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Item 1. Business

2021-03-15 compared with 2020-03-16 · 233 added, 259 removed, 475 unchanged (51% of the section changed)

We are a specialty pharmaceutical company that focuses primarily on developing, manufacturing, marketing and selling technically challenging generic and proprietary injectable, inhalation, and intranasal products, as well as insulin active pharmaceutical ingredient, or insulin API, products.

We currently manufacture and sell over 20 products.

In November 2018, the FDA granted over-the-counter approval of our New Drug Application, or NDA, for our patented Primatene ®

Mist using a new hydrofluoroalkanes, or HFA, formulation.

We are currently developing a portfolio of 15 generic abbreviated new drug applications, or ANDAs, three biosimilar insulin product candidates and four proprietary product candidates, which are in various stages of development and target a variety of indications.

We currently have seven ANDAs and one NDA on file with the FDA.

We are a bio-pharmaceutical company that focuses primarily on developing, manufacturing, marketing and selling technically-challenging generic and proprietary injectable, inhalation, and intranasal products, as well as insulin active pharmaceutical ingredient, or insulin API, products.

We currently manufacture and sell over 20 products, the overwhelming majority of which are prescription pharmaceuticals.

Since December 2018, we have sold our patented Primatene Mist ® using a new hydrofluoroalkanes, or HFA, formulation as our sole over-the-counter product.

We are currently developing a portfolio of 13 generic abbreviated new drug applications, or ANDAs or NDAs, three biosimilar insulin product candidates and four proprietary product candidates, which are in various stages of development and target a variety of indications.

Five ANDAs and one NDA are currently on file with the FDA.

For the years ended December 31, 2020, 2019, and 2018, we recorded net revenues of $349.8 million, $322.4 million, and $294.7 million, respectively.

We recorded net income of $48.9 million and $3.6 million for the years ended December 31, 2019 and 2017, respectively and recorded a net loss of $5.7 million for the year ended December 31, 2018.

Our largest products by net revenues currently include lidocaine jelly and sterile solution, phytonadione, enoxaparin sodium injection, naloxone hydrochloride injection, medroxyprogesterone acetate, and Primatene ®

We launched medroxyprogesterone acetate in the first quarter of 2018.

In the fourth quarter of 2018, we launched our over-the-counter product Primatene ®

In July 2019, we began a national radio and television campaign for Primatene ®

Mist, which will continue throughout 2020.

We recorded net income of $1.4 million and $48.9 million for the years ended December 31, 2020 and 2019, respectively.

For the year ended December 31, 2018, we recorded a net loss of $5.7 million.

Our largest products by net revenues currently include Primatene Mist ® , enoxaparin sodium injection, phytonadione, lidocaine jelly and sterile solution, epinephrine injection, and naloxone hydrochloride injection.

In the fourth quarter of 2018, we launched our over-the-counter product Primatene Mist ® .

In July 2019, we began a national digital, radio, and television campaign for our over-the-counter product Primatene Mist ® , which will continue throughout 2021.

During the second quarter of 2020, we launched our epinephrine injection, USP 30mg/30mL multiple-dose vial product.

In December 2020, the FDA granted approval of our glucagon for injection emergency kit, 1mg, and we launched this product in the first quarter of 2021.

Our multiple technological capabilities enable the development of technically challenging products with limited competition.

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● require raw materials or APIs for which we believe we have a competitive advantage in sourcing, synthesizing, or manufacturing;

improve upon an existing drug’s formulation with respect to drug delivery, safety and/or efficacy.

● improve upon an existing drug’s formulation with respect to drug delivery, safety and/or efficacy.

Not all of our products will include all of these characteristics.

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These acquisitions collectively have strengthened our core injectable and inhalation product technology infrastructure by providing additional manufacturing, marketing, and research and development capabilities, including the ability to manufacture raw materials, APIs and other components for our products.

On May 20, 2019, we entered into a settlement agreement relating to the enoxaparin patent and antitrust litigation with Momenta Pharmaceuticals, Inc.

and Sandoz Inc.

Pursuant to the settlement agreement, the plaintiffs paid us $59.9 million on June 27, 2019.

For more information regarding the enoxaparin patent and antitrust litigation, see Note 20 to the consolidated financial statements for more information regarding litigation matters.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus, or COVID-19, as a pandemic, which continues to spread throughout the world, including locations where we operate, such as the United States, China and France.

We have been actively monitoring the COVID-19 pandemic and its impact globally.

Currently, our production facilities in all of our locations continue to operate as they had prior to the COVID-19 pandemic with few changes, other than for enhanced safety measures intended to prevent the spread of the virus.

As a result of the COVID-19 pandemic, during the first half of 2020, sales of Primatene Mist ® and certain hospital products increased, while sales of certain products frequently used in elective procedures, such as Cortrosyn ® and lidocaine products, decreased.

During the second half of 2020, sales of these products returned to levels closer to those experienced prior to the COVID-19 pandemic.

Also, some of our ongoing clinical trials have experienced short-term interruptions in the recruitment of patients due to the COVID-19 pandemic, as hospitals prioritize their resources towards the COVID-19 pandemic and governments impose travel restrictions.

Additionally, some clinical trials experienced increased expenses due to new protocols to protect participants from COVID-19.

It is not possible at this time to estimate the complete impact that COVID-19 could have on our business, including our customers and suppliers, as the impact will depend on future developments, which are highly uncertain and cannot be predicted.

Infections may resurge or become more widespread and the limitation on our ability to travel and timely sell and distribute our products, as well as any closures or supply disruptions, may be extended for longer periods of time, all of which would have a negative impact on our business, financial condition and operating results.

The COVID-19 pandemic has and will continue to adversely affect global economies and financial markets, resulting in an economic downturn that could affect demand for our products and impact our operating results.

Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of the continued global economic impact of the pandemic.

We cannot anticipate all of the ways in which health epidemics such as COVID-19 could adversely impact our business.

We will continue to monitor the impact of COVID-19 on all aspects of our business.

See Item 1A, “Risk Factors” for further discussion of the possible impact of the COVID-19 pandemic on our business.

We primarily target products with high technical barriers to market entry, with a particular focus on the injectable and inhalation markets.

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● Injectable market.

Based on an IQVIA National Sales Perspective Report, the U.S.

generic injectable drug market in 2019 was over $11 billion.

Based on a December 2020 IQVIA National Sales Perspective Report, the U.S.

injectable drug market in 2020 was over $228 billion.

Our generic development portfolio is targeting opportunities in over $20 billion of this market.

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● Inhalation market.

Based on an IQVIA National Sales Perspective Report, the U.S.

Based on a December 2020 IQVIA National Sales Perspective Report, the U.S.

inhalation drug market in 2020 was approximately $27.0 billion.

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Our research and development leadership has deep expertise in areas including pharmaceutical formulation, process development, in vivo and in vitro studies, analytical chemistry, physical chemistry, drug delivery and clinical research.

We believe that our scientific and technical expertise, coupled with our management team’s business, legal, regulatory, and business development experience will enable us to successfully expand our position with respect to our current products and establish a meaningful market position for our product candidates.

Our goal is to be an industry leader in the development, manufacturing and marketing of technically challenging injectable and inhalation pharmaceutical products.

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Assuming we are successful in developing and obtaining regulatory approvals, we plan to commercialize our product candidates and thereby diversify our sources of revenues.

We have over 20 product candidates in various stages of development, including 15 generic product candidates, three biosimilar product candidates and four proprietary product candidates.

We have over 20 product candidates in various stages of development, including 13 generic ANDAs or NDAs, three biosimilar product candidates and four proprietary product candidates.

We also expect to expand our internal sales and marketing capabilities and, in some cases, enter into strategic alliances with other pharmaceutical companies, to drive market penetration for our product candidates.

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(which we renamed Nanjing Letop Fine Chemistry Co.

Ltd., or Letop, (5) Merck’s API Manufacturing Business in Éragny-sur-Epte, France, in connection with which, we established our French subsidiary, Amphastar France Pharmaceuticals, S.A.S., or AFP, and (6) International Medication Systems (UK) Limited, or IMS UK.

Products we have acquired include Cortrosyn ®

and Epinephrine Mist, as well as trade names such as Primatene ®

We believe that our scientific and managerial expertise and our integration experience have improved the quality of the product lines and companies that we have acquired, which has had, and we believe will continue to have, a positive effect on our results of operations.

Products we have acquired include Cortrosyn ® and Epinephrine Mist, as well as trade names such as Primatene ® .

We believe that our scientific and managerial expertise and our integration experience have improved the quality of the product lines and companies that we have acquired, which has had, and we

believe will continue to have, a positive effect on our results of operations.

For example, in 2018, we received approval from the FDA for the manufacture of semi-purified heparin at our Chinese subsidiary, ANP.

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We also manufacture and sell insulin API.

Our injectable product technologies enable us to develop and manufacture generic and proprietary injectables in liquid, lyophilized, suspension and emulsion forms, as well as pre-filled syringes.

We have multiple injectable facilities that include aseptic filling lines dedicated to the sterile manufacture and fill of injectable products.

