Amphastar Pharmaceuticals(AMPH) - 2023 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents Amphastar Pharmaceuticals, Inc.'s unaudited condensed consolidated financial statements for the three months ended March 31, 2023, encompassing balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows with accompanying notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $773,656 | $741,987 | | Total Current Assets | $407,670 | $378,319 | | Total Liabilities | $225,079 | $213,329 | | Total Current Liabilities | $105,635 | $94,862 | | Total Stockholders' Equity | $548,577 | $528,658 | Condensed Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Revenues | $140,022 | $120,368 | | Gross Profit | $73,840 | $55,826 | | Income from Operations | $33,433 | $21,614 | | Net Income | $26,032 | $24,253 | | Diluted EPS | $0.50 | $0.47 | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $40,382 | $50,765 | | Net cash used in investing activities | ($6,333) | ($9,110) | | Net cash used in financing activities | ($13,548) | $4,648 | | Net increase in cash | $20,517 | $46,274 | Notes to Condensed Consolidated Financial Statements These notes provide detailed disclosures supporting the financial statements, covering accounting policies, revenue recognition, segment performance, debt, share-based compensation, legal matters, and the planned BAQSIMI® acquisition - The company focuses on developing, manufacturing, and marketing technically challenging generic and proprietary injectable, inhalation, and intranasal products, as well as insulin API products, with most products used in hospital or urgent care settings[31] Provision for Chargebacks and Rebates (in thousands) | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Beginning balance | $26,606 | $20,167 | | Provision | $69,027 | $46,779 | | Credits and payments | ($67,289) | ($48,394) | | Ending balance | $28,344 | $18,552 | Segment Net Revenues and Gross Profit (in thousands) | Segment | Net Revenues Q1 2023 | Gross Profit Q1 2023 | Net Revenues Q1 2022 | Gross Profit Q1 2022 | | :--- | :--- | :--- | :--- | :--- | | Finished pharmaceutical products | $136,010 | $76,176 | $116,546 | $56,939 | | API | $4,012 | ($2,336) | $3,822 | ($1,113) | | Total | $140,022 | $73,840 | $120,368 | $55,826 | - On April 20, 2023, the Company agreed to acquire BAQSIMI® from Eli Lilly for $500.0 million in cash at closing, a $125.0 million guaranteed payment one year after closing, and up to $450.0 million in contingent milestone payments[135] - To finance the BAQSIMI® acquisition, the Company has entered into a debt commitment letter for a $500.0 million senior secured term loan facility and a $150.0 million senior secured revolving credit facility[138] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial performance, noting a 16% increase in net revenues to $140.0 million driven by glucagon sales, alongside gross margin improvements, operating expense trends, liquidity, and the planned BAQSIMI® acquisition - The company's largest products by net revenue are Primatene MIST®, glucagon, epinephrine, lidocaine, enoxaparin, and phytonadione[143] - In March 2023, the FDA approved the company's naloxone hydrochloride nasal spray 4mg, with a planned launch in Q3 2023[144] - The company entered into an agreement to acquire BAQSIMI® from Eli Lilly, a significant strategic move to be financed with $500M in cash at closing and substantial new debt[152] Results of Operations Q1 2023 net revenues increased 16% to $140.0 million, primarily from 134% glucagon sales growth, with gross margin improving to 53% and R&D expenses rising 22% to $19.8 million due to clinical trials Net Revenues by Key Product (in thousands) | Product | Q1 2023 | Q1 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Glucagon | $25,696 | $10,984 | $14,712 | 134% | | Primatene MIST® | $23,483 | $24,697 | ($1,214) | (5)% | | Epinephrine | $20,091 | $15,156 | $4,935 | 33% | | Lidocaine | $13,646 | $10,590 | $3,056 | 29% | | Phytonadione | $7,713 | $10,475 | ($2,762) | (26)% | | Naloxone | $4,957 | $7,413 | ($2,456) | (33)% | - The increase in sales of glucagon was primarily due to an increase in unit volumes, while the increase in epinephrine sales was due to higher demand caused by competitor shortages[158] - Gross margins increased to 53% in Q1 2023 from 46% in Q1 2022, driven by higher sales of high-margin products like glucagon and epinephrine, and the launch of ganirelix and vasopressin[162] - Research and development expenses increased by 22% to $19.8 million, primarily due to increased salary and personnel costs, and a significant rise in clinical trial expenses for the insulin and inhalation product pipeline[165] Liquidity and Capital Resources As of March 31, 2023, working capital reached $302.0 million, with $40.4 million in operating cash flow, deemed sufficient for future operations despite anticipated significant cash requirements for clinical trials and acquisitions - The company expects cash requirements to increase significantly to fund clinical trials, expand manufacturing facilities in the U.S. and China, and pursue strategic acquisitions[172] - Working capital increased by $18.5 million to $302.0 million at March 31, 2023, from $283.5 million at December 31, 2022[174] - Net cash from operating activities was $40.4 million in Q1 2023, compared to $50.8 million in Q1 2022, with the decrease primarily due to changes in working capital, including an increase in accounts receivable[177][178] - Net cash used in financing activities was $13.5 million, mainly due to $8.0 million in treasury stock purchases and $4.5 million used to settle share-based compensation awards[180] Item 3. Quantitative and Qualitative Disclosure about Market Risk The company faces market risks from investments, interest rates, and foreign currency exchange, with no material changes reported since the December 31, 2022, Annual Report on Form 10-K - The company is exposed to market risk from changes in the value of its investments, interest rate fluctuations, and foreign currency exchange rate changes[188] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[189] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[190] Part II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 19 of the Condensed Consolidated Financial Statements for detailed information on the company's legal proceedings - For information regarding legal proceedings, the report refers to Note 19 in Part I, Item 1 of the financial statements[192] Item 1A. Risk Factors This section outlines new risks from the proposed BAQSIMI® acquisition, including deal completion failure and increased indebtedness up to $650 million, alongside ongoing risks from COVID-19, geopolitical issues, and healthcare legislation - Failure to complete the BAQSIMI® acquisition could negatively impact the stock price and business, and may require payment of a $5.0 million termination fee under certain circumstances[193][194] - To finance the acquisition, the company will incur up to $650.0 million in new debt, which will materially increase indebtedness and could adversely affect operating results, cash flows, and operational flexibility due to restrictive covenants[202][203][209] - The acquisition is subject to regulatory clearance, including under the HSR Act, which could delay or impose conditions on the completion of the transaction[214][215] - Ongoing risks include disruptions from the COVID-19 pandemic affecting supply chains and clinical trials, geopolitical and trade risks associated with manufacturing in China, and the impact of sanctions related to the Russia-Ukraine conflict[221][227][232] - The company faces risks from healthcare legislation like the Affordable Care Act and the Inflation Reduction Act of 2022, which could increase costs, mandate price controls, and negatively impact profitability[234][240] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2023, the company repurchased 263,131 shares at an average of $30.44 per share, with $35.6 million remaining for repurchase under the authorized buyback program as of March 31, 2023 Issuer Purchases of Equity Securities (Q1 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2023 | 138,190 | $28.92 | | February 2023 | 98,504 | $31.35 | | March 2023 | 26,437 | $34.93 | - As of March 31, 2023, $35.6 million remained available for repurchase under the company's share buyback program, which was increased by $50.0 million in November 2022[245] Item 3. Defaults Upon Senior Securities This section is not applicable to the company's current reporting - Not applicable[245] Item 4. Mine Safety Disclosures This section is not applicable to the company's current reporting - Not applicable[245] Item 5. Other Information This section is not applicable to the company's current reporting - Not applicable[245] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including Amended and Restated Bylaws, a contract research agreement amendment, and required CEO/CFO certifications - The report includes several exhibits, such as an amendment to a research agreement with Nanjing Hanxin Pharmaceutical Technology Co., Ltd., and required CEO/CFO certifications (302 and 906)[250]