Amphastar Pharmaceuticals, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. Index to Amphastar Pharmaceuticals, Inc. Consolidated Financial Statements ​ ​ ​ ​ Report of Independent Registered Public Accounting Firm 95 Consolidated Balance Sheets ​ 98 ​ Consolidated Statements of Operations ​ 99 ​ Consolidated Statements of Comprehensive Income (Loss) ​ 100 ​ Consolidated Statements of Stockholders’ Equity ​ 101 ​ Consolidated Statements of Cash Flows ​ 102 ​ Notes to Consolidated Financial Statements ​ 103 ​ ​ ​ ​ 94 Table of Contents Report of Independent Registered Public Accounting Firm ​ To the Stockholders and the Board of Directors of Amphastar Pharmaceuticals, Inc. ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheets of Amphastar Pharmaceuticals, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. ​ We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 15, 2021 expressed an unqualified opinion thereon. ​ Basis for Opinion ​ These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ Critical Audit Matters ​ The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. ​ 95 Table of Contents ​ Provision for chargebacks estimate Description of the Matter The Company’s provision for chargebacks estimate totaled $16.4 million at December 31, 2020. As described in Note 2 to the consolidated financial statements, a provision for chargebacks is made at the time of sale and is analyzed and adjusted, if necessary, at each balance sheet date. Auditing the provision for chargebacks estimate, the resulting impact of which is netted on the statement of operations against product sales, is complex, requires significant judgment, and the amounts involved are material to the financial statements taken as a whole. The significant judgment primarily relates to the estimation of the future wholesale customer mix and related contract pricing, which determine the rates at which future chargebacks on current sales will be paid. Revenue from product sales is recognized upon transfer of control of a product to a customer, generally upon delivery, and is based on an amount that reflects the consideration to which the Company expects to be entitled, which represents an amount that is net of the estimated provision for chargebacks, among other deductions. The estimated provision for chargebacks is based on wholesaler inventory levels, historic chargeback rates, and current contract pricing and wholesaler customer mix. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the provision for chargebacks estimation process. This included testing controls over management’s review of significant assumptions and inputs used in the provision for chargebacks estimate, including actual sales, historical experience; and wholesaler inventory levels, customer mix and contract pricing. To test the provision for chargebacks estimate, we obtained management’s calculations and performed the following procedures, among others. We evaluated the appropriateness of the Company’s models and methodology, including recalculating the estimate using those models and testing the completeness and accuracy of the inputs by comparing to internal and external data. We evaluated the reasonableness of significant assumptions (e.g., estimated wholesale customer mix and related contract pricing) by comparing rates at different time periods, including historical and subsequent periods, obtaining an understanding of the facts supporting the selected rates, and performing sensitivity analyses over those rates. We assessed subsequent events to determine whether there was any new information that would require adjustment to the initial provision. Inventory lower of cost or net realizable value estimate Description of the Matter The Company's inventories totaled $96.8 million as of December 31, 2020 which is net of, amongst other things, provisions to reduce the value of enoxaparin inventory to the lower of its cost and net realizable value. Total charges of $9.4 million related to enoxaparin inventory and related purchase commitments were included in cost of revenues in the Company’s