Amphastar Pharmaceuticals(AMPH) - 2021 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION This section presents the unaudited financial statements, management's analysis, market risk, and internal controls for Q1 2021 Financial Statements (unaudited) Amphastar Pharmaceuticals reported Q1 2021 net revenues of $103.0 million, a 21.6% increase, with net income at $5.0 million Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Q1 2021 | Q1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenues | $103,020 | $84,688 | 21.6% | | Gross Profit | $44,946 | $36,823 | 22.1% | | Income from Operations | $10,306 | $7,480 | 37.8% | | Net Income Attributable to Amphastar | $5,041 | $3,949 | 27.7% | | Diluted EPS | $0.10 | $0.08 | 25.0% | Condensed Consolidated Balance Sheets Highlights (in thousands) | Metric | March 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $101,601 | $92,642 | | Total Current Assets | $300,164 | $279,682 | | Total Assets | $645,738 | $631,236 | | Total Current Liabilities | $127,096 | $112,201 | | Total Liabilities | $194,778 | $182,513 | | Total Stockholders' Equity | $450,960 | $448,723 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $22,825 | $1,477 | | Net cash used in investing activities | ($8,695) | ($8,722) | | Net cash used in financing activities | ($6,639) | ($11,449) | | Net increase (decrease) in cash | $7,329 | ($18,840) | Notes to Condensed Consolidated Financial Statements This section details accounting policies, revenue recognition, segment performance, customer concentration, and the ANP restructuring - The company's business involves developing, manufacturing, and selling generic and proprietary injectable, inhalation, and intranasal products, as well as insulin API products[32] - The company's production facilities continued to operate during the quarter with enhanced safety measures due to the COVID-19 pandemic, with minimal operational changes[38] Provision for Chargebacks and Rebates (in thousands) | Description | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Beginning balance | $20,380 | $21,644 | | Provision for chargebacks and rebates | $47,031 | $35,987 | | Credits and payments issued | ($46,881) | ($39,353) | | Ending balance | $20,530 | $18,278 | Segment Net Revenues and Gross Profit (in thousands) | Segment | Q1 2021 Net Revenues | Q1 2020 Net Revenues | Q1 2021 Gross Profit | Q1 2020 Gross Profit | | :--- | :--- | :--- | :--- | :--- | | Finished pharmaceutical products | $97,882 | $81,298 | $45,286 | $38,810 | | API | $5,138 | $3,390 | ($340) | ($1,987) | | Total | $103,020 | $84,688 | $44,946 | $36,823 | Major Customer Concentration (as % of Total) | Customer | % of Accounts Receivable (Mar 31, 2021) | % of Net Revenue (Q1 2021) | | :--- | :--- | :--- | | AmerisourceBergen | 14% | 25% | | McKesson | 21% | 20% | | Cardinal Health | 16% | 15% | - In May 2021, the company approved a plan to restructure its ownership of its Chinese subsidiary, ANP, acquiring an additional 18% ownership for ~$29.4 million to reach approximately 85% ownership[132][133] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 22% Q1 2021 revenue growth to strong finished pharmaceutical product sales, improved gross margin, and robust liquidity Results of Operations Net revenues increased 22% to $103.0 million in Q1 2021, driven by key product sales, with gross margin stable at 44% Net Revenues by Key Finished Pharmaceutical Product (in thousands) | Product | Q1 2021 | Q1 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Epinephrine | $15,578 | $3,990 | $11,588 | 290% | | Glucagon | $7,984 | $0 | $7,984 | N/A | | Primatene Mist® | $18,383 | $12,877 | $5,506 | 43% | | Enoxaparin | $10,658 | $9,168 | $1,490 | 16% | | Naloxone | $6,341 | $8,875 | ($2,534) | -29% | | Lidocaine | $9,071 | $10,657 | ($1,586) | -15% | | Phytonadione | $9,565 | $11,029 | ($1,464) | -13% | - The increase in epinephrine sales was primarily due to the launch of a new multiple-dose vial product in Q2 2020 and higher demand from a market shortage for pre-filled syringes[150] - The increase in Primatene Mist® sales resulted from a successful nationwide marketing campaign and expanded distribution channels, including Target[149] - Gross margins were positively impacted by higher-margin products like Primatene Mist®, glucagon, and epinephrine, but were offset by lower pricing and increased raw material costs for enoxaparin[154] Liquidity and Capital Resources Working capital increased to $173.1 million as of March 31, 2021, with $22.8 million operating cash flow - Working capital increased by $5.6 million to $173.1 million at March 31, 2021, from $167.5 million at December 31, 2020[166] Summary of Cash Flows (in thousands) | Activity | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net cash provided by Operating activities | $22,825 | $1,477 | | Net cash used in Investing activities | ($8,695) | ($8,722) | | Net cash used in Financing activities | ($6,639) | ($11,449) | - As of March 31, 2021, the company had $56.0 million in unused borrowing capacity under its credit facilities[179] Quantitative and Qualitative Disclosure about Market Risk No material changes in market risk exposure from 2020, with key risks in investments, interest rates, and foreign currency - The company is exposed to market risk from changes in the value of its investments, interest rate changes, and foreign currency exchange fluctuations[184] Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2021, with no material changes to internal control - The CEO and CFO concluded that as of March 31, 2021, the company's disclosure controls and procedures were effective[185] - No material changes to internal control over financial reporting occurred during the first quarter of 2021[188] Part II. OTHER INFORMATION This section covers legal proceedings, risk factors, and unregistered sales of equity securities and use of proceeds Legal Proceedings Detailed information on ongoing legal proceedings, including patent disputes, is provided in Note 18 - For detailed information on legal proceedings, the report directs readers to Note 18 of the Condensed Consolidated Financial Statements[190] Risk Factors No material changes to risk factors from 2020, with updated details on COVID-19, China operations, and unapproved epinephrine - The COVID-19 pandemic continues to pose risks by potentially disrupting operations of customers and suppliers, affecting clinical trial recruitment, and creating supply chain pressures for materials like glass vials[192][194][195] - Manufacturing operations in China expose the company to risks including supply disruptions, political instability, trade tariffs, and health epidemics, potentially impacting raw material supply like crude heparin[199][202] - The company's epinephrine prefilled syringe product is marketed without formal FDA approval, subjecting it to potential FDA enforcement actions, with net revenues of $9.3 million in Q1 2021[205][206][210] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 204,698 shares in Q1 2021, with $13.6 million remaining for future repurchases Issuer Purchases of Equity Securities (Q1 2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2021 | 48,705 | $19.36 | | Feb 2021 | 53,328 | $18.57 | | Mar 2021 | 102,665 | $17.98 | | Total Q1 | 204,698 | - | - As of March 31, 2021, $13.6 million remained available for repurchase under the company's share buyback program[211]