● Injectable.

Our injectable product technologies enable us to develop and manufacture generic and proprietary injectables in liquid, lyophilized, suspension and emulsion forms, as well as the use of pre-filled syringes to facilitate the safety and conveniences to users.

We have multiple injectable manufacturing facilities that include aseptic filling lines dedicated to the sterile production of injectable products.

Additionally, we maintain compliance with cGMP regulations, which has enabled us to obtain regulatory approvals and support commercial supply.

● Inhalation and Intranasal.

We are focused on developing a range of generic and proprietary inhalation and intranasal products utilizing a variety of delivery technologies.

We have expertise in formulating HFA-based MDIs as well as packaging our inhalation drugs in DPIs, blister packs and other forms for loading in a variety of inhalation devices.

We are focused on developing a broad range of generic and proprietary inhalation and intranasal products utilizing a variety of delivery technologies.

We have expertise in formulating HFA-based MDIs and DPIs as well as packaging our inhalation drugs in blister packs and other forms which can be used for loading our products into a variety of inhalation devices.

As with our injectable products, we maintain compliance with cGMP regulations, which we believe will enable us to obtain regulatory approvals and support commercial supply.

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● Characterization of complex molecules.

Characterization of complex molecules includes a determination of physiochemical properties, biological activity, immunochemical properties and purity.

Such characterization is important in the development of a generic product that is the same as a reference drug product, which in turn allows the generic drug developer to demonstrate such “sameness”

to the FDA, which allows for interchangeability with the reference drug product.

Characterization of complex molecules includes a determination of physicochemical properties, biological activity, immunochemical properties and purity.

Such characterization is important in the development of a generic product that is considered the same as a reference drug product, which in turn allows the generic drug developer to demonstrate such “sameness” to the FDA, which ultimately allows for interchangeability with the reference drug product.

Complex drugs typically have large molecules composed of a mixture of molecules that differ very slightly from one another.

variances make such complex molecules difficult to characterize.

These slight variances make such complex molecules difficult to characterize.

We have developed analytical tools that have enabled us to characterize complex molecules in our products and product candidates.

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Unwanted immunogenicity, which is strongly linked with peptide and protein drug products, occurs when a patient mounts an undesired immune response against a drug therapy.

As a result, the FDA has signaled that they may require immunogenicity studies as part of the new pathway for biosimilars and biogenerics, and in the past, the FDA has required these studies in connection with the approval of products with complex molecules.

We gained expertise in immunogenicity by performing immunogenicity studies in connection with the FDA approval process for our enoxaparin product.

As a result, the FDA has signaled that they may require immunogenicity studies as part of the new pathway for biosimilars and biogenerics.

In the past, the FDA has required these studies in connection with the approval of products with complex molecules.

We have gained expertise in immunogenicity by performing immunogenicity studies in connection with the FDA approval process for our enoxaparin product.

We believe that our experience in conducting these difficult immunogenicity studies will be of primary importance in our future efforts to develop complex molecules, biosimilar and biogeneric product candidates.

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We have experience in the use of rDNA manufacturing technology, which includes the genetic engineering of host cells, fermentation to promote cell culture growth and isolation and purification of the desired protein from the cell culture.

Through each step, testing is required to ensure that only the desired protein is included in the finished product.

Testing is required to ensure that only the desired protein is included in the finished product through each step.

We believe that this technology will allow us to develop protein and peptide drug products.

We received the first-ever FDA approval of a generic version of Glucagon for Injection Emergency Kit.

The FDA determined our approved peptide product to be bioequivalent and therapeutically equivalent to the reference listed drug, which has rDNA origin.

● Particle engineering.

Particle engineering is important in the field of pulmonary drug delivery as there is a direct relationship between the properties of a particle and its absorption by the lungs.

We believe our expertise and technology applicable to particle engineering and physical chemistry allows us to engineer the size, shape, surface smoothness and distribution of particles to develop inhalation products that are more easily dispersed through targeted areas.

We believe this expertise will allow us to formulate difficult to disperse inhalation products as well as demonstrate to the FDA sameness to the reference listed drugs.

We believe our expertise and our technology, which is applicable to both particle engineering and physical chemistry, allows us to engineer the size, shape, surface smoothness and distribution of particles to develop inhalation products that are more easily dispersed through targeted areas.

We believe this expertise will allow us to formulate difficult to disperse inhalation products as well as demonstrate to the FDA the sameness to the reference listed drugs.

● Sustained-release.

We have developed technology aimed at improving drug delivery through sustained-release injectable products such as our medroxyprogesterone product, which is the generic version of Depo Provera ®

The purpose of our sustained-release technology is to create products that require less dosing frequency, which we believe can lead to the diminishing of fluctuations of drug concentrations in a patient’s blood stream that would otherwise require more frequent dosing.

We have developed technology aimed at improving drug delivery through sustained-release injectable products.

The purpose of our sustained-release technology is to create products that require less dosing frequency, which we believe can lead to the diminishing of fluctuations of drug concentrations in a patient’s bloodstream that would otherwise require more frequent dosing.

We plan to use our sustained-release technology to develop both generic and proprietary products.

● Novel formulation.

We have the capability to develop novel formulation to enhance drug delivery.

For certain intranasal medications, novel formulation might be required to increase the drug’s absorption rate to be able to deliver the medication in a safe and efficacious manner.

We plan to use our novel formulation with our intranasal epinephrine product.

Finished Pharmaceutical Products

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The following is a description of products in our existing portfolio.

Primatene Mist ®

Primatene Mist ® , an over-the-counter epinephrine inhalation product, is indicated for the temporary relief of mild symptoms of intermittent asthma.

We developed an HFA version of Primatene Mist ® to replace the over-the-counter CFC formulation of our Primatene Mist ® product which was withdrawn for environmental reasons under the Montreal Protocol.

Enoxaparin is a difficult to manufacture injectable form of low molecular weight heparin that is used as an anticoagulant, which is indicated for multiple indications, including the prevention and treatment of deep vein thrombosis.

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We manufacture the API for our enoxaparin product and perform all subsequent manufacturing of the finished product in-house.

Glucagon for Injection Emergency Kit

Glucagon for injection is a difficult to manufacture injectable product.

We received the first-ever FDA approval of a generic version of rDNA Glucagon in the fourth quarter of 2020.

Using dedicated process and sophisticated characterization technology, we demonstrated to the FDA that our highly purified synthetic peptide product is bioequivalent and therapeutically equivalent to the reference listed drug, or RLD, which is an rDNA product.

Glucagon for injection emergency kit is indicated for the treatment of severe hypoglycemia and for use as a diagnostic aid.

We sell two versions of naloxone injections indicated for the emergency treatment of known or suspected opioid overdose.

Primatene ®

Mist, an over-the-counter epinephrine inhalation product, is indicated for the temporary relief of mild symptoms of intermittent asthma.

We developed an HFA version of Primatene ®

Mist to replace the over-the-counter CFC formulation of our Primatene ®

Mist product which was withdrawn for environmental reasons under the Montreal Protocol.

In 2013, we filed an NDA for Primatene ®

Mist, which is delivered by a metered dose inhaler with a non-CFC propellant.

In November 2018, the FDA granted over-the-counter approval of the NDA for Primatene ®

We began selling the new formulation of Primatene ®

Mist in the fourth quarter of 2018.

Other Marketed Products

Other finished pharmaceutical products that we currently market include the following:

Cortrosyn ®

(cosyntropin for injection), a lyophilized powder that is indicated for use as a diagnostic agent in the screening of patients with adrenocortical insufficiency;

Amphadase ®

, a bovine-sourced hyaluronidase injection that is used as an adjuvant in subcutaneous fluid administration for achieving hydration, to increase absorption and dispersion of other injected drugs, and in subcutaneous urography for improving absorption of radiopaque agents;

● Cortrosyn ® (cosyntropin for injection), a lyophilized powder that is indicated for use as a diagnostic agent in the screening of patients with adrenocortical insufficiency;

● Amphadase ® , a bovine-sourced hyaluronidase injection that is used as an adjuvant in subcutaneous fluid administration for achieving hydration, to increase absorption and dispersion of other injected drugs, and in subcutaneous urography for improving absorption of radiopaque agents;

● Epinephrine injection, indicated for emergency treatment of allergic reactions, including anaphylaxis, and to increase mean arterial blood pressure in adult patients with hypotension associated with septic shock

● Lidocaine jelly, a local anesthetic product used primarily for urological procedures;

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We are focused on both generic and proprietary product candidates in the injectable, inhalable and intranasal markets.

The product candidates in our pipeline are in various stages of development, with a number of these candidates still in early stages of development.

Our pipeline products are in various stages of development, with a number of these candidates still in the early stages of development.

We currently have over 20 product candidates in our pipeline, including 13 generic ANDAs, three biosimilar product candidates and four proprietary product candidates.

The following table summarizes our technical capabilities needed for the generic ANDAs, biosimilar product candidates and proprietary products in development.

Characterization

Immunogenicity

Sustained-Release

The development, regulatory approval for and commercialization of our product candidates are subject to numerous risks.

See “Risk Factors”

for additional information.

See “Risk Factors” for additional information.

Generic Product Candidates

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We currently have 13 generic ANDAs and three biosimilar product candidates at various development stages that leverage our various technical capabilities, including:

injectable technologies, which include various delivery methods and sizes of pre-filled syringes, vials in solution, jelly, suspension and lyophilized forms;

● injectable technologies, which include various delivery methods and sizes of pre-filled syringes, vials in solution, suspension and lyophilized forms;

● inhalation technologies, which include MDIs and DPIs;

nasal delivery systems;

sophisticated analytical technologies, which include characterization and immunogenicity studies for complex molecules, particle engineering, sustained-release technology, and peptide, protein and DNA analysis and synthesis.

The following table summarizes our technical capabilities needed for the generic ANDAs and generic biosimilar product candidates in development.

Characterization

Immunogenicity

Sustained-Release

Our generic product candidates are at various stages of development, ranging from early formulation work to bioequivalence studies to having an ANDA on file with the FDA.

● sophisticated analytical technologies, including characterization and immunogenicity studies for complex molecules, particle engineering, sustained-release technology, peptide, protein and DNA analysis and synthesis.

Proprietary Product Candidates

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Intranasal naloxone, a prescription naloxone nasal spray product candidate, is intended to be used for the emergency treatment of known or suspected opioid overdose, as manifested by respiratory and/or central nervous system depression.

We filed an NDA for Naloxone Hydrochloride 2mg/0.5mL Nasal Spray in April 2016.

We filed an NDA for Naloxone Hydrochloride Nasal Spray in April 2016.

In February 2017, we received a Complete Response Letter, or CRL, from the FDA, which identified four primary issues that need to be addressed prior to approval of our NDA.

The four issues are comprised of (1) improving on our human factor validation study, (2) modifying the delivery accuracy verification method, (3) improving our standards of device reliability, and (4) adjusting the volume per actuation to account for pediatric use down to birth.

We intend to continue to work with the FDA to address their concerns in the CRL and have sought an extension on our response to the CRL.

We have worked with the FDA to resolve these issues, most recently in 2020 with a Face-to-Face Meeting in which a clear pathway for addressing these issues was created.

We intend to continue to work with the FDA to address their concerns described in the CRL and have received an extension on our response to the CRL.

However, there can be no guarantee that our response to the CRL will result in timely approval of intranasal naloxone or approval at all.

Intranasal epinephrine

Intranasal epinephrine, a prescription epinephrine nasal spray product candidate, is intended to be used for emergency treatment of allergic reactions, including anaphylaxis to stinging insects, allergen immunotherapy, foods, drugs and other allergens.

Other Proprietary Product Candidates

In addition to intranasal naloxone, we have three other proprietary product candidates in development.

In addition to intranasal naloxone and intranasal epinephrine, we have two other proprietary product candidates in development.

These product candidates incorporate multiple indications utilizing a wide variety of our technical capabilities.

We began to manufacture and sell two API products, RHI API and porcine insulin API, as a result of our acquisition of Merck Sharpe & Dohme’s, or Merck’s, API manufacturing business in Éragny‑sur‑Epte, France, or the Merck API Transaction, in April 2014.

The purpose for the acquisition was to enhance our vertical integration strategy as we target certain finished products for the injectable insulin market.

We began to manufacture and sell two API products, RHI API and porcine insulin API, as a result of our acquisition of Merck Sharpe & Dohme’s, or Merck’s, API manufacturing business in Éragny-sur-Epte, France, or the Merck API Transaction, in April 2014.

The purpose of the acquisition was to enhance our vertical integration strategy as we target certain finished products for the injectable insulin market.

However, we continue to sell RHI API to third parties, which helps fund our vertical integration strategy, including the ongoing technology transfer and supply arrangement between Merck and AFP.

Supply Agreement with MannKind Corporation

On July 31, 2014, we entered into a supply agreement with MannKind Corporation, or MannKind, or the Supply Agreement, pursuant to which we agreed to manufacture for and supply to MannKind certain quantities of RHI API for use in MannKind’s product Afrezza ®

Under the Supply Agreement, MannKind agreed to purchase annual minimum quantities of RHI API in an aggregate amount of approximately $146.0 million, over five years from calendar years 2015 through 2019.

The MannKind agreement was amended several times between 2014 and 2019.

In August 2019, we amended the Supply Agreement with MannKind whereby MannKind’s aggregate total commitment of RHI API under the Supply Agreement was modified and extended for an additional two years through 2026, which timeframe would have previously lapsed after calendar year 2024.

As a result of this amendment, MannKind paid us an amendment fee of $2.75 million, which we recognized in net revenues in our consolidated statement of operations for the year ended December 31, 2019.

MannKind may request to purchase additional quantities of RHI API in excess of its annual minimum purchase commitments.

The amendment can be renewed for additional, successive two-year terms upon 12 months’

written notice, given prior to the end of the initial term or any additional two-year term.

For the years ended December 31, 2020, 2019 and 2018, sales of RHI API to MannKind totaled $4.9 million, $4.4 million and $8.1 million, which fulfilled the 2020, 2019 and 2018 commitment of RHI API under the amended Supply Agreement, respectively.

Concurrent with the amendment of the Supply Agreement, we amended the Option Agreement with MannKind, whereby the amendment to the Option Agreement extends the timing for payment of the capacity cancellation fee for 2017 and decreases the amounts payable as capacity cancellation fees for 2018 and 2019.

In addition to, and in consideration for the updated timeframe and other changes contained in the amendments to the Supply Agreement and Option Agreement, the amended Supply Agreement provided us the right of first refusal to participate in the development and commercialization of Afrezza ®

in China through a collaborative arrangement.

Research and Development

As of December 31, 2019, we had over 446 employees dedicated to research and development with expertise in areas such as pharmaceutical formulation, process development, toxicity studies, analytical, synthetic and physical chemistry, drug delivery, device development, equipment and engineering, clinical research statistical analysis, etc.

As of December 31, 2020, we had 354 employees dedicated to research and development with expertise in areas such as pharmaceutical formulation, process development, toxicity studies, analytical, synthetic and physical chemistry, drug delivery, device development, equipment and engineering, clinical research statistical analysis, etc.

Our focus on developing products with high barriers to market entry requires a significant investment in research and development, including clinical development.

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A significant portion of our customer shipments in any fiscal year relate to orders received and shipped in that fiscal year, generally resulting in low product backlog relative to total shipments at any time.

We had no significant backlog as of December 31, 2019.

However, at the end of 2018, we experienced a backlog due to a slowdown in production linked to a new industry mandated serialization requirement, which we implemented in the fourth quarter.

As a result, we ended 2018 with a backlog of approximately $5.0 million.

We were able to resolve these production issues prior to year-end and believe we will be able to reduce the backlog in the near future.

We had no significant backlog as of December 31, 2020 and 2019.

Historically, our backlog has not been a meaningful indicator of our ability to achieve any particular level of overall revenue or financial performance.

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Canton, Massachusetts;

Éragny-sur-Epte, France;

and Nanjing, China.

We own or lease a total of 60 buildings at six locations in the United States, France and China, that comprise 1.9 million square feet of manufacturing, research and development, distribution, packaging, laboratory, office and warehouse space.

Our facilities are regularly inspected by the FDA in connection with our product approvals, and we believe that all of our facilities are being operated in material compliance with the FDA’s cGMP regulations.

We continue to expand our facility in Nanjing, China, and expect further significant investment in this facility.

Our API manufacturing business in Éragny-sur-Epte, France, which we acquired in April 2014, manufactures porcine insulin API and RHI API, and we expect to continue the current site activities.

We are currently in the process of modifying our current facility in France to increase our internal manufacturing capabilities so that we can take over the manufacture of inclusion bodies, which are our RHI API’s starting material.

As of December 31, 2019, we have spent $31.1 million and expect to complete this project by the end of 2020.

Our API manufacturing business in Éragny-sur-Epte, France, which we acquired in April 2014, manufactures porcine insulin API and RHI API, and we expect to continue the current site activities.

We have completed a project to modify our current facility in France to increase our internal manufacturing capabilities so that we can take over the manufacture of inclusion bodies, which are our RHI API’s starting material.

The project was completed in 2020 with a cost of $40.1 million.

We believe that our current manufacturing capacity is adequate for the near term.

We recently completed a project to increase production and modernize the facilities at our South El Monte, California plant.

In 2019 we completed a project to increase production and modernize the facilities at our South El Monte, California plant.

The project cost was $14.9 million.

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Currently, we obtain API for certain of our other marketed products from single sources.

If we experience difficulties acquiring sufficient quantities of required materials or products from our existing suppliers, or if our suppliers are found to be non-compliant with the FDA’s quality system regulation, or QSR, cGMPs or other applicable laws or regulations, we would be required to find alternative suppliers.

Obtaining the required regulatory approvals to use alternative suppliers may be a lengthy and uncertain process during which we could lose sales.

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While ASF does not affect human health, it is a highly contagious and deadly disease to pig populations.

Due to recent restrictions on importation of pig-derived products from ASF affected countries, in February 2020, we received a notice of non-renewal of our permit to import or transport heparin USP (or porcine heparin sodium powder) from China from one of our third-party heparin suppliers;

accordingly, our import permit with respect to one of our third-party heparin suppliers has expired as of February 2020.

We continue to work with APHIS on renewing our import permit for the importation of heparin USP from China with respect to one of our third-party heparin suppliers.

We anticipate that our current supply of heparin USP in the United States is useable and sufficient for our manufacturing needs for the foreseeable future, and we are evaluating the use of heparin USP produced at our ANP facility.

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Sales and Marketing

Our products are primarily marketed and sold to institutions such as hospitals, long-term care facilities, alternate care sites, clinics, and doctors’

Our products are primarily marketed and sold to institutions such as hospitals, long-term care facilities, alternate care sites, clinics, and doctors’ offices.

Additionally, we also sell to retail pharmacies.

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% of Net Revenues

McKesson Corporation

AmerisourceBergen Corporation

McKesson Corporation

Cardinal Health, Inc.

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The majority of our marketed products are generic products.

We face and will face significant competition for our products and product candidates from pharmaceutical companies that focus on the generic injectable and inhalation markets such as Pfizer, Inc., Sagent Pharmaceuticals, Inc., Akorn, Inc., Sandoz Inc., Mylan Inc., Fresenius Kabi USA, Nexus Pharmaceuticals, Apotex Corp, Amneal Biosciences, American Regent Inc., Hikma Pharmaceuticals USA, Inc., Par Pharmaceuticals, Cipla USA Inc., Meitheal Pharmaceuticals, Dr.

Reddy’s Laboratories, Inc., and Teva Pharmaceutical Industries Ltd.

We face and will face significant competition for our products and product candidates from pharmaceutical companies that focus on the generic injectable and inhalation markets such as Pfizer, Inc., Sagent Pharmaceuticals, Inc., Akorn, Inc., Sandoz Inc., Viatris Inc., Fresenius Kabi USA, Nexus Pharmaceuticals, Apotex Corp, Amneal Biosciences, American Regent Inc., Hikma Pharmaceuticals USA, Inc., Par Pharmaceuticals, Cipla USA Inc., Meitheal Pharmaceuticals, Dr.

Reddy’s Laboratories, Inc., Sun Pharmaceuticals, Inc., and Teva Pharmaceutical Industries Ltd.

Competition in the generic pharmaceutical industry has increased as producers of branded products have entered the business by creating generic drug subsidiaries, purchasing generic drug companies, or licensing their products to generic manufacturers prior to patent expiration and/or as their patents expire.

Therefore, our

competitors also include the innovator companies of our generic drug products.

For example, enoxaparin is currently marketed by Sanofi S.A., or Sanofi, under the brand name Lovenox ®

Sanofi also markets its authorized generic enoxaparin product through its subsidiary, Winthrop, Fresenius Kabi USA, Apotex Corp., Meithael Pharmaceuticals, Inc., and Teva Pharmaceuticals Industries Ltd.

Therefore, our competitors also include the innovator companies of our generic drug products.

For example, enoxaparin is currently marketed by Sanofi S.A., or Sanofi, under the brand name Lovenox ® .

Sanofi also markets its authorized generic enoxaparin product through its subsidiary, Winthrop, Fresenius Kabi USA, Apotex Corp., and Meithael Pharmaceuticals, Inc.

also market a generic version of enoxaparin.

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As competing generic manufacturers receive regulatory approval on the same products, market size, revenue and gross profit typically decline.

The level of market share and price will be affected, which will in turn affect the revenue and gross profit attributable to a particular generic pharmaceutical product.

This impact is normally related to the number of competitors in that product’s market and the timing of that product’s regulatory approval.

The level of market share and price will be affected, which will in turn affect the

revenue and gross profit attributable to a particular generic pharmaceutical product.

This impact is normally related to the number of competitors in that product’s market and the timing of that product’s regulatory approval.

We must develop and introduce new products in a timely and cost-effective manner and identify products with significant barriers to market entry in order to grow our business.

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Our operations and many of the products manufactured or sold by the company are subject to extensive regulation by a number of government agencies, both within and outside the United States.

In the United States, the federal agencies that regulate the company’s facilities, operations, employees, products (including their manufacture, sale, import and export) and services include:

Food and Drug Administration, the Drug Enforcement Agency, the Environmental Protection Agency, the Occupational Health & Safety Administration, the Department of Agriculture, the Department of Labor, the Department of Defense, Customs and Border Protection, the Department of Commerce, the Department of Treasury and others.

International government agencies also regulate public health, product registration, manufacturing, environmental conditions, exports, imports, and other aspects of the company’s global operations and products.

Pharmaceutical companies and their prescription brand and generic pharmaceutical products are subject to extensive pre- and post-market regulation by the FDA under the Federal Food, Drug, and Cosmetic Act, or FFDCA, the Public Health Service Act of 1944, or PHSA, and regulations implementing those statutes, with regard to the testing, manufacturing, safety, efficacy, labeling, storage, record-keeping, advertising and promotion of such products, and by comparable agencies and laws in foreign countries.

For many drugs (drugs falling within the definition of “new drug”

in the FFDCA), FDA approval is required before the product can be marketed in the United States.

For many drugs (drugs falling within the definition of “new drug” in the FFDCA), FDA approval is required before the product can be marketed in the United States.

All applications for FDA approval must contain, among other things, comprehensive and scientifically reliable information relating to pharmaceutical formulation, stability, manufacturing, processing, packaging, labeling and quality control.

These applications must also contain data and information related to safety, effectiveness, bioavailability and/or bioequivalence.

including over-the-counter drugs), the Department of Justice, the Drug Enforcement Administration, or DEA, the Veterans Administration, the Centers for Medicare and Medicaid Services and the Securities and Exchange Commission, or SEC.

Many of our activities are subject to the jurisdiction of other federal regulatory and enforcement departments and agencies, such as the Department of Health and Human Services, or HHS, Office of the Inspector General, or OIG, the Federal Trade Commission (which also has the authority to regulate the advertising of consumer healthcare products, including over-the-counter drugs), the Department of Justice, the Drug Enforcement Administration, or DEA, the Veterans Administration, the Centers for Medicare and Medicaid Services and the Securities and Exchange Commission, or SEC.

Individual states, acting through their attorneys general, have become active as well, seeking to regulate the marketing of prescription drugs under state consumer protection and false advertising laws.

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Prescription generic and branded pharmaceutical products are subject to extensive regulation by the FDA under the FFDCA and PHSA and regulations implementing those statutes, with regard to the testing, manufacturing, safety, efficacy, labeling, storage, record-keeping, advertising and promotion of such products, and regulation by other state, federal and foreign agencies under the laws that they enforce.

For many drugs (drugs falling within the definition of “new drug”

in the FFDCA), including the drugs in our current drug portfolio, FDA approval is required before marketing in the U.S.

For many drugs (drugs falling within the definition of “new drug” in the FFDCA), including the drugs in our current drug portfolio, FDA approval is required before marketing in the U.S.

Applications for FDA drug approval must generally contain, among other things, information relating to pharmaceutical formulation, stability, manufacturing, processing, packaging, labeling, quality control and either safety and effectiveness or bioequivalence.

There are two drug approval processes under the FFDCA —

an ANDA approval process for generic drugs and an NDA approval process for new drugs that cannot be approved in ANDAs.

For drugs that are “biological products”

within the meaning of the PHSA, there are two different approval processes —

a biological license application, or BLA, approval process for original biological products and a biosimilar application approval process for biosimilar products that are approved based on their similarity to biologicals that were previously approved in BLAs.

There are two drug approval processes under the FFDCA — an ANDA approval process for generic drugs and an NDA approval process for new drugs that cannot be approved in ANDAs.

For drugs that are “biological products” within the meaning of the PHSA, there are two different approval processes — a biological license application, or BLA, approval process for original biological products and a biosimilar application approval process for biosimilar products that are approved based on their similarity to biologicals that were previously approved in BLAs.

The ANDA Approval Process

Our pipeline generic drug product candidates cannot be lawfully marketed unless we obtain FDA approval.

The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as “the Hatch-Waxman Act,”

established abbreviated FDA approval procedures for drugs that are shown to be bioequivalent to drugs previously approved by the FDA through its NDA process, which are commonly referred to as the “innovator”

or “reference”

The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as “the Hatch-Waxman Act,” established abbreviated FDA approval procedures for drugs that are shown to be bioequivalent to drugs previously approved by the FDA through its NDA process, which are commonly referred to as the “innovator” or “reference” drugs.

Approval to market and to distribute these bioequivalent drugs is obtained by filing an ANDA with the FDA.

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The Generic Drug User Fee Act, or GDUFA, was enacted by Congress in 2012 and was reauthorized as GDUFA II in 2017.

GDUFA is designed to provide funding to the FDA to expedite timelines for the FDA’s review of ANDA applications.

GDUFA funding is intended to increase the ability of the FDA to perform critical program functions and to reduce costs.

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Under the previous GDUFA authorization, the average time for sponsors to obtain FDA approval of ANDAs was 32-34 months post-filing.

Upon approval of an NDA or ANDA, the FDA lists the product in a publication entitled “Approved Drug Products with Therapeutic Equivalence Evaluations,”

which is commonly known as the “Orange Book.”

In the case of an NDA, the FDA also lists patents identified by the NDA applicant as claiming the drug or an approved method of using the drug.

Upon approval of an NDA or ANDA, the FDA lists the product in a publication entitled “Approved Drug Products with Therapeutic Equivalence Evaluations,” which is commonly known as the “Orange Book.” In the case of an NDA, the FDA also lists patents identified by the NDA applicant as claiming the drug or an approved method of using the drug.

Any applicant who files an ANDA must certify to the FDA with regard to each relevant patent that (1) no patent information has been submitted to the FDA;

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A notice of the Paragraph IV certification must be provided to each owner of the patent that is the subject of the certification and to the holder of the approved NDA to which the ANDA refers.

If the NDA holder submits the patent information to the FDA prior to submission of the ANDA and the

NDA holder or patent owner(s) sues the ANDA applicant for infringement within 45 days of its receipt of the certification notice, the FDA is prevented from approving that ANDA until the earlier of 30 months from the receipt of the notice of the Paragraph IV certification, the expiration of the patent or such shorter or longer period as may be ordered by a court.

If the NDA holder submits the patent information to the FDA prior to submission of the ANDA and the NDA holder or patent owner(s) sues the ANDA applicant for infringement within 45 days of its receipt of the certification notice, the FDA is prevented from approving that ANDA until the earlier of 30 months from the receipt of the notice of the Paragraph IV certification, the expiration of the patent or such shorter or longer period as may be ordered by a court.

This prohibition is generally referred to as the 30-month stay.

An ANDA applicant that is sued for infringement may file a counterclaim to challenge the listing of the patent or information submitted to the FDA about the patent.

Generally, if an ANDA applicant (1) files a substantially complete ANDA with a Paragraph IV certification on the first day that any ANDA applicant files an application with such a certification based on the same reference drug and (2) provides appropriate notice to the NDA holder, and all patent owner(s) for a particular generic product, the applicant may be awarded a delay in the approval of other subsequently filed ANDAs with Paragraph IV certifications based on the same reference drug.

Generally, the ANDA applicant that (1) files a substantially complete ANDA using a Paragraph IV certification on the first day prior to any other ANDA applicant filing an application with such a certification, based on the same reference drug and (2) provides appropriate notice to the NDA holder, and all patent owner(s) for a particular generic product, the applicant may be awarded a delay in the approval of other subsequently filed ANDAs with Paragraph IV certifications based on the same reference drug.

This statutory delay is commonly referred to as 180-day exclusivity.

A substantially complete ANDA is one that contains all the information required by the statute and the FDA’s regulations, including the results of any required bioequivalence studies.

The FDA may refuse to accept the filing of an ANDA that is not substantially complete or may determine during substantive review of the ANDA that additional information, such as an additional bioequivalence study, is required to support approval.

Such a determination may affect an applicant’s first to file status and eligibility for 180-day exclusivity.

The Medicare Prescription Drug Improvement and Modernization Act of 2003, or the MMA, provides that the 180-day exclusivity delay ends 180 days after the first commercial marketing of the ANDA product.

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(1) failure to market within certain prescribed periods of time following certain events related to submission of the application, approval of the application, court decisions and settlements and patent withdrawals from the Orange Book;

(2) an amendment or withdrawal of the Paragraph IV certification or certifications upon which the exclusivity was based;

amendment or withdrawal of the Paragraph IV certification or certifications upon which the exclusivity was based;

(3) failure to obtain tentative approval within certain prescribed time periods (30, 36, or 40 months after submission of the ANDA);

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The 180-day exclusivity provisions described above were passed in the MMA, and do not apply where the first ANDA with a Paragraph IV certification submitted for the reference drug was filed before December 8, 2003.

In this circumstance, the pre-MMA exclusivity provisions apply.

Under these provisions, the 180-day exclusivity delay ends 180 days after the first commercial marketing of the ANDA product or a court decision holding the patent invalid, unenforceable or not infringed, whichever comes first.

In addition, under the pre-MMA exclusivity provisions, exclusivity is awarded separately to the first applicant or applicants submitting an ANDA with a paragraph IV certification for each patent, resulting in the possibility that different ANDA applicants will hold different exclusivities on different patents, resulting in situations in which an applicant that holds an exclusivity on one patent is subject to another applicant’s exclusivity on a different patent.

The FDA has addressed these situations through policies involving exclusivity sharing.

The pre-MMA exclusivity provisions do not provide for exclusivity forfeiture.

ANDA approvals can be delayed by exclusivities awarded to the holder of the NDA for the reference drug.

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Seven-year orphan drug exclusivity is available to a product that has orphan drug designation and that receives the first FDA approval for the indication for which the drug has such designation.

Orphan drug exclusivity prevents approval of another application for the same drug, for the same orphan indication, for a period of seven years, regardless of whether

the application is a full NDA or an ANDA, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity.

Orphan drug exclusivity prevents approval of another application for the same drug, for the same orphan indication, for a period of seven years, regardless of whether the application is a full NDA or an ANDA, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity.

Pediatric exclusivity, if granted, provides an additional six months to an existing exclusivity or statutory delay in approval resulting from a patent certification.

This six-month exclusivity, which runs from the end of other exclusivity protection or patent delay, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued written request for such a study.

The FFDCA also provides exclusivity for certain antibiotic drugs for serious or life-threatening infections that FDA designates as “qualified infectious disease products.”

This exclusivity extends other exclusivities for the same drug by five years, but does not extend patent-related delays in approval.

The FFDCA also provides exclusivity for certain antibiotic drugs for serious or life-threatening infections that FDA designates as “qualified infectious disease products.” This exclusivity extends other exclusivities for the same drug by five years, but does not extend patent-related delays in approval.

In 2017, the FDA Reauthorization Act of 2017, or FDARA, was passed, which created a new pathway to allow the FDA to expedite the development and review of an ANDA for a drug that is designated as a Competitive Generic Therapy, or CGT.

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Once assigned CGT designation by the FDA, the FDA may take various actions to help expedite the development and review process.

This includes priority granting and expediting review during Product Development and Pre-Submission Meetings, Mid-Review Cycle Meetings and provide for a more coordinated review of ANDA’s with CGT.

As part of the FDARA, a new type of 180-day marketing exclusivity period for ANDA applicants with CGT designation has been created.

Broadly, this exclusivity applies when the ANDA applicant is considered as the first approved applicant, and there is no other exclusivity period eligibility.

Three of our ANDAs on file and many of the products that we are developing qualify for CGT.

Many of our ANDAs on file and many of the products that we are developing qualify for CGT.

Having a generic product designated as CGT provides for certain actions which the FDA may take in order to expedite the development and review of an ANDA.

The NDA Approval Process

The NDA approval process is generally far more demanding than the ANDA process, depending on whether the applicant is submitting a “full NDA”

containing all of the data and information required for approval of a new drug or a “Section 505(b)(2) NDA”

which is a more limited submission that is generally utilized for modifications to previously approved products.

The NDA approval process is generally far more demanding than the ANDA process, depending on whether the applicant is submitting a “full NDA” containing all of the data and information required for approval of a new drug or a “Section 505(b)(2) NDA” which is a more limited submission that is generally utilized for modifications to previously approved products.

The Prescription Drug User Fee Act, or PDUFA, was enacted by Congress in 1992.

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The approval process for a full NDA generally involves:

completion of preclinical laboratory and animal testing to demonstrate safety, in compliance with the FDA’s good laboratory practice, or GLP, regulations;

● completion of preclinical laboratory and animal testing to demonstrate safety, in compliance with the FDA’s good laboratory practice, or GLP, regulations;

● submission to the FDA of an investigational new drug application, or IND, for human clinical testing that must satisfy the FDA and become effective before human clinical trials may begin;

● performance of adequate and well-controlled human clinical trials to establish the efficacy of the proposed drug product for each intended use;

satisfactory completion of an FDA pre-approval inspection of the facility or facilities at which the product is produced to assess compliance with the FDA’s cGMP regulations;

● satisfactory completion of an FDA pre-approval inspection of the facility or facilities at which the product is produced to assess compliance with the FDA’s cGMP regulations;

● submission to and approval by the FDA of an NDA.

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The applicant may be required to conduct additional studies or provide additional information to fully demonstrate the safety and effectiveness of its modification to the approved product.

Where a Section 505(b)(2) applicant relies on the FDA’s approval of another NDA, the applicant is required to submit the same types of patent certifications as are required for an ANDA.

As in the case of an ANDA, a Paragraph IV certification challenging one or more of the patents listed for the reference drug will require notice to the patent owner(s) and NDA holder and will permit a patent infringement suit that may result in a 30-month stay in the approval of the Section 505(b)(2) NDA.

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The BPCIA, passed by Congress in 2010, amended the PHSA to create an abbreviated approval pathway for follow-on biologics.

This approval pathway is available for “biosimilar”

products, which are products that are highly similar to biologics that have been approved in BLAs under the PHSA notwithstanding minor differences in clinically inactive components.

This approval pathway is available for “biosimilar” products, which are products that are highly similar to biologics that have been approved in BLAs under the PHSA notwithstanding minor differences in clinically inactive components.

A biosimilar application must contain information demonstrating (1) biosimilarity to the reference product, (2) sameness of strength, dosage form, route of administration and mechanism(s) of action with the reference product (where known), (3) approval of the reference product for the indication(s) proposed for the biosimilar product and (4) appropriate manufacturing facilities.

FDA will approve the application based on a finding of biosimilarity or interchangeability with the reference product.

A finding of biosimilarity must be based on (1) a demonstration that the products are “highly similar”

notwithstanding minor differences in clinically inactive components, (2) animal studies, including an assessment of toxicity, and (3) a clinical study or studies (including an assessment of immunogenicity and pharmacokinetics or pharmacodynamics) sufficient to show the safety, purity and potency of the proposed product for one or more “appropriate”

conditions of use for which licensure is sought and for which the reference product is

licensed, unless FDA waives a specific requirement.

The definition of “biosimilar”

requires that there be no clinically meaningful differences between the biosimilar and reference product with regard to safety, purity and potency.

A finding of biosimilarity must be based on (1) a demonstration that the products are “highly similar” notwithstanding minor differences in clinically inactive components, (2) animal studies, including an assessment of toxicity, and (3) a clinical study or studies (including an assessment of immunogenicity and pharmacokinetics or pharmacodynamics) sufficient to show the safety, purity and potency of the proposed product for one or more “appropriate” conditions of use for which licensure is sought and for which the reference product is licensed, unless FDA waives a specific requirement.

The definition of “biosimilar” requires that there be no clinically meaningful differences between the biosimilar and reference product with regard to safety, purity and potency.

An applicant with a pending or approved biosimilar application may seek an FDA determination that its product is interchangeable with the reference drug.

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It also precludes exclusivity for an entirely new BLA in certain circumstances.

A new BLA submitted by a sponsor or manufacturer of a previously approved biologic would not be protected by exclusivity for (1) a non-structural change that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength or (2) a structural change that does not result in a change in safety, purity or potency.

A new BLA submitted by a sponsor or manufacturer of a previously approved biologic

would not be protected by exclusivity for (1) a non-structural change that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength or (2) a structural change that does not result in a change in safety, purity or potency.

As in the case of NDAs approved under the FFDCA, BLAs may be entitled to orphan exclusivity and to pediatric exclusivity.

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The BLA approval process is similar to the Full NDA approval process and generally involves:

completion of preclinical laboratory and animal testing in compliance with the FDA’s GLP regulations;

● completion of preclinical laboratory and animal testing in compliance with the FDA’s GLP regulations;

● submission to the FDA of an IND for human clinical testing, which must satisfy FDA and become effective before human clinical trials may begin;

● performance of adequate and well-controlled human clinical trials to establish the efficacy of the proposed drug product for each intended use;

satisfactory completion of an FDA pre-approval inspection of the facility or facilities at which the product is produced to assess compliance with the FDA’s cGMP regulations;

● satisfactory completion of an FDA pre-approval inspection of the facility or facilities at which the product is produced to assess compliance with the FDA’s cGMP regulations;

● submission to and approval by the FDA of a BLA.

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A drug that is administered using an inhaler is an example of a combination drug/device product.

The FDA is divided into various Centers, which each have authority over a specific type of product.

● T he FDA is divided into various Centers, which each have authority over a specific type of product.

NDAs are reviewed by personnel within the Center for Drug Evaluation and Research, or CDER, while device applications and premarket notifications are reviewed by the Center for Devices and Radiological Health, or CDRH.

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If there are two independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which Center to assign the product based on consistency with other combination products raising similar types of safety and effectiveness questions or to the Center with the most expertise in evaluating the most significant safety and effectiveness questions raised by the combination product.

When evaluating an application, a lead Center may consult other Centers and apply the standards that would be applicable but still retain complete reviewing authority, or it may collaborate with another Center, by which the Center assigns review of a specific section of the application to another Center, delegating its review authority for that section.

● W hen evaluating an application, a lead Center may consult other Centers and apply the standards that would be applicable but still retain complete reviewing authority, or it may collaborate with another Center, by which the Center assigns review of a specific section of the application to another Center, delegating its review authority for that section.

Typically, the FDA requires a single marketing application submitted to the Center selected to be the lead evaluator, although the agency has the discretion to require separate applications to more than one Center.

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If multiple applications are submitted, each may be evaluated by a different lead Center.

Our inhalers and prefilled syringes, which deliver a specific drug, are regulated by the FDA as combination product.

We believe the combination product will be regulated by the FDA as a drug (and not a device) because the primary mode of action of the combination will be a drug action.

As such, we will need to submit a marketing application to the CDER for our inhalers that deliver a specific drug.

● O ur inhalers and prefilled syringes, which deliver a specific drug, are regulated by the FDA as combination products.

We believe the combination products will be regulated by the FDA as a drug (and not a device) because the primary mode of action of the combination will be a drug action.

As such, we will need to submit a marketing application to the CDER for our inhalers or prefilled syringes that deliver a specific drug.

CDRH will provide input to CDER on the device aspects of the combination.

We can provide no assurance that any of our combination products will be approved by FDA in a timely fashion, if at all.

Like their constituent products—e.g., drugs and devices—combination products are highly regulated and subject to a broad range of post marketing requirements including cGMPs, adverse event reporting, periodic reports, labeling and advertising and promotion requirements and restrictions, market withdrawal and recall.

● L ike their constituent products—e.g., drugs and devices—combination products are highly regulated and subject to a broad range of post marketing requirements including cGMPs, adverse event reporting, periodic reports, labeling and advertising and promotion requirements and restrictions, market withdrawal and recall.

FDA Action on an Application for Approval

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The new drug and biological product approval processes may take years, and the time may vary substantially based upon the type of application and the type, complexity and novelty of the product or disease.

Government regulation may delay or prevent marketing of potential products for a considerable period of time and impose costly procedures upon a manufacturer’s activities.

Success in early stage clinical trials does not assure success in later stage clinical trials.

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Manufacturing (cGMP) Requirements

We and our suppliers are required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations.

These cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation.

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FDA Enforcement Authority

The FDA has very broad enforcement authority and the failure to comply with applicable regulatory requirements can result in administrative or judicial sanctions being imposed on us or on the manufacturers and distributors of our approved products, including warning letters, refusals of government contracts, clinical holds, civil penalties, injunctions (which may in some circumstances involve restitution, disgorgement or profits, recalls and/or total or partial suspension of production or distribution), seizure of products, withdrawal of approvals, refusal to approve pending applications and

criminal prosecution of the company and company officials that may result in fines and incarceration.

The FDA has authority to inspect manufacturing facilities as well as other facilities in which drug products are held, packaged or stored, to determine compliance with cGMP and other requirements under the FDCA.

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In each of these areas, as above, the FDA has broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products and withdraw approvals, any one or more of which could have a materially adverse effect on us.

From February 5, 2019 through February 12, 2019, our Amphastar facility in Rancho Cucamonga, California was subject to a preapproval inspection by the FDA.

The inspection included a review of our corrective actions taken from the previous cGMP inspection in March 2017, as well as review of data to support our pending applications.

The inspections resulted in multiple observations on Form 483.

We fully responded to those observations on March 6, 2019.

We believe that our responses to the observations will satisfy the requirements of the FDA and that no significant further actions will be necessary.

From February 25 through March 1, 2019, our IMS facility in South El Monte, California was subject to a preapproval inspection by the FDA.

The inspection included a review of our corrective actions taken from the 2017 inspection as well as review of data to support our pending applications.

The inspection resulted in multiple observations on Form 483.

We responded to those observations on March 22, 2019.

We believe that our responses to the observations will satisfy the requirements of the FDA and that no significant further actions will be necessary.

From July 23 through July 25, 2019, our Amphastar facility in Rancho Cucamonga, California was subject to a routine, post-marketing adverse drug experience reporting inspection, or PADE, by the FDA.

The inspection included a review of our processes for collecting, reviewing, investigating and reporting post-marketing adverse drug experiences reported through various sources.

The inspection resulted in no Form 483 findings.

No further actions will be necessary.

From August 27 through September 04, 2019, one of our California clinical trial sites was subject to a pre-approval biomonitoring inspection by the FDA.

The inspection included a review of the clinical trial data to support one of our pending applications.

The inspection resulted in no Form 483 findings.

No further actions will be necessary.

From October 7 through October 11, 2019, our Chinese subsidiary ANP, was subject to a cGMP inspection by the FDA.

The inspection included a review of compliance with FDA regulations relating to Good Manufacturing Practices.

The inspection resulted in one observation on Form 483.

We responded to that observation.

We believe that our response to the observation will satisfy the requirements of the FDA and that no significant further actions will be necessary.

