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AP

Amphastar Pharmaceuticals, Inc. (AMPH)·Q2 2019 Earnings Summary

Executive Summary

  • Net revenues rose 11% year over year to $79.0M, with gross margin expanding to 41% (from 37%) on mix shift to higher-margin products; GAAP diluted EPS was $0.96, boosted by a $59.9M litigation settlement, while adjusted non-GAAP diluted EPS was $0.08 .
  • The settlement with Momenta and Sandoz materially strengthened liquidity (net cash and short-term investments $127.4M as of June 30) and should reduce legal expenses going forward; management plans to deploy funds into R&D and capacity expansion .
  • Primatene Mist continued to ramp with unit sales up ~50% sequentially at retail; national TV/radio ads started in July and Walmart launch is targeted for Q4 2019, supporting management’s forecast to return to ~$65M peak sales in 2–3 years .
  • Enoxaparin faced increased competition and price pressure, and insulin API shipments were lower on timing; “other finished products” benefited from market shortages (Cortrosyn, dextrose, calcium chloride, sodium bicarbonate) .
  • Wall Street consensus (S&P Global) estimates were unavailable due to an API limit; management indicated comfort with sales consensus levels previously referenced around ~$330M for the year . S&P Global consensus data was unavailable.

What Went Well and What Went Wrong

What Went Well

  • Litigation settlement catalyzed GAAP profitability and cash reserves: “we received $59.9 million… to settle all outstanding litigation… significantly strengthened our balance sheet” . GAAP diluted EPS was $0.96; adjusted diluted EPS $0.08 .
  • High-margin mix improved profitability: gross margin rose to 41% on increased sales of Medroxyprogesterone, Primatene Mist, Cortrosyn, and Isoproterenol; “Gross margins increased to 41% of sales from 37%” .
  • Primatene demand building: “positive trend in the retail store level with a 50% increase in unit sales from the first quarter to the second quarter… national television and radio commercials… launch on walmart.com… launch into Walmart stores in the fourth quarter” .

What Went Wrong

  • Enoxaparin headwinds: “increased competition… will continue to take a toll on both the number of units we sell… and the pricing,” contributing to sequential revenue decline vs Q1 .
  • Naloxone pricing/volume weakness persisted year over year: sales declined to $7.8M from $11.1M on lower unit volumes and lower average selling prices .
  • Insulin API softness on timing of shipments (down to $5.3M from $7.8M YoY), highlighting variability in API contribution .

Financial Results

MetricQ4 2018Q1 2019Q2 2019
Revenue ($USD Millions)$89.7 $79.8 $79.0
GAAP Diluted EPS ($)$0.04 $0.02 $0.96
Non-GAAP Diluted EPS ($)$0.13 $0.10 $0.08
Gross Margin (%)39% 39% 41%
Gross Profit ($USD Millions)$34.7 $30.9 $32.4
Operating Income ($USD Millions)$1.5 $(3.2) $1.0
Non-operating Income (Expense), net ($USD Millions)$(1.0) $(0.5) $60.1
Net Income attributable to Amphastar ($USD Millions)$1.9 $0.9 $47.8
Vs EstimatesN/A (S&P Global unavailable)N/A (S&P Global unavailable)N/A (S&P Global unavailable)

Segment breakdown:

Segment Revenues ($USD Millions)Q4 2018Q1 2019Q2 2019
Finished Pharmaceutical Products$82.9 $74.5 $73.7
API$6.8 $5.3 $5.3

Product-level detail (Q2 2019 vs Q2 2018):

Product Net Revenues ($USD Thousands)Q2 2018Q2 2019Change ($)Change (%)
Phytonadione$10,806 $12,441 $1,635 15%
Lidocaine$10,010 $10,082 $72 1%
Enoxaparin$8,715 $9,838 $1,123 13%
Naloxone$11,133 $7,833 $(3,300) (30%)
Medroxyprogesterone$6,365 $6,696 $331 5%
Epinephrine$3,687 $3,139 $(548) (15%)
Primatene Mist—$2,512 N/AN/A
Other finished products$12,525 $21,194 $8,669 69%
Total finished products$63,241 $73,735 $10,494 17%
API$7,799 $5,312 $(2,487) (32%)
Total net revenues$71,040 $79,047 $8,007 11%

KPIs and operating drivers:

KPIQ4 2018Q1 2019Q2 2019
Primatene Mist revenue ($USD Millions)$3.6 $2.9 $2.5
Enoxaparin revenue ($USD Millions)$19.1 $14.5 $9.8
Other finished products ($USD Millions)$17.3 $17.8 $21.2
Insulin API revenue ($USD Millions)$6.8 $5.3 $5.3
Selling, distribution & marketing ($USD Millions)$2.6 $3.1 $3.0
G&A ($USD Millions)$13.8 $16.3 $12.4
R&D ($USD Millions)$16.7 $14.6 $16.0
Non-operating income (expense), net ($USD Millions)$(1.0) $(0.5) $60.1
Operating cash flow ($USD Millions)N/A$(3.6) ~$51.7

Notes: Q2 CFO in transcript (~$51.7M) vs press release six-month CFO ($48.1M) reflects a one-quarter vs year-to-date framing difference .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Primatene Mist peak sales2–3 years~$65M peak sales target reiterated Maintained ~$65M target; unit sales +50% QoQ; Walmart launch Q4 Maintained
Primatene Walmart launchQ4 2019“In process” discussions Confirmed national launch in all Walmart stores in Q4 Increased specificity
First inhalation ANDA filing (HFA MDI)Filing timingLate 2019 filing contemplated Filing moved to 2020 after increasing trial subjects Delayed
Epinephrine ANDA action dateH2 2019GDUFA dates in 2019 Two action dates in next 4 months including epinephrine Maintained
Undisclosed complex injectable action dateH2 2019Resubmitted; new GDUFA date Action date in H2; high confidence and margin Maintained
Legal expense run-rate2019+Elevated in Q1 due to antitrust case “Will come down pretty significantly” post settlement Lowered
Tax rate on settlementQ2 2019N/ABook 25% ($15M) but cash tax ~ $2M due to DTAs/R&D credits New disclosure

