Amphastar Pharmaceuticals, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 15, 2021. This is an annual filing, not a standalone Q4 report. Amphastar develops, manufactures and sells generic and proprietary injectable, inhalation and intranasal medicines, as well as insulin API. It reported two segments: finished pharmaceuticals and API.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net revenue | $349.8 million | $322.4 million |
| Gross profit / margin | $143.3 million / 41% | $131.9 million / 41% |
| Operating income (loss) | $11.0 million | $(0.04) million |
| Net income attributable to Amphastar | $1.4 million | $48.9 million |
| Net cash from operating activities | $57.3 million | $41.8 million |
| Capital expenditures | $33.9 million | $41.6 million |
| Total debt at year-end | $46.4 million | $47.1 million |
At year-end, cash and cash equivalents were $92.6 million, short-term investments were $13.0 million, and working capital was $167.5 million. The company reported $56.0 million of unused borrowing capacity. It stated that cash reserves, operating cash flow and available borrowing were expected to fund operations for at least the next 12 months. Some foreign-subsidiary cash is not available for U.S. parent operations. The filing does not provide a specific revenue or earnings forecast.
Material changes and operating drivers
- Revenue increased 9%, led by Primatene Mist, up $33.7 million to $51.7 million, epinephrine, up $9.9 million to $23.8 million, and enoxaparin, up $6.0 million to $48.7 million. Primatene Mist benefited from marketing and expanded distribution; enoxaparin benefited from a competitor’s market exit.
- Phytonadione revenue fell 7% to $42.6 million, lidocaine fell 11% to $41.1 million, and API revenue fell 9% to $18.5 million. COVID-related reductions in elective procedures affected some hospital products, with sales moving closer to pre-pandemic levels in the second half.
- Finished pharmaceuticals generated $151.6 million of segment gross profit; API had an $8.3 million gross loss. Overall gross margin stayed at 41%, despite higher-margin product growth, inventory and purchase-commitment adjustments, and the absence of MannKind’s prior-year amendment fee.
- Operating cash flow rose to $57.3 million, supported by working-capital movements and noncash expenses. Year-end inventory declined to $96.8 million from $110.5 million, while accounts receivable increased to $66.0 million from $45.4 million.
Outlook, risks and unusual items
- Management expects continued investment in research and development and manufacturing capacity; it anticipates higher R&D spending as clinical work on biosimilar and inhalation candidates advances. Clinical recruitment and costs were affected by COVID-19.
- The company launched a new epinephrine multiple-dose vial in 2020; FDA approval for glucagon emergency kit came in December 2020, with launch in Q1 2021. The pipeline includes generic, biosimilar and proprietary candidates, but approvals and commercial success are uncertain.
- Major risks include product concentration, generic price competition, dependence on a small number of distributors, single-source and foreign suppliers, FDA approval and manufacturing compliance, and exposure to operations and expansion in China. Primatene Mist, lidocaine, phytonadione and enoxaparin together represented a substantial share of sales.
- COVID-19 facilities generally continued operating with enhanced safety measures, but pandemic effects on demand, suppliers, distribution and trials remained uncertain. A Chinese heparin import permit had expired; management cited existing U.S. supply as sufficient for the foreseeable future while pursuing renewal and evaluating ANP-produced heparin.
- FY2019 earnings included a $59.9 million settlement gain in enoxaparin patent and antitrust litigation. In FY2020 the company recorded $12.8 million of expense for the Aventis fee litigation; the court’s final award and additional amounts remained uncertain, and the company appealed.
- Other notable items include $13.9 million of inventory and purchase-commitment charges, including $9.4 million related to enoxaparin; $4.9 million of expense tied to a former executive’s separation; and a 76% effective tax rate, mainly affected by foreign valuation allowances and income mix. The company repurchased $24.4 million of shares.
Important facts for investors to verify
- Whether the Aventis fee award is changed on appeal or increased, and how any resulting payment affects cash and earnings.
- Whether enoxaparin pricing, competition and heparin costs improve or further pressure margins, and whether heparin sourcing remains reliable.
- Whether Primatene Mist’s sales growth is sustainable after the marketing campaign and distribution expansion.
- Progress, costs and FDA timelines for the pipeline, including intranasal naloxone, biosimilars and the newly launched glucagon kit.
- Cash accessibility, debt covenant compliance and the funding needs of planned capital spending and China facility expansion.
- Exposure to the three largest distributors, which accounted for 62% of FY2020 revenue, and the accuracy of chargeback, rebate, return and inventory estimates.