Amneal Announces Actions to Streamline Operations and Capture Cost Synergies
Published: May 11, 2018
BRIDGEWATER, N.J., May 11, 2018 /PRNewswire/ -- Amneal Pharmaceuticals, Inc. (NYSE: AMRX) announced actions to streamline operations following a comprehensive analysis of its current and future product portfolios, plant capacities, overlapping capabilities and cost structure as a result of the recent business combination with Impax Laboratories. As a result, the Company will close its Hayward, California-based facilities and operations.
The Company will immediately implement plans to phase out the Hayward facilities with an expected completion timeline of approximately 15 months, nearly one-year ahead of schedule. Amneal expects to transfer products manufactured at the Hayward facility to the Company's lower-cost facilities in the U.S. and India.
"We are taking these steps to streamline our operations, accelerate savings and generate resources to drive organic growth as well as pursue external growth opportunities," said Rob Stewart, President and Chief Executive Officer of Amneal. "The acceleration of these initiatives primarily in manufacturing and R&D operations, combined with our large and diverse generic pipeline of potential high-value product opportunities, will help us achieve our commitment to generate approximately $1.1 billion of adjusted EBITDA by the end of 2020. Today's announcement is not expected to materially impact our full year 2018 adjusted EBITDA guidance of $600 million to $650 million and full year adjusted EPS of $0.95 to $1.10 per diluted share.1 We do expect a significant favorable impact beginning in 2019."
Mr. Stewart continued, "I recognize that these types of announcements are difficult for our colleagues. We have announced and are committed to implementing a comprehensive transition plan. We will also work toward an orderly wind-down of the Hayward facilities to ensure these actions cause minimal disruptions to customers and patients. I have asked teams across our company for their full support of our colleagues in Hayward as we work together through this difficult transition."
Amneal expects the facility closures to reduce its workforce by approximately 550 positions. Additional details regarding the financial impact and pre-tax restructuring charges will be provided in a future Company filing.
2018 Financial Guidance
Amneal's pro forma full year 2018 estimates, provided on May 7, 2018, are based on 12 months of combined results and on management's current expectations, including with respect to prescription trends, pricing levels, inventory levels, and the anticipated timing of future product launches and events. The Company does not provide forward-looking guidance metrics as outlined below on a GAAP basis. Consequently, the Company cannot provide a reconciliation between non-GAAP expectations and corresponding GAAP measures without unreasonable efforts because it is unable to predict with reasonable certainty the ultimate outcome of certain significant items required for the reconciliation. The items include, but are not limited to, acquisition-related expenses, restructuring expenses, asset impairments and certain and other gains and losses. These items are uncertain, depend on various factors, and could have a material impact on U.S. GAAP reported results for the guidance period. The following statements are forward looking and actual results could differ materially depending on market conditions and the factors set forth under "Safe Harbor Statement" below.
Financial Guidance Pro Forma Full Year 2018 -------------- Adjusted Gross Margins 50% - 55% Adjusted R&D as a % of Total Revenues 10% - 15% Adjusted SG&A as a % of Total Revenues 13% - 16% Adjusted EBITDA(2) $600 to $650 million Adjusted EPS $0.95 - $1.10 Adjusted Effective Tax Rate 20% - 22% Capital Expenditures $80 to $100 million Diluted Shares Outstanding Approximately 300 million
Amneal Pharmaceuticals, Inc.
Non-GAAP Financial Measures
Adjusted combined net income and pro forma adjusted earnings per share are not measures of financial performance under generally accepted accounting principles (GAAP) and should not be construed as a measure of financial performance. However, management uses both GAAP financial measures and the disclosed non-GAAP financial measures internally to evaluate and manage the Company's operations and to better understand its business. Further, management believes the addition of non-GAAP financial measures provides meaningful supplementary information to, and facilitates analysis by, investors in evaluating the Company's financial performance, results of operations and trends. The Company's calculations of adjusted combined net income and pro forma adjusted earnings per share may not be comparable to similarly designated measures reported by other companies, since companies and investors may differ as to what type of events warrant adjustment.
The following table reconciles first quarter 2018 combined Amneal Pharmaceuticals LLC and Impax Laboratories LLC reported net loss to adjusted net income: (Unaudited; In thousands, except per share data)
Three months ended March 31, 2018 2017 ---- ---- Combined net loss $(79,397) $(56,578) Adjusted to add (deduct): Amortization 16,233 18,118 Non-cash interest expense 7,934 7,254 Gemini Laboratories, LLC EBITDA (a) 4,100 4,150 Share-based compensation expense 4,816 6,957 Business development expenses (b) 13,679 50 Restructuring and severance charges 4,900 9,455 Loss on extinguishment of debt - 1,215 Inventory related charges 6,889 - Litigation, settlements and related charges (c) 90,099 (495) Asset impairment charges 53 45,359 Royalty expense - 3,763 Exchange gain (9,486) (14,596) Other (293) 2,709 Income tax effect (d) (17,880) 19,781 Adjusted combined net income $41,647 $47,142 ======= ======= Pro forma adjusted net income per diluted share (e) $0.14 $0.16 ===== ===== (a) Represents the EBITDA generated by Gemini Laboratories, LLC, which Amneal acquired on May 7, 2018. (b) Primarily represents professional fees incurred in connection with the combination of Amneal and Impax. (c) During March 2018, Impax separately settled claims associated with its Solodyn(R) Antitrust Class Actions for a total settlement of $84.5 million. (d) A blended tax rate of 21% was applied to the results of Amneal and Impax for purposes of quantifying adjusted net income. (e) Pro forma adjusted earnings per share assumes the combined results of operations for Amneal and Impax for the entire quarter-ended March 31, 2018. It additionally assumes that approximately 300 million shares were outstanding during the period.
Amneal Pharmaceuticals, Inc. (NYSE: AMRX), headquartered in Bridgewater, NJ, is an integrated specialty pharmaceutical company focused on developing, manufacturing and distributing generic, brand and biosimilar products. The Company has approximately 6,500 employees in its operations in North America, Asia, and Europe, working together to bring high-quality medicines to patients primarily within the United States.
Amneal is one of the largest and fastest growing generic pharmaceutical manufacturers in the United States, with an expanding portfolio of generic products to include complex dosage forms in a broad range of therapeutic areas. The Company markets a portfolio of branded pharmaceutical products through its Impax Specialty Pharma division focused principally on central nervous system disorders and parasitic infections. For more information, visit www.amneal.com.
Safe Harbor Statement
Certain statements contained herein, regarding matters that are not historical facts, may be forward-looking statements (as defined in Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with the safe harbor provisions. Such forward-looking statements include statements regarding management's intentions, plans, beliefs, expectations or forecasts for the future. The words such as "may," "will," "could," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "continue," and similar words are intended to identify estimates and forward-looking statements.
Such forward-looking statements are based on the expectations of Amneal Pharmaceuticals, Inc. ("our" or the "Company") and involve risks and uncertainties; consequently, actual results may differ materially from those expressed or implied in the statements. Such risks and uncertainties include, but are not limited to (i) our ability to integrate the operations of Amneal Pharmaceuticals LLC ("Amneal") and Impax Laboratories, Inc. ("Impax") pursuant to the transactions (the "Combination") contemplated by that certain Business Combination Agreement dated as of October 17, 2017 by and among the Company, Amneal, Impax and K2 Merger Sub Corporation as amended by Amendment No. 1, dated November 21, 2017 and Amendment No. 2 dated December 16, 2017 and our ability to realize the anticipated synergies and other benefits of the Combination, (ii) the fact that certain of our stockholders holding over a majority of our shares may have interests different from those of our other stockholders, (iii) the transaction costs related to the Combination, (iv) results from the public unaudited financial information of Impax and Amneal may not be indicative of the Company's future operating performance, (v) business issues faced by either Amneal or Impax may be imputed to the operations of the Company, (vi) the impact of a separation of Impax or Amneal as a subsidiary of the Company, (vii) the change of control or early termination rights in certain of Impax's or Amneal's contracts that may be implicated by the Combination, (viii) payments required by the Company's Tax Receivables Agreement, (ix) the impact of global economic conditions, (x) our ability to successfully develop or commercialize new products, (xi) our ability to obtain exclusive marketing rights for our products or to introduce products on a timely basis, (xii) the competition we face in the pharmaceutical industry from brand and generic drug product companies, (xiii) our ability to manage our growth, (xiv) the impact of competition, (xv) the illegal distribution and sale by third parties of counterfeit versions of our products or of stolen products, (xvi) market perceptions of us and the safety and quality of our products, (xvii) the substantial portion of our total revenues derived from sales of a limited number of products, (xviii) our ability to develop, license or acquire and introduce new products on a timely basis, (xix) the ability of our approved products to achieve expected levels of market acceptance, (xx) the risk that we may discontinue the manufacture and distribution of certain existing products, (xxi) the impact of manufacturing or quality control problems, (xxii) product liability risks, (xxiii) risks related to changes in the regulatory environment, including United States federal and state laws related to healthcare fraud abuse and health information privacy and security and changes in such laws, (xxiv) changes to FDA product approval requirements, (xxv) risks related to federal regulation of arrangements between manufacturers of branded and generic products, (xxvi) the impact of healthcare reform, (xxvii) business interruptions at one of our few locations that produce the majority of our products, (xxviii) relationships with our major customers, (xxix) the continuing trend of consolidation of certain customer groups, (xxx) our reliance on certain licenses to proprietary technologies, (xxxi) our dependence on third party suppliers and distributors for raw materials for our products, (xxxii) the time necessary to develop generic and branded drug products, (xxxiii) our dependence on third parties for testing required for regulatory approval of our products, (xxxiv) our dependence on third party agreements for a portion of our product offerings, (xxxv) our ability to make acquisitions of or investments in complementary businesses and products, (xxxvi) regulatory oversight in international markets, (xxxvii) our increased exposure to tax liabilities and the impact of recent United State tax legislation, (xxxviii) third parties' infringement of our intellectual property rights, (xxxix) our involvement in various legal proceedings, (xl) increased government scrutiny related to our agreements to settle patent litigation, (xli) the impact of legal, regulatory and legislative strategies by our brand competitors, (xlii) the significant amount of resources we expend on research and development, (xliii) our substantial amount of indebtedness, (xliv) risks inherent in conducting clinical trials, (xlv) our reporting and payment obligations under the Medicaid and other government rebate programs, (xlvi) fluctuations in our operating results, (xlvii) adjustments to our reserves based on price adjustments and sales allowances, (xlviii) impact of impairment on our goodwill and other intangible assets, (xlix) investigations and litigation concerning the calculation of average wholesale prices, (l) cybersecurity and data leakage risks, (li) our ability to attract and retain talented employees and consultants, (lii) uncertainties involved in the preparation of our financial statements, (liii) impact of terrorist attacks and other acts of violence, (liv) expansion of social media platforms, (lv) our need to raise additional funds in the future, (lvi) the restrictions imposed by the terms of our credit agreement, (lvii) our ability to generate sufficient cash to service our indebtedness in the future and (lviii) such other factors as may be set forth in the Company's public filings with the Securities and Exchange Commission.
Forward-looking statements included herein speak only as of the date hereof and we undertake no obligation to revise or update such statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or circumstances.
Investor Relations and Corporate Communications
1 Includes first quarter 2018 pro forma adjusted net income per diluted share of $0.14. Refer to the "Non-GAAP Financial Measures" section for additional information, including a reconciliation of GAAP to non-GAAP financial measures.
2 Includes $30 million to $35 million of cost synergies expected to be realized in 2018.
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SOURCE Amneal Pharmaceuticals, Inc.
Company Codes: NYSE:AMRX