Amphastar stock: attractive risk-reward ratio (NASDAQ:AMPH)

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Investment thesis

Amphastar Pharmaceuticals (NASDAQ: AMPH) has a diversified and well-integrated offering in terms of pharmaceutical drugs, with several approvals pending in 2Q22 and 3Q22. In basic operation, it has an attractive reward of 6 to 1 at risk ratio, with an upside potential of approximately 42.8%. Investors should consider investing in AMPH to outperform the market.

Background

Amphastar Pharmaceuticals, Inc. considers itself a developer, manufacturer and distributor of pharmaceutical products. According to Business Management, it plans to compete based on its ability to focus on drugs with high barriers to entry, having an integrated manufacturing process and in-house clinical trials. Currently, it is developing drugs for deep vein thrombosis, asthma, opioid overdoses, pain management, anesthesia and hypoglycemia. Its revenue streams have diversified from over 50% of revenue from one product in 2014 to over 9 products in 2021, as shown below.

Amphastar Diversified Portfolio

Source: Amphastar

Some key milestones ahead for the company are 2Q2022 and 3Q2022, when it anticipates General Drug User Fee Act (GDUFA) clearance approvals for its drugs, as shown below. If approved, AMPH would become a key player in a total addressable market of $650 million, which would significantly increase its revenue. These drugs are AMP-002 and AMP-015.

According to clinical tests, AMP-002 or Amphora, is a non-hormonal contraceptive used by women. According to Grand View Searchthe MAR for this form of contraceptive is approximately $800 million.

According to Medicine More, AMP-015 or Teriparatide, is an injection used to treat osteoporosis. Osteoporosis is a condition in which bones become thin and weak and break easily. Teriparatide is used by women who have gone through menopause and who are at high risk for fractures and cannot use other treatments for osteoporosis. This product has a MAC of $650 million as predicted by AMPH below.

Amphastar Key Pending Approvals

Source: Amphastar

Business fundamentals

Based on the company’s income statement, we see that cash has nearly doubled from $66 million in 2017 to $126 million in 2021. We also note that the company’s total assets have increased from $451 million to $672 million in 2021. Additionally, the company’s total equity has increased. from $334 million in 2017 to $446 million in 2021. The company’s long-term debt less than doubled, from $41 million in 2017 to $75 million in 2021.

Balance sheet

Looking at the company’s income statement, we see that the company’s revenue has grown from $240 million in 2017 to $438 million in 2021. We see that gross profit has more than doubled from $91 million in 2017 to $200 million in 2021. The company’s EBITDA grew from $17 million to $108 million in 2021, more than six times higher. Finally, after-tax net profits increased from $4 million per year to $64 million per year, a 16-fold increase. It’s also worth noting that the company’s R&D spending has fallen from approximately $39 million in 2017 to $0 in 2021, which is inconsistent with management’s goals of growing further in the development of medications.

income statement

First Quarter 2022 Earnings Report – Key Takeaways

AMPH delivers on all 4 fronts of its management operating plan: developing new products, developing and manufacturing existing products, bringing new products to market, and selling current products through high-volume sales. AMPH currently has a pipeline of 4 abbreviated new drug approvals in the FDA queue. It also develops manufacturing processes for approved generic versions of off-patent products with a total addressable market of $26 billion. And on the marketing and sales side, he has had considerable success with the Primatene Mist® marketing campaign, which resulted in increased revenue. Additionally, it has seen an increase in revenue from high-volume sales of Glucagon, the deficiency of which is a leading cause of hypoglycemia, a condition characterized by decreased blood glucose levels.

The company also announced a $25 million share buyback program, which is expected to continue indefinitely.

Business valuation

To develop a discounted cash flow model for AMPH, we will assume that AMPH will grow at the conservative rate of 8-11% based on sales growth of its existing drugs. We realize that with additional endorsements, the potential for increased revenue is much higher. But we also note that with plans to fund future drug development with revenue from sales of approved drugs, AMPH will likely continue to grow at a conservative rate. We assume that R&D expenses are negligible, but if this assumption is incorrect, it may be offset by higher revenue from other endorsements. Based on this analysis and the assumptions it contains, we find that AMPH had an upside potential of 42.8%, with a fair value target of $47.09 per share.

Right price
Revenue forecast

Revenue forecast

Investment risks and competitor analysis

In the event that AMPH fails to meet its management plan, we expect a return to its industry median PE multiples of between 23.7 times trailing PE and 19.9 times advancing PE. Based on this assessment, we find that a fair price will be between $30.86 and 30.42%, representing a downside risk of approximately 7.1%.

Evaluation of competitors

Evaluation of competitors

Conclusion

Based on this analysis, we find that the downside risk of an investment in AMPH is approximately 7.1% if it reverts to the industry median by failing to meet its management operating plan. . The upside potential is approximately 42.1%, giving the company a reward/risk ratio of 6 to 1. It is an attractive investment for investors looking to add pharmaceutical companies to their portfolios. wallets.

Sallie R. Loera