From October 24 to November 5, 2019, our IMS facility in South El Monte, California was subject to a preapproval inspection by the FDA.

The inspection included a review of data to support our pending applications.

The inspection resulted in multiple observations on Form 483.

We responded to the initial observations within the required timeframe, however, there was an additional request for information.

We plan to submit our response in March 2020, and we believe it will satisfy the requirements of the FDA and that no significant further actions will be necessary.

From November 18 to November 22, 2019, our Amphastar facility in Rancho Cucamonga, California was subject to a pre-approval biomonitoring inspection by the FDA.

The inspection included review of the analytical laboratory used in support of one of our pending applications.

The inspection resulted in no Form 483 findings.

No further actions will be necessary.

From November 18 to November 21, 2019, our IMS facility in South El Monte, California and our Amphastar facility in Rancho Cucamonga, California were subject to a pre-approval biomonitoring inspection by the FDA.

The inspection included review of the analytical laboratory and an in vitro study used in support of one of our pending applications.

The inspection resulted in no Form 483 findings.

No further actions will be necessary.

On December 18, 2019, our IMS facility in South El Monte, California was subject to an inspection by the FDA.

The inspection was part of an overall investigation involving makers of opioid products.

The inspection resulted in no Form 483 findings.

No further actions will be necessary.

In December 2020, our IMS facility in South El Monte, California was subject to an inspection by the DEA.

The inspection was routine as part of the DEA surveillance program.

Due to COVID-19 restrictions, much of the inspection was performed off-site, by DEA inspectors (i.e.

a “paper inspection”).

The DEA has completed the inspection, including a thorough review of the requested documents and has found the facility to be in compliance.

Foreign Regulatory Requirements

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The requirements governing marketing authorization, pricing and reimbursement vary widely from country to country.

At present, foreign marketing authorizations are applied for at a national level, although within the European Union registration procedures are available to companies wishing to market a product in more than one European Union member state.

one European Union member state.

The regulatory authority generally will grant marketing authorization if it is satisfied that we have presented it with adequate evidence of safety, quality and efficacy.

Prescription Drug Wrap-Up

When Congress passed the FFDCA in 1938, it required that “new drugs”

be approved based on their safety.

When Congress passed the FFDCA in 1938, it required that “new drugs” be approved based on their safety.

In 1962, Congress amended the FFDCA to require that sponsors demonstrate that new drugs are effective, as well as safe, in order to receive FDA approval.

We refer to these provisions as the “1962 Amendments.”

The 1962 Amendments also required the FDA to conduct a retrospective evaluation of the efficacy of the drug products that the FDA approved between 1938 and 1962 on the basis of safety alone.

We refer to these provisions as the “1962 Amendments.” The 1962 Amendments also required the FDA to conduct a retrospective evaluation of the efficacy of the drug products that the FDA approved between 1938 and 1962 on the basis of safety alone.

The FDA contracted with the National Academy of Science/National Research Council, or the NAS/NRC, to make an initial evaluation of the efficacy of many of these drug products.

The FDA’s administrative implementation of the NAS/NRC reports was called the Drug Efficacy Study Implementation, or DESI.

Drugs that were not subject to applications approved between 1938 and 1962 were not subject to DESI review.

For a period of time, the FDA did not challenge the marketing of these drugs without approval.

Most of these drugs contain active ingredients that were first marketed prior to the enactment of the FFDCA.

In 1984, however, spurred by serious adverse reactions to one of these products and concerns expressed by Congress, FDA undertook an assessment of the products under an initiative known as the “Prescription Drug Wrap-Up.” Most of these drugs contain active ingredients that were first marketed prior to the enactment of the FFDCA.

Several of our marketed pharmaceutical products fall within this category.

The FDA has asserted that all drugs subject to the Prescription Drug Wrap-Up are on the market illegally unless they fall within two “grandfather”

exceptions to the new drug definition.

The FDA has asserted that all drugs subject to the Prescription Drug Wrap-Up are on the market illegally unless they fall within two “grandfather” exceptions to the new drug definition.

The first is a provision in the new drug definition exempting drugs that were on the market prior to the passage of the FFDCA and that contain the same representations concerning the conditions of use as they did prior to passage of the FFDCA.

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Therefore, the FDA could commence enforcement action at any time regarding any or all of our unapproved prescription products.

The FDA requested us to discontinue the manufacturing and distribution of our epinephrine injection, USP vial product, which has been marketed under the “grandfather”

exception to the FDA’s “Prescription Drug Wrap-Up”

The FDA requested us to discontinue the manufacturing and distribution of our epinephrine injection, USP vial product, which has been marketed under the “grandfather” exception to the FDA’s “Prescription Drug Wrap-Up” program.

We discontinued selling this product in the second quarter of 2017.

For the year ended December 31, 2017, we recognized $17.8 million in net revenues for the sale of this product.

The FDA granted approval of our ANDAs for sodium bicarbonate injection and calcium chloride injection in September 2017 and May 2018, respectively.

In April 2020, the FDA granted approval of our Epinephrine Injection USP 30mg/30mL Multiple Dose Vial.

Additionally, the FDA granted approval of our ANDAs for calcium chloride injection, atropine sulfate injection, and Glucagon for injection emergency kit in May 2018, October 2020 and December 2020, respectively.

The FDA has adopted a risk-based enforcement policy that prioritizes enforcement of new drug requirements for these and other unapproved drugs that pose safety concerns, lack evidence of efficacy, prevent patients from pursuing effective therapies, are marketed fraudulently, violate other provisions of the FFDCA, such as cGMP requirements, or directly compete with approved drugs.

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Federal False Claims Act

Another development affecting the health care industry is the increased use of the federal False Claims Act, and in particular, actions brought pursuant to the False Claims Act’s “whistleblower”

or “qui tam”

The False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program.

The qui tam provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government and to share in any monetary recovery.

The False Claims Act, or FCA, imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program.

The qui tam provisions of the FCA allow a private individual to bring actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government and to share in any monetary recovery.

In recent years, the number of suits brought against health care providers by private individuals has increased dramatically.

In addition, various states have enacted false claims laws analogous to the False Claims Act, and many of these state laws apply where a claim is submitted to any third-party payer and not merely a federal or other governmental health care program.

When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties of between $10,957 and $21,916 for each separate instance of a false claim, subject to adjustment for inflation.

There are many potential bases for liability under the False Claims Act.

In addition, various states have enacted false claims laws analogous to the FCA, and many of these state laws apply where a claim is submitted to any third-party payer and not merely a federal or other governmental health care program.

When an entity is determined to have violated the FCA, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties of between $11,665 and $23,331 for each separate instance of a false claim, subject to adjustment for inflation.

There are many potential bases for liability under the FCA.

Liability arises, primarily, when an entity knowingly submits, or causes another to submit, a false claim for reimbursement to the federal government.

The federal government has used the False Claims Act to assert liability on the basis of inadequate care, kickbacks and other improper referrals, and improper use of Medicare numbers when detailing the provider of services, in addition to the more predictable allegations of misrepresentations with respect to the services rendered.

In addition, the federal government has prosecuted companies under the False Claims Act in connection with off-label promotion of products.

The federal government has used the FCA to assert liability on the basis of inadequate care, kickbacks and other improper referrals, and improper use of Medicare numbers when detailing the provider of services, in addition to the more predictable allegations of misrepresentations with respect to the services rendered.

In addition, the federal government has prosecuted companies under the FCA in connection with off-label promotion of products.

Our current and future activities relating to the reporting of wholesale or estimated retail prices of our products, the reporting of discount and rebate information and other information affecting federal, state and third-party reimbursement of our products, and the sale and marketing of our products may be subject to scrutiny under these laws.

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However, the costs of defending such claims, as well as any sanctions imposed, could significantly affect our financial performance.

The Sunshine Act

The Physician Payment Sunshine Act, or the Sunshine Act, which was enacted as part of the Affordable Care Act, requires all pharmaceutical manufacturers that participate in Medicare, Medicaid or the Children’s Health Insurance Program to report annually to the Secretary of the Department of Health and Human Services payments or other transfers of value made by that entity, or by a third party as directed by that entity, to physicians and teaching hospitals or to third parties on behalf of physicians or teaching hospitals.

The payments required to be reported include the cost of meals provided to a physician, travel reimbursements and other transfers of value provided as part of contracted services, including speaker programs, advisory boards, consultation services and clinical trial services.

The Open Payment Act

The Physician Payment Sunshine Act, or the Open Payment Act, which was enacted as part of the Affordable Care Act, requires all pharmaceutical manufacturers that participate in Medicare, Medicaid or the Children’s Health Insurance Program to report annually to the Secretary of the Department of Health and Human Services payments or other transfers of value made in the previous year by that entity, or by a third party as directed by that entity, to covered recipients, including physicians and teaching hospitals, as defined by law, or to third parties on behalf of such covered recipients, as well as ownership and investment interests held by physicians and their immediate family members.

The payments and transfer of value required to be reported include the cost of meals provided to a physician, travel reimbursements and other transfers of value provided as part of contracted services, including speaker programs, advisory boards, consultation services and clinical trial services.

