Quarterly Report (10-q)

AMPH

Amphastar Pharmaceuticals News

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

⌧	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

◻	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-36509

AMPHASTAR PHARMACEUTICALS, INC.

(Exact name of Registrant as specified in its charter)

Delaware

33-0702205

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)


11570 6^th Street
Rancho Cucamonga, CA		91730
(Address of principal executive offices)		(zip code)

(909) 980-9484

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻ No ⌧

Securities registered pursuant to Section 12(b) of the Act:

The number of shares outstanding of the registrant’s common stock as of November 2, 2020 was 47,504,019.

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AMPHASTAR PHARMACEUTICALS, INC.

TABLE OF CONTENTS

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

Special Note About Forward-Looking Statements



Part I. FINANCIAL INFORMATION
		PAGE
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019		1
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019		2
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019		3
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019		4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3. Quantitative and Qualitative Disclosure about Market Risk		41
Item 4. Controls and Procedures		41
Part II. OTHER INFORMATION
Item 1. Legal Proceedings		42
Item 1A. Risk Factors		42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		46
Item 3. Defaults Upon Senior Securities		47
Item 4. Mine Safety Disclosures		47
Item 5. Other Information		47
Item 6. Exhibits		47
Signatures		48

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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains “forward-looking statements” that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the following words: “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these identifying words. Forward-looking statements relate to future events or future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by the forward-looking statements. These forward-looking statements include, but are not limited to, statements about:

●

our expectations regarding the sales and marketing of our products;

●

our expectations regarding our manufacturing and production and the integrity of our supply chain for our products, including the risks associated with our single source suppliers;

●

the impact of the COVID-19 pandemic and related responses of business and governments to the pandemic on our operations and personnel, and on commercial activity and demand across our business operations and results of operations;

●

interruptions to our manufacturing and production as a result of natural catastrophic events or other causes beyond our control such as power disruptions or widespread disease outbreaks, such as the COVID-19 pandemic;

●

global, national and local economic and market conditions, specifically with respect to geopolitical uncertainty, and the COVID-19 pandemic;

●

the timing and likelihood of U.S. Food and Drug Administration, or FDA, approvals and regulatory actions on our product candidates, manufacturing activities and product marketing activities;

●

our ability to advance product candidates in our platforms into successful and completed clinical trials and our subsequent ability to successfully commercialize our product candidates;

●

our ability to compete in the development and marketing of our products and product candidates;

●

our expectations regarding the business expansion plans for our Chinese subsidiary, ANP;

●

the potential for adverse application of environmental, health and safety and other laws and regulations on our operations;

●

our expectations for market acceptance of our new products and proprietary drug delivery technologies, as well as those of our active pharmaceutical ingredient, or API, customers;

●

the potential for our marketed products to be withdrawn due to patient adverse events or deaths, or if we fail to secure FDA approval for products subject to the Prescription Drug Wrap-Up program;

●

our expectations in obtaining insurance coverage and adequate reimbursement for our products from third-party payers;

●

the amount of price concessions or exclusion of suppliers adversely affecting our business;

●

our ability to establish and maintain intellectual property protection for our products and our ability to successfully defend our intellectual property in cases of alleged infringement;

●

the implementation of our business strategies, product development strategies and technology utilization;

●

the potential for exposure to product liability claims;

●

future acquisitions, divestitures or investments, including the anticipated benefits of such acquisitions, divestitures or investments;

●

our ability to expand internationally;

●

economic and industry trends and trend analysis;

●

our ability to remain in compliance with laws and regulations that currently apply or become applicable to our business both in the United States and internationally;

●

the impact of trade tariffs, export or import restrictions, or other trade barriers;

●

the impact of Patient Protection and Affordable Care Act (as amended) and other legislative and regulatory healthcare reforms in the countries in which we operate including the potential for drug price controls;

●

the impact of global and domestic tax reforms, including the Tax Cuts and Jobs Act of 2017, or the Tax Act, as amended by the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act;

●

the timing for completion and the validation of the new construction at our ANP and Amphastar facilities;

●

the timing and extent of share buybacks; and

●

our financial performance expectations, including our expectations regarding our backlog, revenue, cost of revenue, gross profit or gross margin, operating expenses, including changes in research and development, sales and marketing and general and administrative expenses, and our ability to achieve and maintain future profitability.

