulin and inhalation candidates. Selling, distribution and marketing expense rose 23% to $21.5 million; general and administrative expense fell 12% to $45.1 million.
- The company launched ganirelix in June and vasopressin in August 2022; regadenoson was approved in May, but launch timing is subject to a confidential settlement. Three ANDAs and one NDA were on file with the FDA; the broader pipeline comprised more than 20 candidates.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance is provided. Management expects higher 2023 capital spending for facility expansion, funded from operating cash flows, and expects R&D and Primatene MIST marketing expenses to increase. Management believes available cash, operating cash flow and borrowing capacity can fund operations for at least 12 months.
- Year-end backlog was approximately $7.0 million, attributed partly to competitor shortages, supplier constraints and California labor shortages. The company expected to reduce it in the near future but cautioned that backlog historically is not a reliable indicator of revenue.
- Key risks include concentration in a small number of products and wholesalers; generic competition and pricing erosion; single-source and foreign suppliers; manufacturing, labor and regulatory interruptions; FDA approval and clinical-trial uncertainty; reliance on China-based manufacturing; and inflation, interest rates, foreign exchange and geopolitical developments. The three largest distributors represented 62% of FY2022 revenue.
- Enoxaparin inventory and related purchase commitments were written down by $14.9 million in FY2022; total inventory and firm-commitment valuation charges were $17.2 million. The estimate depends on selling-price forecasts, competition and demand.
- Other income included a $5.4 million regadenoson-litigation settlement. FY2021 included a $13.6 million gain on deconsolidating Hanxin and a $2.7 million legal settlement, making year-over-year comparisons of non-operating income less comparable.
- The company disclosed various litigation and contingencies; management did not expect their resolution to materially affect financial position, results or cash flows, while noting outcomes are unpredictable. A 2022 FDA inspection at the South El Monte facility resulted in one Form 483 observation, to which the company responded; a French GMP inspection produced three observations, with the final report and response pending at filing. The financial-statement auditor issued unqualified opinions and found internal control over financial reporting effective.
Investor facts to verify
- Whether growth and improved margins persist as competitor shortages ease and generic competition affects enoxaparin, naloxone and other products.
- Product and customer concentration, including the three distributors’ 62% revenue share and the major products’ contribution to sales.
- Enoxaparin inventory valuation assumptions, heparin costs and the API segment’s recurring gross losses.
- Timing, approval and commercial prospects for pipeline products, including regadenoson launch restrictions and intranasal naloxone’s pending FDA review.
- Execution and funding of planned 2023 capital investments, supplier and labor constraints, and the availability of foreign-held cash for U.S. operations.
- Developments in litigation, regulatory observations, China-related supply exposure and the company’s related-party arrangements with Hanxin.