Amphastar Pharmaceuticals, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited results compared with Q1 2020. Amphastar develops, manufactures and sells generic and proprietary injectable, inhalation and intranasal medicines, as well as insulin API.
Financial performance and position
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net revenue | $103.0 | $84.7 | +22% |
| Gross profit / gross margin | $44.9 / 43.6% | $36.8 / 43.5% | +22% / +0.1 pp |
| Operating income | $10.3 | $7.5 | +38% |
| Net income | $4.0 | $3.5 | +12% |
| Net income attributable to Amphastar | $5.0 | $3.9 | +28% |
| Diluted EPS | $0.10 | $0.08 | +25% |
| Operating cash flow | $22.8 | $1.5 | +$21.3 |
- Finished pharmaceutical product revenue rose 20% to $97.9 million; API revenue rose 52% to $5.1 million. API gross loss narrowed to $0.3 million from $2.0 million.
- Product revenue gains included epinephrine (+$11.6 million), newly launched glucagon ($8.0 million), and Primatene Mist (+$5.5 million). Declines included naloxone (-$2.5 million), lidocaine (-$1.6 million), phytonadione (-$1.5 million), and other products (-$4.4 million).
- Other expenses, net, increased to $5.2 million from $1.8 million, mainly reflecting a $4.4 million charge related to the Aventis litigation. The tax provision fell to $1.2 million from $2.3 million; the effective tax rate was 22.6% versus 39.3%.
- Cash and cash equivalents were $101.6 million; cash, cash equivalents and restricted cash totaled $101.8 million. Short-term investments were $13.5 million, including $2.2 million restricted. Working capital was $173.1 million.
- Total debt was $44.5 million, down $1.9 million from year-end; $12.2 million was current. The company reported $56.0 million of unused borrowing capacity and compliance with debt covenants.
- Investing cash outflow was $8.7 million, including $7.6 million of property and equipment purchases. Financing cash outflow was $6.6 million, including $3.8 million of share repurchases and $2.0 million of debt principal payments.
Material changes and management commentary
- Revenue growth reflected launches and market conditions, including the February 2021 glucagon launch, higher epinephrine demand amid a competitor shortage, and enoxaparin share gains after a competitor exited. Management said naloxone and enoxaparin sales may fluctuate with competition.
- Gross margin was broadly stable. Higher-margin Primatene Mist, epinephrine multi-dose vials and glucagon supported margins, partly offset by lower enoxaparin pricing and rising heparin input costs. Management expects heparin costs to rise further, with higher-margin product sales expected to help offset pressure.
- Selling, distribution and marketing expense rose 38% to $4.5 million, primarily due to Primatene Mist promotion. General and administrative expense rose 43% to $15.3 million, including higher legal costs. Research and development expense declined 4% to $14.8 million as clinical-trial costs fell following a study completion and delays in other studies.
- Operating cash flow improved substantially, but the filing attributes this partly to an $18.9 million increase in accounts payable and accrued liabilities, primarily due to payment timing; higher receivables partly offset the inflow.
- Inventory and related firm-purchase-commitment charges in cost of revenue were $9.5 million, versus $2.1 million a year earlier; the reported loss on firm purchase commitments was $8.6 million at quarter-end.
Outlook, risks and contingencies
- No specific revenue or earnings guidance was provided. Management said cash reserves, operating cash flow and borrowing availability should fund operations for at least 12 months from the filing date. It expects higher annual R&D spending for biosimilar and inhalation candidates and increased Primatene Mist marketing expense.
- COVID-19 effects remain uncertain. Facilities continued operating, but the company cited clinical-trial recruitment delays, supplier shipment delays, potential supply interruptions, and shifting demand for products used in elective procedures. Vaccine-related demand for vials and needles may also constrain supply.
- Customer concentration is significant: AmerisourceBergen, McKesson and Cardinal Health together represented 60% of Q1 revenue and 51% of quarter-end accounts receivable. Some raw materials and components have single or limited sources, including foreign suppliers.
- The company’s epinephrine prefilled syringe remains marketed without FDA approval. It generated $9.3 million of Q1 revenue, versus $4.0 million in Q1 2020. FDA action could require approval, recall or cessation of sales; an NDA has been filed.
- In the Aventis matter, a May 3, 2021 court order awarded a further $4.4 million, bringing the stated total award to $17.2 million. The company recorded the additional $4.4 million in Q1 other expense; it said the final award could change and the possible range of loss could not be estimated.
- In May 2021, the board approved an ANP restructuring: Amphastar agreed to pay about $29.4 million for an additional approximately 18% interest and participate in a subsidiary spin-off. Upon completion, Amphastar expects to own approximately 85% of ANP. Some participating sellers are company officers, directors or other related parties.
- Other legal matters include a $1.0 million settlement of a former employee case approved in April 2021 and a separate $1.0 million settlement reached in April, still subject to court approval. The company also faces patent litigation over generic regadenoson; trial was scheduled for June 14, 2021.
Important facts for investors to verify
- Whether the Q1 operating-cash-flow improvement persists after the timing-driven increase in payables and accrued liabilities.
- The final Aventis fee award and any further financial effect, given the additional award was ordered after quarter-end but charged to Q1.
- FDA status and enforcement exposure for the unapproved epinephrine prefilled syringe, a material source of revenue.
- Execution, cash cost, related-party terms and resulting ownership interests under the ANP restructuring and spin-off.
- Product-level trends, particularly the sustainability of epinephrine and enoxaparin gains, competitive pressure on naloxone, and rising heparin costs.
- Supply-chain resilience, clinical-trial timelines, and the effects of COVID-19 and customer concentration on operations and demand.