consolidated statement of operations for the year ended December 31, 2020. As explained in Note 2 to the consolidated financial statements, the Company states inventory at the lower of cost and net realizable value. Net 96 Table of Contents realizable value is determined using the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the inventory. Auditing management's estimate in determining the net realizable value of enoxaparin inventory involved subjective auditor judgment because the estimation of the average selling price relies on a number of factors that are affected by market conditions outside the Company's control. In particular, the estimated selling price forecast is sensitive to significant assumptions, including demand for the Company’s products, customer mix, and expected competition. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company's lower of cost or net realizable value estimate process. This included controls over management's assessment of assumptions such as future demand, customer mix and expected competition and data underlying the estimate, including but not limited to the completeness of the underlying inventory. Our substantive audit procedures included, among others, evaluating the significant assumptions stated above and the accuracy and completeness of the underlying data management used to value enoxaparin inventory. We compared the cost of on-hand enoxaparin inventory and related purchase commitments to the estimated net realizable value estimated based on selling price forecasts and evaluated adjustments to the estimated selling price for specific considerations, such as new significant customers, competitors, or planned price changes. We evaluated the reasonableness of management’s forecasted selling price and whether expected changes in demand, competition, or customer mix were appropriate in comparison with the Company’s experience. We also assessed the historical accuracy of management's estimates by performing retrospective reviews over prior periods' forecasted average selling prices and performed sensitivity analyses over the significant assumptions to evaluate the changes in the selling price forecast that would result from changes in the underlying assumptions. ​ ​ /s/ Ernst & Young LLP We have served as the Company’s auditor since 1998. Irvine, California March 15, 2021 ​ ​ ​ 97 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2020 ​ 2019 ASSETS ​ ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 92,642 ​ $ 73,685 ​ Restricted cash ​ ​ 1,865 ​ ​ 1,865 ​ Short-term investments ​ ​ 12,977 ​ ​ 11,675 ​ Restricted short-term investments ​ 2,200 ​ 2,290 ​ Accounts receivable, net ​ 66,005 ​ 45,376 ​ Inventories ​ 96,831 ​ 110,501 ​ Income tax refunds and deposits ​ 385 ​ 311 ​ Prepaid expenses and other assets ​ 6,777 ​ 9,538 ​ Total current assets ​ 279,682 ​ 255,241 ​ ​ ​ ​ ​ ​ ​ ​ ​ Property, plant, and equipment, net ​ 260,055 ​ 233,856 ​ Finance lease right-of-use assets ​ ​ 612 ​ ​ 887 ​ Operating lease right-of-use assets ​ ​ 20,042 ​ ​ 18,805 ​ Goodwill and intangible assets, net ​ 40,615 ​ 41,153 ​ Other assets ​ 5,250 ​ 11,156 ​ Deferred tax assets ​ 24,980 ​ 25,873 ​ Total assets ​ $ 631,236 ​ $ 586,971 ​ ​ ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts payable and accrued liabilities ​ $ 95,504 ​ $ 77,051 ​ Income taxes payable ​ 1,077 ​ 2,042 ​ Current portion of long-term debt ​ 12,263 ​ 7,741 ​ Current portion of operating lease liabilities ​ ​ 3,357 ​ ​ 3,175 ​ Total current liabilities ​ 112,201 ​ 90,009 ​ ​ ​ ​ ​ ​ ​ ​ ​ Long-term reserve for income tax liabilities ​ 4,709 ​ 3,425 ​ Long-term debt, net of current portion ​ 34,186 ​ 39,394 ​ Long-term operating lease liabilities, net of current portion ​ ​ 17,464 ​ ​ 16,315 ​ Deferred tax liabilities ​ 741 ​ 867 ​ Other long-term liabilities ​ 13,212 ​ 9,433 ​ Total liabilities ​ 182,513 ​ 159,443 ​ Commitments and contingencies ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity: ​ ​ ​ ​ ​ ​ ​ Preferred stock: par value $ 0.0001 ; 20,000,000 shares authorized; no shares issued and outstanding ​ — ​ — ​ Common stock: par value $ 0.0001 ; 300,000,000 shares authorized; 54,760,922 and 47,495,439 shares issued and outstanding as of December 31, 2020 and 52,495,483 and 46,576,968 shares issued and outstanding as of December 31, 2019, respectively ​ 5 ​ 5 ​ Additional paid-in capital ​ 410,061 ​ 367,305 ​ Retained earnings ​ 117,773 ​ 116,370 ​ Accumulated other comprehensive loss ​ ( 3,721 ) ​ ( 4,687 ) ​ Treasury stock ​ ( 121,812 ) ​ ( 97,627 ) ​ Total Amphastar Pharmaceuticals, Inc. stockholders’ equity ​ 402,306 ​ 381,366 ​ Non-controlling interests ​ ​ 46,417 ​ ​ 46,162 ​ Total equity ​ ​ 448,723 ​ ​ 427,528 ​ Total liabilities and stockholders’ equity ​ $ 631,236 ​ $ 586,971 ​ See accompanying notes to consolidated financial statements. ​ 98 Table of Contents ​ AMPHASTAR PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Net revenues ​ $ 349,846 ​ $ 322,357 ​ $ 294,666 ​ Cost of revenues ​ 206,506 ​ 190,434 ​ 187,681 ​ Gross profit ​ 143,340 ​ 131,923 ​ 106,985 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, distribution, and marketing ​ 14,780 ​ 12,830 ​ 8,156 ​ General and administrative ​ 50,377 ​ 50,279 ​ 49,888 ​ Research and development ​ 67,229 ​ 68,853 ​ 57,564 ​ Total operating expenses ​ 132,386 ​ 131,962 ​ 115,608 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income (loss) from operations ​ 10,954 ​ ( 39 ) ​ ( 8,623 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-operating (expenses) income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ 642 ​ 997 ​ 456 ​ Interest expense ​ ( 374 ) ​ ( 119 ) ​ ( 243 ) ​ Other (expenses) income, net ​ ( 6,585 ) ​ 59,389 ​ ( 1,516 ) ​ Total non-operating (expenses) income, net ​ ( 6,317 ) ​ 60,267 ​ ( 1,303 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income (loss) before income taxes ​ 4,637 ​ 60,228 ​ ( 9,926 ) ​ Income tax provision (benefit) ​ 3,540 ​ 13,723 ​ ( 3,266 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ 1,097 ​ $ 46,505 ​ $ ( 6,660 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss attributable to non-controlling interests ​ $ ( 306 ) ​ $ ( 2,434 ) ​ $ ( 922 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) attributable to Amphastar Pharmaceuticals, Inc. ​ $ 1,403 ​ $ 48,939 ​ $ ( 5,738 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) per share attributable to Amphastar Pharmaceuticals, Inc. stockholders: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.03 ​ $ 1.04 ​ $ ( 0.12 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted ​ $ 0.03 ​ $ 0.98 ​ $ ( 0.12 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average shares used to compute net income (loss) per share attributable to Amphastar Pharmaceuticals, Inc. stockholders: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 47,038 ​ 46,982 ​ 46,395 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted ​ 49,124 ​ 49,907 ​ 46,395 ​ ​ See accompanying notes to consolidated financial statements. ​ 99 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Net income (loss) attributable to Amphastar Pharmaceuticals, Inc. ​ $ 1,403 ​ $ 48,939 ​ $ ( 5,738 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income (loss) attributable to Amphastar Pharmaceuticals, Inc., net of income taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign currency translation adjustment ​ 1,121 ​ ( 576 ) ​ ( 1,957 ) ​ Change in pension obligations ​ ( 155 ) ​ ​ ( 98 ) ​ ​ 44 ​ Total other comprehensive income (loss) attributable to Amphastar Pharmaceuticals, Inc. ​ 966 ​ ( 674 ) ​ ( 1,913 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total comprehensive income (loss) attributable to Amphastar Pharmaceuticals, Inc. ​ $ 2,369 ​ $ 48,265 ​ $ ( 7,651 ) ​ ​ See accompanying notes to consolidated financial statements. ​ ​ 100 Table of Contents Amphastar Pharmaceuticals, Inc. Consolidated Statements of Stockholders’ Equity (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Treasury Stock ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ ​ ​ Amphastar ​ Non- ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Retained ​ Comprehensive ​ ​ ​ ​ ​ ​ Stockholders' ​ controlling ​ ​ ​ ​ ​ Shares ​ Amount ​ Capital ​ Earnings ​ Income (loss) ​ Shares ​ Amount ​ Equity ​ Interest ​ Total Balance as of December 31, 2017 50,039,212 ​ $ 5 ​ $ 313,891 ​ $ 72,642 ​ $ ( 2,100 ) ( 3,415,631 ) ​ $ ( 50,702 ) ​ $ 333,736 ​ $ — ​ $ 333,736 ​ Beginning balance adjustment as a result of the adoption of new accounting standards ​ — ​ ​ — ​ ​ — ​ ​ 582 ​ ​ — ​ — ​ ​ — ​ ​ 582 ​ ​ — ​ ​ 582 ​ Net loss attributable to Amphastar Pharmaceuticals, Inc. — ​ — ​ — ​ ( 5,738 ) ​ — — ​ — ​ ( 5,738 ) ​ — ​ ( 5,738 ) ​ Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc. — ​ — ​ — ​ — ​ ( 1,913 ) — ​ — ​ ( 1,913 ) ​ — ​ ( 1,913 ) ​ Proceeds from the private placement of ANP ​ — ​ ​ — ​ ​ 5,190 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 5,190 ​ ​ 32,846 ​ ​ 38,036 ​ Net loss attributable to non-controlling interest ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 922 ) ​ ​ ( 922 ) ​ Purchase of treasury stock — ​ — ​ — ​ — ​ — ( 1,414,924 ) ​ ​ ( 25,047 ) ​ ​ ( 25,047 ) ​ ​ — ​ ( 25,047 ) ​ Issuance of treasury stock in connection with the Company's equity plans ​ — ​ ​ — ​ ​ ( 273 ) ​ ​ — ​ ​ — ​ 22,998 ​ ​ 273 ​ ​ — ​ ​ — ​ ​ — ​ Issuance of common stock in connection with the Company's equity plans 1,399,463 ​ — ​ 8,946 ​ — ​ — — ​ — ​ 8,946 ​ — ​ 8,946 ​ Share-based compensation expense — ​ — ​ 16,680 ​ — ​ — — ​ — ​ 16,680 ​ — ​ 16,680 ​ Balance as of December 31, 2018 51,438,675 ​ ​ 5 ​ ​ 344,434 ​ ​ 67,485 ​ ​ ( 4,013 ) ( 4,807,557 ) ​ ​ ( 75,476 ) ​ ​ 332,435 ​ ​ 31,924 ​ ​ 364,359 ​ Beginning balance adjustment as a result of the adoption of new accounting standards ​ — ​ ​ — ​ ​ — ​ ​ ( 54 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 54 ) ​ ​ — ​ ​ ( 54 ) ​ Net income attributable to Amphastar Pharmaceuticals, Inc. — ​ — ​ — ​ 48,939 ​ — — ​ — ​ 48,939 ​ — ​ 48,939 ​ Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc. — ​ — ​ — ​ — ​ ( 674 ) — ​ — ​ ( 674 ) ​ — ​ ( 674 ) ​ Proceeds from the private placement of ANP ​ — ​ ​ — ​ ​ 2,588 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 2,588 ​ ​ 16,378 ​ ​ 18,966 ​ Net loss attributable to non-controlling interest ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 2,434 ) ​ ​ ( 2,434 ) ​ Purchase of treasury stock — ​ — ​ — ​ — ​ — ( 1,122,781 ) ​ ​ ( 22,291 ) ​ ​ ( 22,291 ) ​ ​ — ​ ( 22,291 ) ​ Issuance of treasury stock in connection with the Company's equity plans ​ — ​ ​ — ​ ​ ( 140 ) ​ ​ — ​ ​ — ​ 11,823 ​ ​ 140 ​ ​ — ​ ​ — ​ ​ — ​ Issuance of common stock in connection with the Company's equity plans 1,056,808 ​ — ​ 3,421 ​ — ​ — — ​ — ​ 3,421 ​ — ​ 3,421 ​ Share-based compensation expense — ​ — ​ 17,001 ​ — ​ — — ​ — ​ 17,001 ​ 294 ​ 17,295 ​ Balance as of December 31, 2019 52,495,483 ​ ​ 5 ​ ​ 367,305 ​ ​ 116,370 ​ ​ ( 4,687 ) ( 5,918,515 ) ​ ​ ( 97,627 ) ​ ​ 381,366 ​ ​ 46,162 ​ ​ 427,528 ​ Net income attributable to Amphastar Pharmaceuticals, Inc. — ​ — ​ — ​ 1,403 ​ — — ​ — ​ 1,403 ​ — ​ 1,403 ​ Other comprehensive income attributable to Amphastar Pharmaceuticals, Inc. — ​ — ​ — ​ — ​ 966 — ​ — ​ 966 ​ — ​ 966 ​ Acquisition of additional ownership interest in ANP ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 106 ) ​ ​ ( 106 ) ​ Net loss attributable to non-controlling interest ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 306 ) ​ ​ ( 306 ) ​ Purchase of treasury stock — ​ — ​ — ​ — ​ — ( 1,366,915 ) ​ ​ ( 24,425 ) ​ ​ ( 24,425 ) ​ ​ — ​ ( 24,425 ) ​ Issuance of treasury stock in connection with the Company's equity plans ​ — ​ — ​ ( 240 ) ​ — ​ — 19,947 ​ ​ 240 ​ ​ — ​ ​ — ​ — ​ Issuance of common stock in connection with the Company's equity plans 2,265,439 ​ — ​ 23,165 ​ — ​ — — ​ — ​ 23,165 ​ — ​ 23,165 ​ Share-based compensation expense — ​ — ​ 19,831 ​ — ​ — — ​ — ​ 19,831 ​ 667 ​ 20,498 ​ Balance as of December 31, 2020 54,760,922 ​ $ 5 ​ $ 410,061 ​ $ 117,773 ​ $ ( 3,721 ) ( 7,265,483 ) ​ $ ( 121,812 ) ​ $ 402,306 ​ $ 46,417 ​ $ 448,723 ​ See accompanying notes to consolidated financial statements. ​ ​ 101 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Cash Flows From Operating Activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ ​ $ 1,097 ​ $ 46,505 ​ $ ( 6,660 ) ​ Reconciliation to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss on impairment and disposal of assets ​ ​ 240 ​ ​ 1,036 ​ ​ 1,429 ​ Depreciation of property, plant, and equipment ​ ​ 20,491 ​ ​ 17,073 ​ ​ 14,529 ​ Amortization of product rights, trademarks, and patents ​ ​ 1,036 ​ ​ 1,037 ​ ​ 1,987 ​ Operating lease right-of-use asset amortization ​ ​ ​ 3,653 ​ ​ 3,011 ​ ​ — ​ Share-based compensation expense ​ ​ 20,498 ​ ​ 17,295 ​ ​ 16,680 ​ Changes in reserve for uncertain tax positions ​ ​ 1,285 ​ ​ 3,010 ​ ​ ( 464 ) ​ Changes in deferred taxes, net ​ ​ ( 162 ) ​ ​ 4,542 ​ ​ ( 1,414 ) ​ Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts receivable, net ​ ​ ( 20,160 ) ​ ​ 6,702 ​ ​ ( 16,295 ) ​ Inventories ​ ​ 15,297 ​ ​ ( 41,103 ) ​ ​ ( 5,984 ) ​ Prepaid expenses and other assets ​ ​ ( 2,049 ) ​ ​ ( 3,604 ) ​ ​ 1,375 ​ Income tax refunds, deposits, and payable, net ​ ​ ( 972 ) ​ ​ 591 ​ ​ 3,849 ​ Operating lease liabilities ​ ​ ​ ( 3,597 ) ​ ​ ( 2,613 ) ​ ​ — ​ Accounts payable and accrued liabilities ​ ​ 20,609 ​ ​ ( 11,720 ) ​ ​ 29,159 ​ Net cash provided by operating activities ​ ​ 57,266 ​ 41,762 ​ 38,191 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash Flows From Investing Activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purchases and construction of property, plant, and equipment ​ ​ ( 33,855 ) ​ ( 41,555 ) ​ ( 46,808 ) ​ Proceeds from the sale of property, plant and equipment ​ ​ — ​ — ​ 245 ​ Sale of intangible assets ​ ​ — ​ — ​ 4,400 ​ Purchase of short-term investments ​ ​ ​ ( 13,557 ) ​ ​ ( 8,815 ) ​ ​ ( 308 ) ​ Maturity of short-term investments ​ ​ ​ 12,411 ​ ​ — ​ ​ 91 ​ Payment of deposits and other assets ​ ​ ( 1,414 ) ​ ( 157 ) ​ 198 ​ Net cash used in investing activities ​ ​ ( 36,415 ) ​ ( 50,527 ) ​ ( 42,182 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash Flows From Financing Activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proceeds from the private placement of ANP ​ ​ ​ — ​ ​ 18,298 ​ ​ 38,036 ​ Acquisition of additional ownership interest in ANP ​ ​ ​ ( 106 ) ​ ​ — ​ ​ — ​ Proceeds from equity plans, net of withholding tax payments ​ ​ 23,165 ​ 3,421 ​ 8,946 ​ Purchase of treasury stock ​ ​ ( 24,425 ) ​ ( 22,291 ) ​ ( 25,047 ) ​ Proceeds from borrowing under lines of credit ​ ​ 1,238 ​ — ​ 347 ​ Repayments under lines of credit ​ ​ — ​ ( 347 ) ​ — ​ Proceeds from issuance of long-term debt ​ ​ 6,283 ​ 3,570 ​ 8,431 ​ Principal payments on long-term debt ​ ​ ( 8,401 ) ​ ( 6,434 ) ​ ( 5,705 ) ​ Net cash (used in) provided by financing activities ​ ​ ( 2,246 ) ​ ( 3,783 ) ​ 25,008 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Effect of exchange rate changes on cash ​ ​ 352 ​ ( 104 ) ​ ( 274 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net increase (decrease) in cash, cash equivalents, and restricted cash ​ ​ 18,957 ​ ( 12,652 ) ​ 20,743 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash, cash equivalents, and restricted cash at beginning of period ​ ​ 75,550 ​ 88,202 ​ 67,459 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash, cash equivalents, and restricted cash at end of period ​ ​ $ 94,507 ​ $ 75,550 ​ $ 88,202 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noncash Investing and Financing Activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capital expenditure included in accounts payable ​ ​ $ 11,136 ​ $ 10,622 ​ $ 8,386 ​ Operating lease right-of-use assets ​ ​ $ 4,819 ​ $ 7,978 ​ $ — ​ Equipment acquired under finance leases ​ ​ $ 61 ​ $ 143 ​ $ 14 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental Disclosures of Cash Flow Information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest paid, net of capitalized interest ​ ​ $ 2,199 ​ $ 2,435 ​ $ 2,376 ​ Income taxes paid ​ ​ $ 3,411 ​ $ 5,717 ​ $ 339 ​ See accompanying notes to consolidated financial statements ​ 102 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ Note 1. Business ​ Amphastar Pharmaceuticals, Inc., a Delaware corporation (together with its subsidiaries, hereinafter