AMPH - Amphastar Pharmaceuticals: Shining Star Soon To Fade With Competitive Pressures Looming

2024-07-01 09:00:00 ET

Summary

• AMPH has materially benefited from a variety of temporary factors across their key product lines that have largely gone unnoticed by investors, sending shares up ~100% over the last 3yrs.
• Amphastar’s glucagon business has benefited from shortages at Fresenius, which were recently rectified. Three new competitors are about to launch glucagon, turning this duopoly into a potential 5-player market.
• Epinephrine revenues should meaningfully disappoint as shortage benefits alleviate, a newly approved competitor ramps, and two potential competitors gain approval.
• The sole Orange Book patent on Primatene MIST, a key high margin product, expires in January 2026, which opens the door to material competition. Primatene is one of the few DTC products in its aisle without a generic.
• A handful of smaller “Other” products have been buoyed by a tornado which took out competitor Pfizer’s product warehousing. The magnitude of the benefit is larger than investors believe, and Pfizer is quickly returning to market.

Amphastar Pharmaceuticals (AMPH) (the "Company") - a $2bn market cap company which is up ~100% over the last three years - appears to be firing on all cylinders. We believe that investors and the sellside community are asleep at the wheel - extrapolating the Company's recent success into the future without realizing that much of Amphastar's growth has come off the back of unsustainable and temporary competitive factors. Simply put, our research has uncovered obvious competitive threats up and down Amphastar's product portfolio with the largest risks concentrated in some of their highest gross margin products, amplifying the financial implications of our research.

Black Mamba sees ~50%+ downside risk in the share price as Amphastar will be unable to meet the Street's lofty expectations, in our opinion. Our base case estimate of 2025 EBITDA is $208mm, compared to Visible Alpha sellside consensus of ~$351mm. The following report outlines our findings and opinions based entirely on publicly available information sourced through rigorous scouring of SEC disclosures, international financial reports, and various internet resources.

Our multipronged thesis is based on the following tenets:

• Glucagon
  1. Amphastar's glucagon growth has been buoyed by underappreciated product shortages at sole competitor Fresenius KABI. Fresenius' supply issues were resolved in February 2024 . Fresenius' vial product seems to have structural advantages over Amphastar's kit-based product in the diagnostic market, which currently makes up two-thirds of Amphastar's glucagon sales and has driven most of the growth in Amphastar's glucagon business
  2. Planned glucagon product launches by Viatris (2024E), Lupin (2025E), and Meitheal Pharmaceuticals appear poised to turn this duopoly market into a five-player market
  3. Expensive and transformational Baqsimi purchase from Eli Lilly contains financial terms that siphon the vast majority of near-term profits from the product away from Amphastar
• Pfizer (PFE) Tornado Beneficiary Products
  1. Amphastar's current earnings base is materially elevated by a tornado that hit a Pfizer facility . As a result, Amphastar has a temporary monopoly on multiple generic drugs . Amphastar does not disclose the revenue contribution from many of these products individually, making it hard for analysts to quantify how material the benefit has been to the business. Recent data suggests Pfizer will return to market with most of these products over the next several months
  2. Capital improvements (such as a new injectables manufacturing line) to Pfizer's facility are likely to reduce future benefits from temporary shortages
• Epinephrine
  1. Amphastar's epinephrine revenue has benefited from multi-year long Pfizer production problems that were resolved immediately prior to the tornado (but then subsequently disrupted by the tornado). Pfizer appears primed to return to the market with their epinephrine product in late 2024
  2. BPI Labs launched a competitor multi-dose vial in March 2024 . Prior to this, Amphastar only had one competitor in this product line.
  3. Amneal expects to launch multiple epinephrine products - including a prefilled syringe - in 2025 which will further competition in this category
  4. Gland Pharma - which has closely followed Amphastar in previous products - is potentially targeting an epinephrine multi-dose vial launch
• Primatene MIST
  1. Key patent expiration in January 2026 invites private label competition , which could materially reduce revenue and profits from this cash cow product. Sellside forecasts assume that the current level of revenue is sustainable essentially into perpetuity
  2. Now that Amphastar has completed their distribution rollout of Primatene, organic volume trends appear to have little room for further growth during the remainder of Amphastar's patent exclusivity

• Unapproved Generic Pipeline
  1. Consistent history of over-promising and under-delivering on recent pipeline opportunities
  2. Beaten to the punch on generic Forteo (teriparatide) by two juggernaut competitors - Teva and Apotex
  3. Undisclosed pipeline product AMP-018 is likely Victoza (liraglutide) in our opinion. Teva launched the first liraglutide generic this month, and other large competitors may soon follow

1. Glucagon

Within the US glucagon injection market, Amphastar is currently operating in an effective duopoly with Fresenius KABI as the other participant. Amphastar gained share in this market rapidly, and we expect the company to cede share in short order.

Glucagon has two primary markets: retail, in which diabetics carry glucagon emergency kits to counter severe hypoglycemia, and diagnostic, where glucagon is injected into a patient as a diagnostic aid for imaging the GI tract. Traditionally, the retail market has been dominated by kits (which are needed to enable patients to self-administer) and the diagnostic market was dominated by vial products (since they are cheaper and administered by a professional). Amphastar makes the kit product, for which they received FDA approval in December 2020....

For further details see: