Amphastar Pharmaceuticals Inc. (NASDAQ: AMPH), a small cap that’s one of the leading performers within the biotech space, is forming an orderly pullback and is currently actionable as it holds above its 10-day moving average.
The stock is up 25.28% in the past month after clearing a cup-with-high-handle base on May 18, above a $44.15 high. Year-to-date, the stock’s price has nearly doubled, advancing 97.36%.
Despite those lofty gains, the stock’s current pullback from a high of $58.70, reached in two consecutive sessions, on June 22 and June 23, is offering a potential buy opportunity for investors who understand the risks inherent with biotech stocks.
Sharp Increase Since 2014 IPO
Amphastar is in that sweet spot of being a relatively young company in an industry that can boast fast growth. The stock went public exactly nine years ago, on June 25, 2014, at $7. As of June 27, 2023, shares were trading at $56.22.
Amphastar specializes in developing a diverse range of medical products, including more than 20 injectables, inhalation, and nasal formulations. Its products are primarily marketed and sold to hospitals, long-term care facilities, alternate care sites, clinics, and doctors’ offices.
It also markets products through the retail pharmacy consumer channel. Those consumer products include asthma treatment Primatene Mist.
Acquiring Diabetes Treatment In $500 Million Deal
On April 24th, Amphastar said it would acquire Baqsimi nasal spray from Eli Lilly & Co. (NYSE: LLY) for $500 million in cash, with an additional $125 million payable a year after the transaction closes. Amphastar is also responsible for up to $450 million in payments to Lilly based on sales milestones.
Amphastar arranged with a consortium of banks to provide debt financing for the deal, in the form of a senior credit facility. A senior credit facility is a loan or line of credit secured by collateral, with higher repayment priority in case of default.
The company said proceeds of its senior credit facilities will be used together with cash on hand to fund the purchase price payable at closing.
Holds Unique Product Niche
Baqsimi is the sole nasally administered product to treat severe hypoglycemia, caused by critically low blood sugar levels in diabetes patients. The product’s sales totaled $139.3 million globally last year.
As you can see by that relatively low sales figure, Baqsimi has been eclipsed by Lilly’s better-selling diabetes drugs, such as Trulicity, Jardiance, and Mounjaro, which together accounted for $3.123 billion in revenue in the most recent quarter. For Lilly, it makes sense to sell Baqsimi to a smaller company that can dedicate a bigger share of its resources to the product.
While Trulicity, Jardiance, and Mounjaro are designed to help patients stabilize blood sugar levels, Baqsimi is an emergency treatment.
Unlike many young-ish biotechs, Amphastar has a long history of profitability. Its three-year earnings growth rate is 77%, and its three-year revenue growth rate is 16%. Analysts expect the company to earn $2.49 a share this year, an increase of 28%. Next year, that’s seen rising by another 14% to $2.83 a share.
Beat Analysts' Views In Past Two Quarters
MarketBeat’s Amphastar Pharmaceuticals earnings data show the company beating top and bottom line views in the past two quarters.
When the company first announced the Baqsimi deal, investors weren’t pleased, to say the least. Shares fell 6.7% on April 24, in triple average turnover, and continued sliding for the next four sessions, resulting in the high handle to the cup pattern, as you can see using the Amphastar Pharmaceuticals chart.
There were no analyst actions following the deal, although, with a market cap of $2.7 billion, there’s scant analyst coverage, as you could reasonably expect.
Likely, Baqsimi’s relatively small annual revenue, combined with a hefty payment, sales milestones, and a debt issuance caused investors to bail out. Still, they jumped back in on May 10, on the heels of those better-than-expected first-quarter earnings.