You should read this Quarterly Report and the documents that we reference elsewhere in this Quarterly Report completely and with the understanding that our actual results may differ materially from what we expect as expressed or implied by our forward-looking statements. In light of the significant risks and uncertainties to which our forward-looking statements are subject, you should not place undue reliance on or regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. In particular, the extent of COVID-19’s impact on our business will depend on several factors, including the severity, duration and extent of the pandemic, as well as actions taken by governments, businesses,

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and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time. We discuss many of these risks and uncertainties in greater detail in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2019, particularly in Item 1A. “Risk Factors.” These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report regardless of the time of delivery of this Quarterly Report, and such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report.

Unless expressly indicated or the context requires otherwise, references in this Quarterly Report to “Amphastar,” “the Company,” “we,” “our,” and “us” refer to Amphastar Pharmaceuticals, Inc. and our subsidiaries.

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	September 30,		December 31,
	2020		2019
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	87,910	$	73,685
Restricted cash		1,865		1,865
Short-term investments		10,873		11,675
Restricted short-term investments		2,200		2,290
Accounts receivable, net		52,382		45,376
Inventories		108,870		110,501
Income tax refunds and deposits		1,455		311
Prepaid expenses and other assets		10,986		9,538
Total current assets		276,541		255,241

Property, plant, and equipment, net		245,881		233,856
Finance lease right-of-use assets		693		887
Operating lease right-of-use assets		20,256		18,805
Goodwill and intangible assets, net		40,377		41,153
Other assets		7,735		11,156
Deferred tax assets		22,235		25,873
Total assets	$	613,718	$	586,971

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	79,292	$	77,051
Income taxes payable		1,619		2,042
Current portion of long-term debt		12,167		7,741
Current portion of operating lease liabilities		3,639		3,175
Total current liabilities		96,717		90,009

Long-term reserve for income tax liabilities		3,425		3,425
Long-term debt, net of current portion		32,903		39,394
Long-term operating lease liabilities, net of current portion		17,534		16,315
Deferred tax liabilities		823		867
Other long-term liabilities		11,354		9,433
Total liabilities		162,756		159,443
Commitments and contingencies
Stockholders’ equity:
Preferred stock: par value $0.0001; 20,000,000 shares authorized; no shares issued and outstanding		—		—
Common stock: par value $0.0001; 300,000,000 shares authorized; 54,623,837 and 47,534,215 shares issued and outstanding as of September 30, 2020 and 52,495,483 and 46,576,968 shares issued and outstanding as of December 31, 2019, respectively		5		5
Additional paid-in capital		404,084		367,305
Retained earnings		124,046		116,370
Accumulated other comprehensive loss		(4,478)		(4,687)
Treasury stock		(118,425)		(97,627)
Total Amphastar Pharmaceuticals, Inc. stockholders’ equity		405,232		381,366
Non-controlling interests		45,730		46,162
Total equity		450,962		427,528
Total liabilities and stockholders’ equity	$	613,718	$	586,971

See Accompanying Notes to Condensed Consolidated Financial Statements.

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AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net revenues	$	83,431	$	80,137	$	253,925	$	238,974
Cost of revenues		46,923		44,885		147,417		140,432
Gross profit		36,508		35,252		106,508		98,542

Operating expenses:
Selling, distribution, and marketing		3,673		3,221		10,993		9,354
General and administrative		11,674		11,021		38,344		39,774
Research and development		17,644		18,606		49,096		49,209
Total operating expenses		32,991		32,848		98,433		98,337

Income from operations		3,517		2,404		8,075		205

Non-operating income (expenses):
Interest income		161		450		512		741
Interest expense		(175)		(22)		(286)		(76)
Other income (expenses), net		3,575		(1,250)		3,078		58,172
Total non-operating income (expenses), net		3,561		(822)		3,304		58,837

Income before income taxes		7,078		1,582		11,379		59,042
Income tax provision		2,285		598		4,490		13,292

Net income	$	4,793	$	984	$	6,889	$	45,750

Net income (loss) attributable to non-controlling interests	$	874	$	(326)	$	(787)	$	(4,215)

Net income attributable to Amphastar Pharmaceuticals, Inc.	$	3,919	$	1,310	$	7,676	$	49,965

Net income per share attributable to Amphastar Pharmaceuticals, Inc. stockholders:
Basic	$	0.08	$	0.03	$	0.16	$	1.06

Diluted	$	0.08	$	0.03	$	0.16	$	1.00

Weighted-average shares used to compute net income per share attributable to Amphastar Pharmaceuticals, Inc. stockholders:
Basic		47,496		47,239		46,886		47,030

Diluted		49,848		50,075		48,922		50,128

See Accompanying Notes to Condensed Consolidated Financial Statements.

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AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net income attributable to Amphastar Pharmaceuticals, Inc.	$	3,919	$	1,310	$	7,676	$	49,965

Other comprehensive income (loss) attributable to Amphastar Pharmaceuticals, Inc., net of income taxes
Foreign currency translation adjustment		695		(1,625)		209		(1,835)
Total other comprehensive income (loss) attributable to Amphastar Pharmaceuticals, Inc.		695		(1,625)		209		(1,835)

Total comprehensive income (loss) attributable to Amphastar Pharmaceuticals, Inc.	$	4,614	$	(315)	$	7,885	$	48,130

See Accompanying Notes to Condensed Consolidated Financial Statements.

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AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited; in thousands, except share data)


	Common Stock							Accumulated		Treasury Stock			Total
				Additional				Other					Amphastar		Non-
				Paid-in		Retained		Comprehensive					Stockholders'		controlling
	Shares	Amount		Capital		Earnings		loss		Shares	Amount		Equity		Interest		Total
Balance as of December 31, 2019	52,495,483	$	5	$	367,305	$	116,370	$	(4,687)	(5,918,515)	$	(97,627)	$	381,366	$	46,162	$	427,528
Net income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		3,949		—	—		—		3,949		—		3,949
Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		—		(774)	—		—		(774)		—		(774)
Net loss attributable to non-controlling interest	—		—		—		—		—	—		—		—		(424)		(424)
Purchase of treasury stock	—		—		—		—		—	(647,246)		(10,950)		(10,950)		—		(10,950)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(84)		—		—	6,873		84		—		—		—
Issuance of common stock in connection with the Company's equity plans	369,508		—		(1,238)		—		—	—		—		(1,238)		—		(1,238)
Share-based compensation expense	—		—		5,161		—		—	—		—		5,161		121		5,282
Balance as of March 31, 2020	52,864,991	$	5	$	371,144	$	120,319	$	(5,461)	(6,558,888)	$	(108,493)	$	377,514	$	45,859	$	423,373
Net loss attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		(192)		—	—		—		(192)		—		(192)
Other comprehensive income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		—		288	—		—		288		—		288
Net loss attributable to non-controlling interest	—		—		—		—		—	—		—		—		(1,237)		(1,237)
Purchase of treasury stock	—		—		—		—		—	(329,391)		(5,756)		(5,756)		—		(5,756)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(130)		—		—	10,913		130		—		—		—
Issuance of common stock in connection with the Company's equity plans	1,507,284		—		19,448		—		—	—		—		19,448		—		19,448
Share-based compensation expense	—		—		6,379		—		—	—		—		6,379		134		6,513
Balance as of June 30, 2020	54,372,275	$	5		396,841	$	120,127	$	(5,173)	(6,877,366)	$	(114,119)	$	397,681	$	44,756	$	442,437
Net income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		3,919		—	—		—		3,919		—		3,919
Other comprehensive income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		—		695	—		—		695		—		695
Acquisition of additional ownership interest in ANP	—		—		—		—		—	—		—		—		(106)		(106)
Net income attributable to non-controlling interest	—		—		—		—		—	—		—		—		874		874
Purchase of treasury stock	—		—		—		—		—	(214,256)		(4,329)		(4,329)		—		(4,329)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(23)		—		—	2,000		23		—		—		—
Issuance of common stock in connection with the Company's equity plans	251,562		—		3,102		—		—	—		—		3,102		—		3,102
Share-based compensation expense	—		—		4,164		—		—	—		—		4,164		206		4,370
Balance as of September 30, 2020	54,623,837	$	5	$	404,084	$	124,046	$	(4,478)	(7,089,622)	$	(118,425)	$	405,232	$	45,730	$	450,962

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited; in thousands, except share data)


