AMPHASTAR PHARMACEUTICALS, INC. The following is a discussion and analysis of the consolidated operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the "Condensed Consolidated Financial Statements" and the related notes thereto included in this Quarterly Report on Form 10-Q, or Quarterly Report. This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements. These risks, uncertainties, and other factors include, among others, those identified under the "Special Note About Forward-Looking Statements," above and described in greater detail elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , particularly in Item 1A. "Risk Factors". Overview
We are a bio-pharmaceutical company that focuses primarily on developing, manufacturing, marketing and selling technically challenging generic and proprietary injectable, inhalation, and intranasal products as well as insulin API products. We currently manufacture and sell over 20 products.
We are currently developing a portfolio of generic abbreviated new drug applications, or ANDAs, biosimilar insulin product candidates and proprietary product candidates, which are in various stages of development and target a variety of indications. Three of the ANDAs and one new drug application, or NDA, are currently on file with the FDA. Our largest products by net revenues currently include Primatene Mist®, epinephrine, glucagon, phytonadione, lidocaine, and enoxaparin sodium injection. InApril 2022 , the FDA granted approval of our ganirelix acetate injection 250mg/0.5mL prefilled syringe, which we launched inJune 2022 . InJuly 2022 , the FDA granted approval of our vasopressin injection, USP 20 Units/mL, 1 mL single dose vial, which we launched inAugust 2022 . InMay 2022 , the FDA granted approval of our regadenoson injection, 0.08mg/mL, 5mL, single dose prefilled syringe. The timing of the launch of this product is subject to a confidential settlement agreement with the product's innovator. To complement our internal growth and expertise, we have made several strategic acquisitions of companies, products and technologies. These acquisitions collectively have strengthened our core injectable and inhalation product technology infrastructure by providing additional manufacturing, marketing, and research and development capabilities, including the ability to manufacture raw materials, API, and other components for our products. In 2021, we completed the restructuring of our Chinese subsidiary, ANP, resulting in the reduction of ANP's ownership ofHanxin Pharmaceutical Technology Co., Ltd , or Hanxin to 14%, see Note 3 to the condensed consolidated financial statements. As a result of the restructuring, we determined that we have significant influence over Hanxin and as such the retained non-controlling investment in Hanxin is accounted for as an equity method investment. Hanxin continues to be a related party subsequent to the restructuring.
COVID-19 Pandemic
The ongoing COVID-19 pandemic and the resulting containment measures that have
been in effect from time to time in various countries and territories since
early 2020 have had, and are expected to continue to have, a number of
substantial negative impacts on businesses around the world and on global,
regional, and national economies, including widespread disruptions in supply
chains for a wide variety of products and resulting increases in the prices of
many goods and services. Currently, our production facilities in all of our
locations continue to operate as they had before the COVID-19 pandemic with few
changes, other than for enhanced safety measures intended to prevent the spread
of the virus.
Some of our ongoing clinical trials experienced short-term interruptions in the
recruitment of patients due to the COVID-19 pandemic, as hospitals prioritized
their resources towards the COVID-19 pandemic and governments imposed travel
restrictions. Some clinical trials experienced increased expenses due to new
protocols to protect participants from COVID-19. Additionally, certain suppliers
had difficulties meeting their delivery commitments, and we are experiencing
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longer lead time for components. For example, in the first quarter of 2022, increases in COVID-19 cases inShanghai, China , led to shutdowns and delays at the ports inShanghai , which led to temporary delays in shipping certain APIs and starting materials. Future shutdowns could have an adverse impact on our operations. However, the extent of the impact of any future shutdown or delay is highly uncertain and difficult to predict. It is not possible at this time to estimate the complete impact that COVID-19 could have on our business, including our customers and suppliers, as the effects will depend on future developments, which are highly uncertain and cannot be predicted. Infections may resurge or become more widespread, including due to new variants and the limitation on our ability to travel and timely sell and distribute our products, as well as any closures or supply disruptions, may be prolonged for extended periods, all of which would have a negative impact on our business, financial condition and operating results. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact on our business due to the continued global economic impact of the COVID-19 pandemic. We cannot anticipate all of the ways in which health epidemics such as COVID-19 could adversely impact our business. See the "Risk Factors" section for further discussion of the possible impact of the COVID-19 pandemic on our business. Trends and Uncertainties TheRussia -Ukraine conflict and resulting sanctions and other actions againstRussia have led to uncertainty and disruption in the global economy. Although the conflict has not had a direct material adverse impact on our revenues or other financial results, one of our insulin API customers inWestern Europe , that previously brought our product and resold it intoRussia , has not purchased from us this year. We are closely monitoring the events of the Russian-Ukraine conflict and its impact onEurope and throughout the rest of the world. It is not clear at this time how long the conflict will endure, or if it will escalate further, which could further compound the adverse impact to the global economy and consequently affect our results of operations. Certain other worldwide events and macroeconomic factors, such as international trade relations, new legislation and regulations, taxation or monetary policy changes, political and civil unrest, and inflationary pressures, among other factors, also increase volatility in the global economy. For example,the United States has recently experienced historically high levels of inflation. According to theU.S. Department of Labor , the annual inflation rate forthe United States was approximately 7.0% for 2021 and has increased to 8.3% as ofSeptember 2022 . The existence of inflation inthe United States , and global economy has and may continue to result in higher interest rates and capital costs, increased costs of labor, weakening exchange rates and other similar effects.
See the section "Risk Factors" for further discussion of the possible impact of
the
Business Segments
As ofSeptember 30, 2022 , our performance is assessed and resources are allocated based on the following two reportable segments: (1) finished pharmaceutical products and (2) API products. The finished pharmaceutical products segment manufactures, markets and distributes Primatene Mist®, epinephrine, glucagon, phytonadione, lidocaine, enoxaparin, naloxone, as well as various other critical and non-critical care drugs. The API segment manufactures and distributesRHI API and porcine insulin API for external customers and internal product development. Information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. Factors used to identify our segments include markets, customers and products.
For more information regarding our segments, see "Part I - Item 1. Financial Statements - Notes to Condensed Consolidated Financial Statements - Segment Reporting."
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Results of Operations
Three Months Ended September 30, 2022 Compared to Three Months Ended September
30, 2021
Net revenues
Three Months Ended
September 30, Change
2022 2021 Dollars %
(in thousands)
Net revenuesFinished pharmaceutical products$ 117,120 $ 108,990 $ 8,130
7 % API 3,009 3,208 (199) (6) % Total net revenues$ 120,129 $ 112,198 $ 7,931 7 % Cost of revenues
Finished pharmaceutical products$ 55,681 $ 54,388 $ 1,293
2 % API 5,938 6,627 (689) (10) % Total cost of revenues$ 61,619 $ 61,015 $ 604 1 % Gross profit$ 58,510 $ 51,183 $ 7,327 14 % as % of net revenues 49 % 46 %
The increase in net revenues of the finished pharmaceutical products for the
three months ended
Three Months Ended
September 30, Change
2022 2021 Dollars %
(in thousands)
Finished pharmaceutical products net revenues
Epinephrine $ 19,502 $ 13,892 $ 5,610 40 %
Primatene Mist® 18,359 16,561 1,798 11 %
Glucagon 14,224 12,189 2,035 17 %
Phytonadione 13,978 11,591 2,387 21 %
Lidocaine 12,621 11,649 972 8 %
Enoxaparin 7,983 8,034 (51) (1) %
Naloxone 6,818 8,028 (1,210) (15) %
Other finished pharmaceutical products 23,635
27,046 (3,411) (13) %
Total finished pharmaceutical products net revenues
Sales of epinephrine in the third quarter of 2022 increased$3.3 million due to an increase in average selling price, with the remainder of the increase due to increased unit volume, resulting from higher demand arising from competitor shortages. With the continued success of our advertising campaign, Primatene Mist® sales continued to grow in the third quarter of 2022, primarily due to increased unit volumes. The increase in sales of phytonadione was due to an increase in unit volumes, contributing$1.4 million to sales, and a higher average selling price, which contributed$1.0 million to the increase in sales. Glucagon sales increased due to an increase in inventory levels which allowed us to fill orders for the back to school season. The increase in lidocaine was primarily due to an increase in units for the injectable version. The decrease in naloxone was primary due to lower average selling price. The decrease in other finished pharmaceutical products was primarily due to lower unit volumes of atropine and calcium chloride, largely due to competitors returning to their normal distribution levels. This was partially offset by an increase in unit volume for dextrose, which was in high demand due to competitor shortages during the quarter, as well as the launch of ganirelix, which we launched inJune 2022 , and vasopressin, which we launched inAugust 2022 . -30-
