Amneal Pharmaceuticals, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; the supplied filing text does not provide a clear standalone fourth-quarter income statement.
Business context
Amneal develops, manufactures, markets and distributes generic and branded specialty pharmaceuticals, principally in the U.S., India and Ireland. Its reportable segments are Generics, Specialty and AvKARE. The Amneal Group held 50.4% of Amneal LLC’s economic units at year-end; Amneal Pharmaceuticals, Inc. is the managing member and consolidates the business.
Key financial results
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Net revenue | $2.094 billion | $1.993 billion |
| Gross profit / margin | $769 million / 37% | $628 million / 32% |
| Operating income | $153 million | $91 million |
| Net income (consolidated) | $20 million | $69 million |
| Net income attributable to Amneal Pharmaceuticals, Inc. | $11 million | $91 million |
| Operating cash flow | $242 million | $379 million |
| Cash and cash equivalents at year-end | $248 million | $341 million |
| Total debt at year-end | $2.731 billion | $2.806 billion |
FY 2021 diluted earnings per share attributable to the company were $0.07, versus $0.61 in 2020. The difference between consolidated net income and income attributable to the company reflects non-controlling interests and other presentation effects.
- Segments: Generics revenue was $1.366 billion, up 2%, with operating income of $281 million versus $189 million. Specialty revenue was $378 million, up 6%, with operating income of $56 million, broadly flat. AvKARE revenue was $349 million, up 19%, and operating income was $7 million versus a $8 million loss; 2020 included eleven months of results after the acquisition.
- Liquidity: Current assets were $1.520 billion and current liabilities $677 million at year-end. The company reported $489 million of availability under its revolving credit facility, with no borrowings outstanding. Management stated available cash, operating cash flow and borrowing capacity were sufficient for planned operations and obligations over the next 12 months.
- Debt service: Debt included a $2.591 billion term loan due May 2025 and a $139 million Rondo term loan due January 2025. Management expected 2022 principal and interest payments of approximately $28 million and $105 million on the term loan, and $9 million and $3 million on the Rondo loan, respectively. The principal facilities carry variable rates; a $1.3 billion interest-rate swap hedges part of the exposure.
Changes versus FY 2020
- Revenue increased 5%, supported by new Generics launches and growth in Specialty and AvKARE. Generics new products launched in 2020 and 2021 contributed $176 million of revenue growth, partly offset by price erosion and a $48 million decline in oseltamivir sales and returns.
- Gross margin rose to 37% from 32%, with management citing procurement savings, better plant utilization and favorable product mix. Operating income increased despite higher SG&A and R&D expenses.
- Net income fell to $20 million from $69 million, while income attributable to the company fell to $11 million from $91 million. The 2020 result included a $110 million federal tax benefit associated with NOL carrybacks under the CARES Act; the year-to-year comparison is also affected by non-controlling interests.
- Operating cash flow declined by $137 million year over year. Excluding the $110 million federal tax refund and related interest received in 2020, the company said 2021 operating cash flow was down $27 million, mainly from rebate payments, pricing adjustments and other working-capital movements.
- Debt declined by $75 million. Cash and cash equivalents declined by $94 million, and cash, cash equivalents and restricted cash decreased by $90 million during the year.
Outlook, commentary and material items
- 2022 outlook: The filing provides no specific revenue or earnings guidance. Management estimated capital expenditures of $75–$85 million and an inflationary cost impact of approximately $20 million for 2022, after an estimated $10 million impact in 2021. It cautioned that input-cost inflation could exceed expectations.
- Acquisitions: Amneal acquired a 74% controlling interest in India’s Puniska for cash consideration and land payments; government approval was expected in the first half of 2022 for the remaining interest and related payment. The 98% KSP acquisition closed in April 2021. The Saol baclofen franchise transaction, agreed in December 2021 for $85 million plus contingent royalties, closed on February 9, 2022.
- Unusual charges and impairment: The company recorded $25 million of net charges related to legal matters and $5 million of net property-loss and related expenses after Tropical Storm Ida damaged two New Jersey facilities. Gross property-related charges were about $10 million, partly offset by $5 million of insurance recoveries. Intangible-asset impairment charges totaled $23 million, including $17.7 million related to the Levothyroxine license; price erosion and product economics drove other impairments.
- Market and operational risks: Three customers accounted for approximately 65% of revenue, and the company has no long-term agreements guaranteeing future orders from major customers. Generic-drug price erosion, new competitors, regulatory approval delays, dependence on suppliers, manufacturing interruptions, COVID-19 effects and inflation could pressure results. Lower influenza activity reduced oseltamivir demand and increased returns in 2021. Ida’s facility disruption did not materially disrupt FY 2021 operations, according to management.
- Legal and tax exposures: The company disclosed opioid-related litigation, generic-drug pricing antitrust matters, government investigations and product-related litigation; outcomes and potential losses are uncertain. Legal-proceeding liabilities were $58 million at year-end, including $33 million relating to an insured securities class action, with an associated insurer receivable. The company maintained a $417 million valuation allowance against deferred tax assets; no TRA liability was accrued, although up to approximately $206 million of potential TRA liability was disclosed if specified tax benefits become realizable.
- Other: Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2021. The annual goodwill impairment test found no impairment. The company reported no cash dividends paid and no expectation of dividends in the foreseeable future.
Investor verification priorities
- Review the full audited statements and notes for the distinction between consolidated net income and income attributable to the company, and for the 2020 CARES Act tax benefit.
- Assess debt repayment capacity, variable-rate exposure, the 2025 maturities, covenant terms and the availability of the revolving facility.
- Track customer concentration, generic price erosion, rebate and return estimates, and the sustainability of the gross-margin improvement.
- Check developments in major litigation and investigations, insurance recoveries and the adequacy of recorded legal reserves.
- Verify integration and performance of KSP, Puniska and the Saol franchise, including remaining payments, contingent royalties and Puniska government approval.
- Monitor whether deferred tax assets become usable and whether related tax receivable agreement payments are triggered.