Effective January 1, 2022, these reporting obligations will extend to include payments and transfers of value made during the previous year to certain non-physician covered recipients, such as physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists & anesthesiologist assistants, and certified nurse-midwives.

The statute requires the federal government to make reported information available to the public.

Failure to comply with the reporting requirements can result in significant civil monetary penalties ranging from $1,000 to $10,000 for each payment or other transfer of value that is not reported (up to a maximum per annual report of $150,000) and from $10,000 to $100,000 for

each knowing failure to report (up to a maximum per annual report of $1.0 million).

Failure to comply with the reporting requirements can result in significant civil monetary penalties ranging from $1,176 to $11,766 for each payment or other transfer of value that is not reported (up to a maximum per annual report of $176,495) and from $11,766 to $107,664 for each knowing failure to report (up to a maximum per annual report of $1,176,638).

Additionally, there are criminal penalties if an entity intentionally makes false statements in such reports.

We are subject to the Sunshine Act and the information we disclose may lead to greater scrutiny, which may result in modifications to established practices and additional costs.

We are subject to the Open Payment Act and the information we disclose may lead to greater scrutiny, which may result in modifications to established practices and additional costs.

Additionally, similar reporting requirements have also been enacted on the state level domestically, and an increasing number of countries worldwide either have adopted or are considering adopting similar laws requiring transparency of interactions with health care professionals.

The Anti-kickback Statute

As a life sciences company, we are subject to the federal anti-kickback statute, or AKS.

The AKS prohibits payments or providing anything of “value” (remuneration) for the purpose of inducing or rewarding the referral or generation of healthcare business.

The intent is to protect the independence and clinical judgment of providers.

There are numerous exceptions, or safe harbors, the most notable of which are that it is permissible to provide a discount or rebate to a healthcare provider based upon volume, and that manufacturers can pay administrative fees to GPOs or buying groups.

As a result of the AKS, the company pays particular attention to interactions with healthcare providers and how it structures sales.

Any and all discounts that are offered are appropriately disclosed and documented to promote compliance with the AKS.

Both consulting relationships with healthcare providers and educational and research activities with healthcare providers and teaching hospitals receive considerable enforcement scrutiny.

As a result, the company also pays particular attention to these relationships.

Environmental Considerations

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The costs of complying with various applicable environmental requirements, as they now exist or as may be altered in the future, could adversely affect our financial condition and results of operations.

For example, as a result of environmental concerns about the use of CFCs, the FDA issued a final rule on January 16, 2009 that required the phase-out of the CFC version of our Primatene ®

Mist product by December 31, 2011.

This phase out caused us to halt sales of the CFC version of our Primatene ®

Mist product subsequent to December 31, 2011 and write off our inventory for the product, which had an adverse effect on our financial results.

For example, as a result of environmental concerns about the use of CFCs, the FDA issued a final rule on January 16, 2009 that required the phase-out of the CFC version of our Primatene ® Mist product by December 31, 2011.

This phase out caused us to halt sales of the CFC version of our Primatene ® Mist product subsequent to December 31, 2011 and write off our inventory for the product, which had an adverse effect on our financial results.

We have made and will continue to make expenditures to comply with current and future U.S.

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Other Regulations

We also must comply with data protection and data privacy requirements.

We also must comply with data protection and data privacy requirements such as HIPAA, GDPR, and the upcoming CPRA.

Compliance with these laws, rules and regulations regarding privacy, security and protection of employee data could result in higher compliance and technology costs for us, as well as significant fines, penalties and damage to our global reputation and our brand as a result of non-compliance.

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However, we cannot determine with certainty whether patents or patent applications of other parties will have a materially adverse effect on our ability to make, use, or sell any products.

A number of pharmaceutical companies, biotechnology companies, universities and research institutions may have filed patent applications or may have been granted patents that cover aspects of our, or our licensors’

products, product candidates, or other technologies.

With respect to our existing generic products and generic product candidates, we primarily rely on trade secrets, unpatented proprietary know-how and continuing technological innovation to protect our products and technologies, especially where we do not believe patent protection is appropriate or obtainable.

especially where we do not believe patent protection is appropriate or obtainable.

Although in some cases, we seek patent protection to preserve our competitive position, our current patent portfolio does not cover the majority of our existing products and product candidates.

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We own a U.S.

patent covering the HFA version of Primatene ®

patent covering the HFA version of Primatene Mist ® :

Patent Number 8,367,734, which was issued on February 5, 2013, and expires in January 2026.

We have several patent applications that are currently pending.

majority of our significant products or product candidates are not covered by any U.S.

The majority of our significant products or product candidates are not covered by any U.S.

or foreign patents related to formulations or compositions.

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or foreign patents.

Other of our products, including Amphadase ®

, are based on compounds for which any applicable patents have expired, or which were not patented by Amphastar in the first instance because they are older compounds.

Other of our products, including Amphadase ® , are based on compounds for which any applicable patents have expired, or which were not patented by Amphastar in the first instance because they are older compounds.

As for the remainder of our product candidates that are not intended to be generic products, we may seek to obtain patent rights or rely on trade secret protection.

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In addition, other parties may duplicate, design around or independently develop similar or alternative technologies to ours or those of our licensors.

Litigation may be necessary to enforce patents issued or licensed to us or to determine the scope or validity of another party’s proprietary rights.

USPTO interference proceedings may be necessary if we and another party both claim to have invented the same subject matter.

Even if we ultimately prevail, we could incur substantial costs and our management’s attention would be diverted if:

● litigation is required to defend against patent suits brought by third parties;

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However, even if we pursue litigation or other action to protect our intellectual property rights, we may not prevail in any of these actions or proceedings.

As of December 31, 2019, we had 2,027 full-time employees.

Human Capital

As of December 31, 2020, we have 1,980 full-time employees in the United States, China, and France.

Of these employees, 24 hold Ph.D.’s, and an additional 153 employees hold a master’s degree or other post-graduate degrees.

We consider our employees’ intellectual capital to be an essential driver of our business and key to our future prospects.

None of our U.S.

employees is subject to a collective bargaining agreement or represented by a trade or labor union.

The following table summarizes our employees by category and location:

United States

Manufacturing

QA/QC and Regulatory Affairs

Sales and Marketing

General and administrative

Research and Development

Total employees

Talent Acquisition and Retention

We recognize that our employees largely contribute to our success.

To this end, we support business growth by seeking to attract and retain best-in-class talent.

Our talent acquisition team uses internal and external resources to recruit highly skilled candidates globally.

We continue to attract and retain superior talent as measured by our minimal turnover rate and high employee service tenure.

Total Rewards

Our total rewards philosophy recognizes the contributions of our workforce by offering competitive compensation and benefit packages.

We provide employees with compensation packages that include base salary, annual incentive bonuses, and long-term equity awards.

We also offer comprehensive employee benefits, which vary by country and region, such as life and health insurance, health savings accounts, paid time off, an Employee Stock Purchase Program, and a 401(k) plan.

Health, Safety, and Wellness

Our employees’ health, safety, and wellness is a priority in which we have always invested and will continue to do so.

We provide our employees and their families with access to various innovative, flexible, and convenient health and wellness programs.

Program benefits are intended to provide protection and security, so employees can have peace of mind concerning events that may require time away from work or impact their financial well-being.

These programs are highlighted regularly in our monthly human resources newsletters.

These investments and the prioritization of employee health, safety, and wellness took on particular significance in 2020 in light of COVID-19.

To protect and support our essential team members, we implemented health and safety measures that included maximizing personal workspaces, changing shift schedules, providing personal protective equipment, or PPE, implementing heighted cleaning of high contact surfaces, and instituting mandatory screening before accessing buildings.

We are monitoring this rapidly evolving situation and will continue to seek programs to educate and assist employees whenever possible.

Diversity, Equity, and Inclusion

We believe a diverse workforce is critical to our success.

Our mission is to value differences in races, ethnicities, religions, nationalities, genders, ages, sexual orientations, as well as education, skill sets, and experience.

We are focused on inclusive hiring practices, fair and equitable treatment, organizational flexibility, and training and resources.

Corporate Information

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Our telephone number is (909) 980-9484.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC.

can access our filings with the SEC by visiting www.amphastar.com .

Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC.

You can access our filings with the SEC by visiting www.amphastar.com.

The information that is contained on or that can be accessed through our website is not incorporated into this Annual Report on Form 10-K, and the inclusion of our website address is an inactive textual reference only.

Additionally, copies of materials filed by us with the SEC may be accessed at the SEC’s website at www.sec.gov.

We use our website as a channel of distribution for important company information.

section of the website, which is accessible by clicking on the tab labeled “Investors”

on our website home page.

Important information, including press releases, analyst presentations and financial information regarding us, as well as corporate governance information, is routinely posted and accessible on the “Investors” section of the website, which is accessible by clicking on the tab labeled “Investors” on our website home page.

Information on or that can be accessed through our website is not part of this Annual Report on Form 10-K, and the inclusion of our website address is an inactive textual reference only.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business