Amphastar Pharmaceuticals, Inc. annual report, FY2021

Amphastar Pharmaceuticals, Inc. — FY2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021. Although the request identifies “2021 Q4,” this is an annual 10-K, not a standalone quarterly filing. The company develops, manufactures, and sells technically challenging generic and proprietary injectable, inhalation, and intranasal drugs, as well as insulin API.

Financial results and liquidity

Metric	FY2021	FY2020	Change
Net revenue	$437.8 million	$349.8 million	+25%
Gross profit / margin	$199.7 million / 46%	$143.3 million / 41%	Margin +5 percentage points
Operating income	$69.9 million	$11.0 million	Higher
Net income attributable to Amphastar	$62.1 million; diluted EPS $1.25	$1.4 million; diluted EPS $0.03	Substantially higher
Cash provided by operations	$98.0 million	$57.3 million	Higher

At year-end, cash and cash equivalents were $126.4 million, working capital was $214.3 million, and current assets and liabilities were $318.1 million and $103.8 million, respectively. Debt carrying value was approximately $77.0 million, up from $46.4 million; the company also reported $84.6 million of unused revolving-credit capacity. Operating lease payments totaled $34.4 million and purchase commitments were approximately $60.0 million.

Capital allocation and investment included $27.5 million of capital expenditures, $53.6 million paid in the ANP restructuring, and $28.9 million spent repurchasing shares. The company said it expects a significant increase in capital expenditures in 2022, funded from operating cash flow, and believes available cash, operating cash flow, and borrowing capacity will fund operations for at least 12 months.

Material changes and notable items

• Finished pharmaceutical product revenue rose 27% to $419.6 million; API revenue was nearly flat at $18.2 million. Glucagon, launched in February 2021, generated $47.6 million. Primatene Mist revenue increased 41% to $73.1 million, and epinephrine revenue rose to $57.5 million.
• Enoxaparin revenue fell 26% to $36.0 million amid competitor re-entry, lower volume, and lower prices. Naloxone revenue declined 18% to $27.5 million, also due to competition and pricing. The API segment reported a gross loss of $10.0 million.
• Gross margin improved, supported by sales of higher-margin Primatene Mist, glucagon, and epinephrine. Management cited increased labor and component costs and higher heparin costs as pressures; a $24.6 million charge for inventory and related purchase commitments included $20.7 million associated with enoxaparin.
• Net income included a $13.6 million gain from deconsolidating Hanxin following the ANP restructuring and a $2.7 million net legal settlement receipt. In 2020, results included a $12.8 million award of legal fees and costs to Aventis. These items affect year-over-year comparability.
• In 2021, Amphastar increased its ownership of ANP to 100% through transactions totaling approximately $53.6 million in cash and a transfer of an interest in Hanxin. It retained a 14% equity-method investment in Hanxin; the transactions involved related parties, including company executives, directors, and family members.
• The company entered a $140 million Capital One credit agreement, drew $70 million as a term loan, and closed or repaid several prior facilities. It reported compliance with debt covenants at year-end. The term loan matures in 2026 and is secured by substantially all company assets other than ANP assets.

Outlook, risks, and contingencies

• No formal numerical revenue or earnings guidance is provided. Management planned a third-quarter 2022 launch of tentatively approved vasopressin, subject to a confidential settlement agreement with the innovator, and anticipated new product launches in 2022. It expects R&D spending to increase over time, particularly for biosimilar and inhalation candidates, and expects higher Primatene Mist marketing costs.
• COVID-19 effects remained uncertain. Facilities continued operating, but clinical trial recruitment and some supplier deliveries had experienced delays; management cautioned that renewed disruptions could affect supply, distribution, costs, and results.
• Key exposures include dependence on a small number of products and suppliers, intense generic-drug competition and price erosion, and customer concentration: three wholesalers represented 61% of FY2021 revenue. China operations, animal-derived heparin sourcing and import permissions, foreign exchange, and manufacturing capacity utilization are additional risks.
• FDA inspection of the Rancho Cucamonga facility in June 2021 resulted in multiple Form 483 observations. The company submitted a response in July and said it believed the response addressed FDA requirements. Regulatory approval and commercialization of pipeline products remain uncertain.
• The company continued marketing epinephrine prefilled syringes without FDA approval and had filed an NDA; FY2021 revenue from these syringes was $27.8 million. The filing says FDA enforcement posture and the timing of guidance were uncertain. A separate FDA inspection at South El Monte and a routine inspection at Canton resulted in no Form 483 findings.
• Other matters to monitor include patent and employment litigation, product liability, healthcare pricing and rebate rules, and the risk of additional costs or restrictions under debt covenants. The auditor issued unqualified opinions on the financial statements and internal control; critical audit matters included chargeback estimates, enoxaparin inventory valuation, and accounting for the related-party ANP restructuring.

Investor verification priorities

• Reconcile FY2021 earnings and year-over-year comparability, including the ANP gain, settlement income, prior-year legal award, and the distinction between consolidated net income of $63.3 million and $62.1 million attributable to Amphastar.
• Check whether vasopressin launched as planned and whether the FDA has resolved the Rancho Cucamonga inspection observations or acted on pending applications.
• Track competition, prices, and margins for enoxaparin and naloxone, and the sustainability of growth in Primatene Mist, glucagon, and epinephrine.
• Assess heparin availability and cost, supplier concentration, and China-related import and operating risks.
• Review the terms and covenants of the 2021 credit agreement, planned 2022 capital spending, purchase commitments, and liquidity available to the U.S. parent; $14.7 million of cash at foreign subsidiaries was not available for U.S. parent operations.