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We anticipate that sales of naloxone and enoxaparin will continue to fluctuate in the future as a result of changing levels of competition. Sales of epinephrine and other finished pharmaceutical products will fluctuate depending on the ability of our competitors to supply the market. Sales of API primarily depend on the timing of customer purchases. InMay 2021 , we amended the Supply Agreement with MannKind Corporation, or MannKind, whereby MannKind's aggregate total commitment ofRHI API under the Supply Agreement was modified and extended for an additional year through 2027, which timeframe would have previously lapsed after calendar year 2026. MannKind agreed to pay us an amendment fee of$2.0 million . We received the first payment of the amendment fee of$1.0 million inJune 2021 which we recognized in net revenues during the year endedDecember 31, 2021 . The remaining$1.0 million of the amendment fee was received inJanuary 2022 and relates to the amendments to the 2022 supply level and has been and will continue to be recognized ratably to net revenues throughout the remainder of 2022. We anticipate that sales of API will continue to fluctuate and may decrease due to the inherent uncertainties related to sales to MannKind pursuant to our supply agreement with them. In addition, most of our API sales are denominated in euros, and the fluctuation in the value of euros versus theU.S. dollar has had, and may continue to have, an impact on API sales revenues in the near term. A significant portion of our customer shipments in any period relate to orders received and shipped in the same period, generally resulting in low product backlog relative to total shipments at any time. However, during the third quarter of 2022, we experienced a backlog of approximately$6.5 million for various products, partially as a result of competitor shortages, labor shortages and supplier constraints. We are currently working on resolving backlog related issues and believe that we will be able to reduce the backlog in the near future. Historically, our backlog has not been a meaningful indicator in any given period of our ability to achieve any particular level of overall revenue or financial performance. Gross margins
The increase in sales of epinephrine, Primatene Mist®, phytonadione and
glucagon, as well as the launches of ganirelix and vasopressin this year, which
are higher-margin products, helped increase our gross margins for the three
months ended
These increases in gross margins were partially offset by overall increase in labor cost, as well as an increase in the cost for heparin raw material, which is used as the starting material for enoxaparin. We are experiencing increased costs for labor and certain purchased components. Additionally, the cost of heparin may fluctuate, which could put downward pressure on our gross margins. However, we believe that this trend will be offset by increased sales of our higher-margin products, including Primatene Mist®, glucagon, ganirelix and vasopressin, as well as planned launches in 2023.
Selling, distribution and marketing, and general and administrative
Three Months Ended
September 30, Change
2022 2021 Dollars %
(in thousands)Selling, distribution, and marketing$ 4,784 $ 4,745 $ 39
1 % General and administrative$ 11,984 $ 10,910 $ 1,074 10 %
The increase in general and administrative expense was primarily due to an increase in legal and compensation expenses.
We expect that selling, distribution and marketing expenses will continue to
increase due to the increase in marketing expenditures for Primatene Mist®.
Legal fees may fluctuate from period to period due to the timing of patent
challenges and other litigation matters.
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Research and development
Three Months Ended
September 30, Change
2022 2021 Dollars %
(in thousands)
Salaries and personnel-related expenses $ 6,217 $ 5,934 $ 283 5 %
Clinical trials 2,726 234 2,492 1,065 %
FDA fees 29 109 (80) (73) %
Materials and supplies 5,217 205 5,012 2,445 %
Depreciation 2,473 2,546 (73) (3) %
Other expenses 1,852 1,731
121 7 %
Total research and development expenses
The increase in research and development expenses is primarily due to an increase expenditures for materials and supplies as a result of in an increase in expenditures on raw materials and components for our AMP-018 and insulin product candidates, as well as an increase in clinical trial expense primarily due to external studies related to our insulin and inhalation product candidate pipeline. This was partially offset by a decrease in expenses inChina due to the ANP restructuring in 2021.