	Common Stock							Accumulated		Treasury Stock			Total
				Additional				Other					Amphastar		Non-
				Paid-in		Retained		Comprehensive					Stockholders'		controlling
	Shares	Amount		Capital		Earnings		loss		Shares	Amount		Equity		Interest		Total
Balance as of December 31, 2018	51,438,675	$	5	$	344,434	$	67,485	$	(4,013)	(4,807,557)	$	(75,476)	$	332,435	$	31,924	$	364,359
Beginning balance adjustment as a result of the adoption of new accounting standards	—		—		—		(54)		—	—		—		(54)		—		(54)
Net income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		868		—	—		—		868		—		868
Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		—		(113)	—		—		(113)		—		(113)
Proceeds from the private placement of ANP	—		—		2,588		—		—	—		—		2,588		16,378		18,966
Net loss attributable to non-controlling interest	—		—		—		—		—	—		—		—		(3,022)		(3,022)
Purchase of treasury stock	—		—		—		—		—	(145,479)		(3,015)		(3,015)		—		(3,015)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(98)		—		—	8,334		98		—		—		—
Issuance of common stock in connection with the Company's equity plans	604,651		—		(2,397)		—		—	—		—		(2,397)		—		(2,397)
Share-based compensation expense	—		—		4,674		—		—	—		—		4,674		—		4,674
Balance as of March 31, 2019	52,043,326	$	5	$	349,201	$	68,299	$	(4,126)	(4,944,702)	$	(78,393)	$	334,986	$	45,280	$	380,266
Net income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		47,787		—	—		—		47,787		—		47,787
Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		—		(97)	—		—		(97)		—		(97)
Net loss attributable to non-controlling interest	—		—		—		—		—	—		—		—		(867)		(867)
Purchase of treasury stock	—		—		—		—		—	(50,980)		(1,073)		(1,073)		—		(1,073)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(7)		—		—	597		7		—		—		—
Issuance of common stock in connection with the Company's equity plans	169,434		—		2,240		—		—	—		—		2,240		—		2,240
Share-based compensation expense	—		—		4,002		—		—	—		—		4,002		30		4,032
Balance as of June 30, 2019	52,212,760	$	5	$	355,436	$	116,086	$	(4,223)	(4,995,085)	$	(79,459)	$	387,845	$	44,443	$	432,288
Net income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		1,310		—	—		—		1,310		—		1,310
Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		—		(1,625)	—		—		(1,625)		—		(1,625)
Net loss attributable to non-controlling interest	—		—		—		—		—	—		—		—		(326)		(326)
Purchase of treasury stock	—		—		—		—		—	(206,686)		(4,426)		(4,426)		—		(4,426)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(32)		—		—	2,634		32		—		—		—
Issuance of common stock in connection with the Company's equity plans	186,284		—		2,138		—		—	—		—		2,138		—		2,138
Share-based compensation expense	—		—		4,163		—		—	—		—		4,163		131		4,294
Balance as of September 30, 2019	52,399,044	$	5	$	361,705	$	117,396	$	(5,848)	(5,199,137)	$	(83,853)	$	389,405	$	44,248	$	433,653

See Accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)


	Nine Months Ended
	September 30,
	2020		2019
Cash Flows From Operating Activities:
Net income	$	6,889	$	45,750
Reconciliation to net cash provided by operating activities:
Loss on impairment and disposal of assets		161		869
Depreciation of property, plant, and equipment		14,946		12,527
Amortization of product rights, trademarks, and patents		771		777
Operating lease right-of-use asset amortization		2,693		2,188
Share-based compensation expense		16,165		13,000
Changes in deferred taxes, net		3,638		9,872
Changes in operating assets and liabilities:
Accounts receivable, net		(6,706)		6,722
Inventories		2,351		(41,146)
Prepaid expenses and other assets		(3,755)		(3,607)
Income tax refunds, deposits, and payable, net		(1,973)		(631)
Operating lease liabilities		(2,478)		(1,866)
Accounts payable and accrued liabilities		7,671		(8,345)
Net cash provided by operating activities		40,373		36,110

Cash Flows From Investing Activities:
Purchases and construction of property, plant, and equipment		(24,526)		(33,145)
Purchase of short-term investments		—		(9,825)
Maturity of short-term investments		961		—
Payment of deposits and other assets		(674)		(205)
Net cash used in investing activities		(24,239)		(43,175)

Cash Flows From Financing Activities:
Proceeds from the private placement of ANP		—		18,298
Acquisition of additional ownership interest in ANP		(106)		—
Proceeds from equity plans, net of withholding tax payments		21,312		1,981
Purchase of treasury stock		(21,035)		(8,514)
Proceeds from borrowing under lines of credit		1,072		—
Repayments under lines of credit		—		(347)
Proceeds from issuance of long-term debt		3,067		—
Principal payments on long-term debt		(6,329)		(4,819)
Net cash (used in) provided by financing activities		(2,019)		6,599

Effect of exchange rate changes on cash		110		(260)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company