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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 JUNE 30, 2020

or

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 6th 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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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:

T

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

AMPH

The NASDAQ Stock Market LLC

The number of shares outstanding of the registrant’s common stock as of August 3, 2020 was 47,485,546.

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AMPHASTAR PHARMACEUTICALS, INC.

TABLE OF CONTENTS

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

Special Note About Forward-Looking Statements

Part I. FINANCIAL INFORMATION

PAGE

Item 1. Financial Statements (unaudited):

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

1

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019

2

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2020 and 2019

3

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019

4

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 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

46

Item 4. Mine Safety Disclosures

46

Item 5. Other Information

46

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.

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

    

June 30, 

    

December 31, 

 

2020

2019

 

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

87,388

$

73,685

Restricted cash

1,865

1,865

Short-term investments

11,101

11,675

Restricted short-term investments

 

2,200

 

2,290

Accounts receivable, net

 

49,862

 

45,376

Inventories

 

104,726

 

110,501

Income tax refunds and deposits

 

682

 

311

Prepaid expenses and other assets

 

8,997

 

9,538

Total current assets

 

266,821

 

255,241

Property, plant, and equipment, net

 

238,236

 

233,856

Finance lease right-of-use assets

774

887

Operating lease right-of-use assets

17,086

18,805

Goodwill and intangible assets, net

 

40,271

 

41,153

Other assets

 

12,635

 

11,156

Deferred tax assets

 

24,235

 

25,873

Total assets

$

600,058

$

586,971

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

75,385

$

77,051

Income taxes payable

 

2,345

 

2,042

Current portion of long-term debt

 

12,075

 

7,741

Current portion of operating lease liabilities

3,481

3,175

Total current liabilities

 

93,286

 

90,009

Long-term reserve for income tax liabilities

 

3,425

 

3,425

Long-term debt, net of current portion

 

34,622

 

39,394

Long-term operating lease liabilities, net of current portion

14,530

16,315

Deferred tax liabilities

 

760

 

867

Other long-term liabilities

 

10,998

 

9,433

Total liabilities

 

157,621

 

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; 54,372,275 and 47,494,909 shares issued and outstanding as of June 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

 

396,841

 

367,305

Retained earnings

 

120,127

 

116,370

Accumulated other comprehensive loss

 

(5,173)

 

(4,687)

Treasury stock

 

(114,119)

 

(97,627)

Total Amphastar Pharmaceuticals, Inc. stockholders’ equity

 

397,681

 

381,366

Non-controlling interests

44,756

46,162

Total equity

442,437

427,528

Total liabilities and stockholders’ equity

$

600,058

$

586,971

See Accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share data)

Three Months Ended

Six Months Ended

 

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

 

Net revenues

$

85,806

$

79,047

$

170,494

$

158,837

Cost of revenues

 

52,629

 

46,660

 

100,494

 

95,547

Gross profit

 

33,177

 

32,387

 

70,000

 

63,290

Operating expenses:

Selling, distribution, and marketing

 

4,026

 

2,992

 

7,320

6,133

General and administrative

 

15,924

 

12,426

 

26,670

28,753

Research and development

 

16,149

 

15,996

 

31,452

30,603

Total operating expenses

 

36,099

 

31,414

 

65,442

 

65,489

(Loss) Income from operations

 

(2,922)

 

973

 

4,558

 

(2,199)

Non-operating income (expenses):

Interest income

 

198

 

143

 

351

291

Interest expense

 

(35)

 

(24)

 

(111)

(54)

Other income (expenses), net

 

1,255

 

60,001

 

(497)

59,422

Total non-operating income (expenses), net

 

1,418

 

60,120

 

(257)

 

59,659

(Loss) Income before income taxes

 

(1,504)

 

61,093

 

4,301

 

57,460

Income tax (benefit) provision

 

(75)

 

14,173

 

2,205

12,694

Net (loss) income

$

(1,429)

$

46,920

$

2,096

$

44,766

Net loss attributable to non-controlling interests

$

(1,237)

$

(867)

$

(1,661)

$

(3,889)

Net (loss) income attributable to Amphastar Pharmaceuticals, Inc.

$

(192)

$

47,787

$

3,757

$

48,655

Net (loss) income per share attributable to Amphastar Pharmaceuticals, Inc. shareholders:

Basic

$

(0.00)

$

1.01

$

0.08

$

1.04

Diluted

$

(0.00)

$

0.96

$

0.08

$

0.97

Weighted-average shares used to compute net (loss) income per share attributable to Amphastar Pharmaceuticals, Inc. shareholders:

Basic

 

46,753

 

47,107

 

46,581

 

46,925

Diluted

 

46,753

 

49,894

 

48,458

 

50,155

See Accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; in thousands)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

 

Net (loss) income attributable to Amphastar Pharmaceuticals, Inc.

$

(192)

$

47,787

$

3,757

$

48,655

Other comprehensive income (loss) income attributable to Amphastar Pharmaceuticals, Inc., net of income taxes

Foreign currency translation adjustment

 

288

 

(97)

 

(486)

 

(210)

Total other comprehensive income (loss) income attributable to Amphastar Pharmaceuticals, Inc.

 

288

 

(97)

 

(486)

 

(210)

Total comprehensive income attributable to Amphastar Pharmaceuticals, Inc.

$

96

$

47,690

$

3,271

$

48,445

See Accompanying Notes to Condensed Consolidated Financial Statements.

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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, 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

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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

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)

Six Months Ended

June 30, 

    

2020

    

2019

 

Cash Flows From Operating Activities:

Net income

$

2,096

$

44,766

Reconciliation to net cash provided by operating activities:

Loss on impairment and disposal of assets

 

30

 

850

Depreciation of property, plant, and equipment

 

9,531

 

8,311

Amortization of product rights, trademarks, and patents

 

509

 

526

Operating lease right-of-use asset amortization

1,700

1,390

Share-based compensation expense

 

11,795

 

8,706

Changes in deferred taxes, net