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2018 & Q1 2019)Current Period (Q2 2019)Trend
Primatene commercializationLaunch in Q4’18; growing retail presence; ads planned; gross-to-net ~25–30% Unit sales +50% QoQ; national TV/radio ads (July); Walmart launch Q4; online via walmart.com Improving
Product shortages (hospital portfolio)Shortage-driven sales (Cortrosyn, critical-care injectables) supporting margins Continued shortages driving higher “other finished” sales; capacity constraints at IMS facility; expansion validation underway Mixed (demand strong; capacity tight)
Enoxaparin dynamicsPrice increases & volume supported Q4/Q1 Increased competition; pricing and units under pressure; still YoY up vs Q2’18 on ASP Worsening
Litigation/regulatoryAntitrust case ongoing; settlement “possible”; PIV suits (vasopressin) $59.9M settlement; GAAP EPS uplift; legal expenses to decline Improving (one-time)
Inhalation pipelineInhalation filings and ads planned; epinephrine multi-dose vial resubmitted; mystery injectable CRL resubmitted First inhalation ANDA disclosed as HFA MDI; filing pushed to 2020; two H2 action dates (epi + complex injectable) Mixed (delay offset by action dates)
Insulin programsIND filed; progress at ANP; BLA transition anticipated Active communications with FDA; relationship with BLA team; biologic transition noted Progressing
China operations & DMFsANP expansion; multiple DMFs 12 DMFs on file; developing six more; ANP R&D expansion contributing to expenses Expanding
Capital allocationBuyback authorization $20M Completed prior $1.1M repurchase; new $20M program in place Ongoing

Management Commentary

  • “We are pleased that we have settled our long-running patent dispute with Momenta and Sandoz, and have received $59.9 million… [to] focus on research and development… [and] increase our capacity for sterile injectable and inhalation products.” – Dr. Jack Zhang, CEO .
  • “Gross margins increased to 41% of sales from 37%… increased sales of high-margin products like Medroxyprogesterone, Primatene Mist, Cortrosyn and Isoproterenol.” – Bill Peters, CFO .
  • “We continue to see a positive trend… 50% increase in unit sales from the first quarter to the second quarter… national television and radio commercials… launch into Walmart stores in the fourth quarter.” – Jason Shandell, President .
  • “We have GDUFA dates in the second half of this year for our epinephrine ANDA and another undisclosed complex injectable product… [and] anticipate resubmitting [intranasal naloxone NDA] in 2020.” – Jason Shandell .

Q&A Highlights

  • Primatene trajectory and channel strategy: Walmart confirmed for Q4; ads driving the highest weekly sales since launch at a major retailer; Q2 sales primarily reorders, after Q4/Q1 stocking .
  • Enoxaparin run-rate: competition intensifying, impacting units and price; G&A to decrease as litigation spend abates, partially offset by compliance costs .
  • Business development appetite: strengthened cash (~$60M net benefit after tax credits on settlement) increases appetite for synergistic acquisitions, valuations improving; load-in to Walmart likely in Q4 .
  • Pipeline clarity: first inhalation ANDA confirmed as HFA MDI; filing delayed to 2020 after increasing clinical trial subjects; two H2 action dates (epinephrine and undisclosed injectable) with high margin expectations .
  • Shortage-driven sales sustainability: shortages across Cortrosyn, critical-care injectables continue; capacity constraints at IMS facility being addressed via expansion validation by year-end .

Estimates Context

  • S&P Global consensus data was unavailable due to an API rate limit; therefore, EPS and revenue comparisons to Wall Street consensus cannot be provided. S&P Global consensus data was unavailable.
  • Management noted comfort with current external sales estimates after previously flagging that earlier consensus levels were too high; after Q1, they were “pretty comfortable with where those estimates are at this time” .

Key Takeaways for Investors

  • Q2 optics are dominated by a one-time $59.9M settlement, but underlying non-GAAP EPS of $0.08 and 41% gross margin show improving mix quality and margin trajectory as Primatene and shortage-driven hospital injectables scale .
  • Primatene is a near-term catalyst: national ads initiated, Walmart launch in Q4, and unit momentum (+50% QoQ) support a credible path to ~$65M peak in 2–3 years, with very high gross margin contribution – a key driver for FY margin expansion .
  • Watch enoxaparin erosion: competitive pressure will weigh on pricing/units; portfolio breadth and margin accretive launches (epinephrine, undisclosed injectable) are needed to offset compression .
  • Pipeline timing matters: the inhalation HFA MDI filing delay to 2020 modestly tempers 2H’19 expectations, but two H2 action dates could provide late-year revenue/margin lift if launches follow approvals .
  • Operating cash generation was strong in Q2 (~$51.7M), and reduced legal spend plus available buyback authorization ($20M) provide capital deployment flexibility; note transcript vs press release CFO framing difference .
  • Near-term trading implications: stock likely reacts to Walmart launch visibility and any approval updates on H2 action dates; monitor weekly retail sales data for Primatene post-ad campaign and Q4 load-in cadence .
  • Medium-term thesis: margin expansion through high-value inhalation/injectable launches, disciplined M&A optionality, and ANP-supported pipeline breadth offer a path to durable EPS growth, contingent on execution amid hospital generic competition .