Research and development costs consist primarily of costs associated with the research and development of our product candidates including the cost of developing APIs. We expense research and development costs as incurred.
We have made, and expect to continue to make, substantial investments in
research and development to expand our product portfolio and grow our business.
We expect that research and development expenses will increase on an annual
basis due to increased clinical trial costs related to our insulin and
inhalation product candidates. These expenditures will include costs of APIs
developed internally as well as APIs purchased externally, the cost of
purchasing reference listed drugs and the costs of performing the clinical
trials. As we undertake new and challenging research and development projects,
we anticipate that the associated costs will increase significantly over the
next several quarters and years. Over the past year, some of our ongoing
clinical trials experienced short term interruptions in the recruitment of
patients due to the COVID-19 pandemic, as hospitals prioritized their resources
towards the COVID-19 pandemic and government imposed travel restrictions. These
conditions may in turn delay spending and delay the results of these trials.
Additionally, some clinical trials experienced increased expenses due to new
protocols to protect participants from COVID-19.
Other income (expenses), net
Three Months Ended
September 30, Change
2022 2021 Dollars %
(in thousands)
Other income (expenses), net $ (397) $ 13,263 $ (13,660) NM
During the third quarter of 2021, we completed the restructuring of ANP, whereby
our ownership interest in ANP increased to 100% and ANP's ownership interest in
Hanxin was reduced to approximately 14%. As a result of the loss in control over
Hanxin, we deconsolidated Hanxin and recorded a $13.6 million gain on
deconsolidation. For more information regarding our ANP restructuring, see Note
3 to the condensed consolidated financial statements.
Income tax provision
Three Months Ended
September 30, Change
2022 2021 Dollars %
(in thousands)
Income tax provision $ 6,559 $ 6,686 $ (127) (2) %
Effective tax rate 29 % 18 %
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Our effective tax rate for the three months ended September 30, 2022 increased
in comparison to the three months ended September 30, 2021 , primarily due to
differences in pre-tax income positions and timing of discrete tax items. For
more information regarding our income taxes, see Note 15 to the condensed
consolidated financial statements.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30,
2021
Net revenues
Nine Months Ended
September 30, Change
2022 2021 Dollars %
(in thousands)
Net revenuesFinished pharmaceutical products$ 353,789 $ 301,594 $ 52,195
17 % API 10,175 15,287 (5,112) (33) % Total net revenues$ 363,964 $ 316,881 $ 47,083 15 % Cost of revenues
Finished pharmaceutical products$ 168,327 $ 152,092 $ 16,235
11 % API 17,945 21,284 (3,339) (16) % Total cost of revenues$ 186,272 $ 173,376 $ 12,896 7 % Gross profit$ 177,692 $ 143,505 $ 34,187 24 % as % of net revenues 49 % 45 %
The increase in net revenues of the finished pharmaceutical products for the
nine months ended
Nine Months Ended
September 30, Change
2022 2021 Dollars %
(in thousands)
Finished pharmaceutical products net revenues
Primatene Mist® $ 62,030 $ 51,624 $ 10,406 20 %
Epinephrine 52,777 38,662 14,115 37 %
Lidocaine 39,253 32,314 6,939 21 %
Phytonadione 37,834 31,577 6,257 20 %
Glucagon 37,003 32,304 4,699 15 %
Enoxaparin 27,138 28,020 (882) (3) %
Naloxone 21,424 20,994 430 2 %
Other finished pharmaceutical products 76,330
66,099 10,231 15 %
Total finished pharmaceutical products net revenues
Primatene Mist® sales continued to grow in 2022, as a result of increased unit volumes, which was primarily a result of the continued success of our advertising campaign. The increase in sales of epinephrine and lidocaine was primarily due to an increase in unit volumes, arising from high demand due to competitor shortages. The increase in sales of phytonadione was due to an increase in unit volumes, contributing$2.2 million in sales, and a higher average selling price, which contributed$4.1 million to the increase in sales. The increase in sales of glucagon was primarily due to an increase in unit volumes as the prior year period did not include a full year of sales due to glucagon's launch in the first quarter of 2021. The increase in sales of naloxone was primarily due an increase in unit volumes contributing$2.5 million , which was partially offset by a decrease in average selling price, which caused a decline of$2.1 million . The increase in other finished pharmaceutical products was primarily due to higher unit volumes of calcium chloride, dextrose and sodium bicarbonate, which were in high demand due to competitor shortages, as well as the launch of ganirelix and vasopressin inJune 2022 andAugust 2022 , respectively. -33-
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We anticipate that sales of naloxone and enoxaparin will continue to fluctuate in the future as a result of changing levels of competition. Sales of epinephrine and other finished pharmaceutical products will fluctuate depending on the ability of our competitors to supply the market. Sales of API primarily depend on the timing of customer purchases. InMay 2021 , we amended the Supply Agreement with MannKind Corporation, whereby MannKind's aggregate total commitment ofRHI API under the Supply Agreement was modified and extended for an additional year through 2027, which timeframe would have previously lapsed after calendar year 2026. MannKind has agreed to pay us an amendment fee of$2.0 million . We received the first payment of the amendment fee of$1.0 million inJune 2021 which we recognized in net revenues during the year endedDecember 31, 2021 . The remaining$1.0 million of the amendment fee was received inJanuary 2022 and relates to the amendments to the 2022 supply level and has been and will continue to be recognized ratably to net revenues throughout the remainder of 2022. We anticipate that sales of API will continue to fluctuate and may decrease due to the inherent uncertainties related to sales to MannKind pursuant to our supply agreement with them. In addition, most of our API sales are denominated in euros, and the fluctuation in the value of euros versus theU.S. dollar has had, and may continue to have, an impact on API sales revenues in the near term. A significant portion of our customer shipments in any period relate to orders received and shipped in the same period, generally resulting in low product backlog relative to total shipments at any time. However, during the third quarter of 2022, we experienced a backlog of approximately$6.5 million for various products, partially brought on by competitor shortages, labor shortages and supplier constraints. We are currently working on resolving these issues and believe that we will be able to reduce the backlog in the near future. Historically, our backlog has not been a meaningful indicator in any given period of our ability to achieve any particular level of overall revenue or financial performance.
Gross margins
The increase in sales of Primatene Mist®, epinephrine and glucagon, which are higher-margin products, helped increase our gross margins for the nine months endedSeptember 30, 2022 . These increases in gross margins were partially offset by overall increase in labor cost, as well as an increase in the cost for heparin raw material, which is used as the starting material for enoxaparin. We are experiencing increased costs for labor and certain purchased components. Additionally, the cost of heparin may fluctuate, which could put downward pressure on our gross margins. However, we believe that this trend will be offset by increased sales of our higher-margin products, including Primatene Mist®, glucagon, vasopressin and ganirelix.
Selling, distribution and marketing, and general and administrative
Nine Months Ended
September 30, Change
2022 2021 Dollars %
(in thousands)Selling, distribution, and marketing$ 16,059 $ 13,411 $ 2,648
20 % General and administrative$ 34,433 $ 40,813 $ (6,380) (16) %
The increase in selling, distribution and marketing expenses was primarily due
to increased freight expenses. The decrease in general and administrative
expense was primarily due to a decrease in legal expenses and a decrease in
expenses in
We expect that selling, distribution and marketing expenses will continue to
increase due to the increase in marketing expenditures for Primatene Mist®.
Legal fees may fluctuate from period to period due to the timing of patent
challenges and other litigation matters.
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Research and development
Nine Months Ended
September 30, Change
2022 2021 Dollars %
(in thousands)
Salaries and personnel-related expenses $ 18,767 $ 20,538 $ (1,771) (9) %
Clinical trials 3,905 2,575 1,330 52 %
FDA fees 86 189 (103) (54) %
Materials and supplies 21,747 5,816 15,931 274 %
Depreciation 7,647 8,439 (792) (9) %
Other expenses 5,383 6,089
(706) (12) %
Total research and development expenses
The increase in research and development expenses is primarily due to an increase in materials and supplies as a result of in an increase in expenditures on raw materials and components for our AMP-018 and insulin products. Additionally, clinical trial expense increased due to external studies related to our insulin and inhalation product pipeline.
Research and development costs consist primarily of costs associated with the research and development of our product candidates including the cost of developing APIs. We expense research and development costs as incurred.
We have made, and expect to continue to make, substantial investments in research and development to expand our product portfolio and grow our business. We expect that research and development expenses will increase on an annual basis due to increased clinical trial costs related to our insulin and inhalation product candidates. These expenditures will include costs of APIs developed internally as well as APIs purchased externally, the cost of purchasing reference listed drugs and the costs of performing the clinical trials. As we undertake new and challenging research and development projects, we anticipate that the associated costs will increase significantly over the next several quarters and years. Over the past year, some of our ongoing clinical trials experienced short term interruptions in the recruitment of patients due to the COVID-19 pandemic, as hospitals prioritized their resources towards the COVID-19 pandemic and government imposed travel restrictions. These conditions may in turn delay spending and delay the results of these trials. Additionally, some clinical trials experienced increased expenses due to new protocols to protect participants from COVID-19.
Other income (expenses), net
Nine Months Ended
September 30, Change
2022 2021 Dollars %
(in thousands)
Other income (expenses), net
InJanuary 2022 , we received a settlement of$5.4 million in connection with the Regadenoson patent litigation. For more information regarding our litigation matters, see Note 19 to the condensed consolidated financial statements. In the third quarter of 2021, we completed the restructuring of ANP, whereby our ownership interest in ANP increased to 100% and ANP's ownership interest in Hanxin and its subsidiaries was reduced to approximately 14%. As a result of the loss in control over Hanxin, we deconsolidated Hanxin and recorded a$13.6 million gain on deconsolidation. For more information regarding our ANP restructuring, see Note 3 to the condensed consolidated financial statements. Income tax provision Nine Months Ended September 30, Change 2022 2021 Dollars % (in thousands) Income tax provision$ 16,187 $ 13,436 $ 2,751 20 % Effective tax rate 22 % 24 % -35- Table of Contents Our effective tax rate for the nine months endedSeptember 30, 2022 decreased in comparison to the nine months endedSeptember 30, 2021 , primarily due to differences in pre-tax income positions and timing of discrete tax items. For more information regarding our income taxes, see Note 15 to the condensed consolidated financial statements.
Liquidity and Capital Resources
Cash Requirements and Sources
We need capital resources to maintain and expand our business. We expect our cash requirements to increase significantly in the foreseeable future as we sponsor clinical trials for, seek regulatory approvals of, and develop, manufacture and market our current development-stage product candidates and pursue strategic acquisitions of businesses or assets. Our future capital expenditures include projects to upgrade, expand, and improve our manufacturing facilities inthe United States andChina , including a significant increase in capital expenditures throughout the remainder of 2022. We plan to fund this facility expansion with cash flows from operations. Our cash obligations include the principal and interest payments due on our existing loans and lease payments, as described below and throughout this Quarterly Report. As ofSeptember 30, 2022 , our foreign subsidiaries collectively held$15.3 million in cash and cash equivalents. Cash or cash equivalents held at foreign subsidiaries are not available to fund the parent company's operations inthe United States . We believe that our cash reserves, operating cash flows, and borrowing availability under our credit facilities will be sufficient to fund our operations for at least the next 12 months from the date of filing of this Quarterly Report on Form 10-Q. We expect additional cash flows to be generated in the longer term from future product introductions, although there can be no assurance as to the receipt of regulatory approval for any product candidates that we are developing or the timing of any product introductions, which could be lengthy or ultimately unsuccessful. We maintain a shelf registration statement on Form S-3 pursuant to which we may, from time to time, sell up to an aggregate of$250 million of our common stock, preferred stock, debt securities, depositary shares, warrants, subscription rights, purchase contracts, or units. If we require or elect to seek additional capital through debt or equity financing in the future, we may not be able to raise capital on terms acceptable to us or at all. To the extent we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities will result in dilution to our stockholders. If we are required and unable to raise additional capital when desired, our business, operating results and financial condition may be adversely affected.
Working capital increased by
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