referred to as the “Company”) is a bio-pharmaceutical company that develops, manufactures, markets, and sells generic and proprietary injectable, inhalation, and intranasal products, including products with high technical barriers to market entry. Additionally, the Company sells insulin active pharmaceutical ingredient, or API, products. Most of the Company’s products are used in hospital or urgent care clinical settings and are primarily contracted and distributed through group purchasing organizations and drug wholesalers. The Company’s insulin API products are sold to other pharmaceutical companies for use in their own products and are being used by the Company in the development of injectable finished pharmaceutical products. The Company’s inhalation product, Primatene Mist ® is primarily distributed through drug retailers. ​ Note 2. Summary of Significant Accounting Policies ​ Basis of Presentation ​ The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, and are prepared in accordance with United States generally accepted accounting principles, or GAAP. All intercompany activity has been eliminated in the preparation of the consolidated financial statements. In the opinion of management, the accompanying consolidated financial statements include all adjustments necessary to present fairly the consolidated financial position, results of operations, and cash flows of the Company. ​ The Company’s subsidiaries include: (1) International Medication Systems, Limited, or IMS, (2) Armstrong Pharmaceuticals, Inc., or Armstrong, (3) Amphastar Nanjing Pharmaceuticals Inc., or ANP, (4) Nanjing Letop Biological Technology Co., Ltd., or Letop, (5) Nanjing Hanxin Pharmaceutical Technology Co., Ltd., or Hanxin, (6) Nanjing Hanxin Biomedical Testing Service Co., Ltd., or Hanxin Biomedical, (7) Nanjing Baixin Trading Co., Ltd., or Baixin, (8) Amphastar France Pharmaceuticals, S.A.S., or AFP, (9) Amphastar UK Ltd., or AUK, and (10) International Medication Systems (UK) Limited, or IMS UK. ​ In July 2018, the Company’s Chinese subsidiary, ANP, completed a private placement of its common equity interest to accredited investors and received approximately $ 56.3 million of cash proceeds, a portion of which was received in 2019. The Company has retained approximately 58 % of the equity interest in ANP following the private placement and continues to consolidate the financial results of ANP with the Company’s results of operations. ANP’s net income after July 2, 2018, was attributed to the Company in accordance with the Company’s equity interest of approximately 58 % in ANP. ​ COVID-19 Pandemic ​ The Company is subject to risks and uncertainties as a result of the novel coronavirus pandemic, or COVID-19. The complete extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the information is constantly evolving. The Company considered the impact of COVID-19 on the assumptions and estimates used to determine the results reported and asset valuations as of December 31, 2020. ​ 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 the Company operates, such as the United States, China and France. The Company has been actively monitoring the COVID-19 pandemic and its impact globally. In late January 2020, China implemented extensive curfews and travel restrictions to control the outbreak, and started easing these restrictions in March. Our business operations in China experienced a temporary disruption but resumed full operation in February 2020. In March 2020, France also implemented a stay-at-home order limiting movement and restricting travel, however, the Company was deemed to be an essential business and was not significantly impacted by the restrictions. In March 2020, the Governors of the States of California and Massachusetts declared a health emergency and issued orders to close all nonessential business; as a bio-pharmaceutical company, the 103 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ Company was deemed to be an essential businesses. Subsequently, some but not all of the restrictions were lifted in China, France, and states where the Company operates, and most businesses were allowed to reopen. All of the Company’s production facilities continued to operate during the remainder of the year as they had prior to the COVID-19 pandemic with very little change, other than for enhanced safety measures intended to prevent the spread of the virus. ​ It is not possible at this time to estimate the complete impact that COVID-19 could have on the Company’s business, including its 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 the Company’s ability to travel and timely sell and distribute its 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 the Company’s business, financial condition and operating results. The Company will continue to monitor the impact of COVID-19 on all aspects of its business. ​ Use of Estimates ​ The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The principal accounting estimates include: determination of allowances for credit losses, allowance for discounts, provision for chargebacks and rebates, provision for product returns, adjustment of inventory to their net realizable values, impairment of long-lived and intangible assets and goodwill, workers’ compensation liabilities, litigation reserves, stock price volatilities for share-based compensation expense, valuation allowances for deferred tax assets, and liabilities for uncertain income tax positions. ​ Foreign Currency ​ The functional currency of the Company, its domestic subsidiaries, its Chinese subsidiary ANP, and its U.K. subsidiary, AUK, is the USD. ANP maintains its books of record in Chinese yuan. These books are remeasured into the functional currency of USD using the current or historical exchange rates. The resulting currency remeasurement adjustments and other transactional foreign currency exchange gains and losses are reflected in the Company’s consolidated statements of operations. ​ The Company’s French subsidiary, AFP, maintains its book of record in euros. ANP’s other Chinese subsidiaries, maintain their books of record in Chinese yuan. AUK’s subsidiary, IMS UK, maintains its book of record in British pounds. These local currencies have been determined to be the subsidiaries’ respective functional currencies. These books of record are translated into USD using average exchange rates during the period. Assets and liabilities are translated at the rate of exchange prevailing on the balance sheet date. Equity is translated at the prevailing rate of exchange at the date of the equity transactions. Translation adjustments are reflected in stockholders’ equity and are included as a component of other accumulated comprehensive income (loss). The unrealized gains or losses of intercompany foreign currency transactions that are of a long-term investment nature are reported in other accumulated comprehensive income (loss). The unrealized gains and losses of intercompany foreign currency transactions that are of a long-term investment nature for the years ended December 31, 2020, 2019, and 2018 were a $ 3.0 million gain, a $ 0.7 million loss, and a $ 1.5 million loss, respectively. ​ Comprehensive Income (Loss) ​ For the years ended December 31, 2020, 2019 and 2018, the Company included its foreign currency translation gain (loss) and change in pension obligation of its defined benefit pension plan as part of its comprehensive income (loss) . Income tax expense of $ 0.9 million was allocated to other comprehensive income for the year ended December 31, 2020. There was no material income tax provision (benefit) allocated to other comprehensive loss for the years ended December 31, 2019 and 2018. ​ 104 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ Shipping and Handling Costs ​ For the years ended December 31, 2020, 2019, and 2018, the Company included shipping and handling costs of approximately $ 4.3 million, $ 4.3 million, and $ 3.7 million, respectively, in selling, distribution and marketing expenses in the accompanying consolidated statements of operations. ​ Advertising Expense ​ Advertising expenses, primarily associated with Primatene Mist ® are recorded as they are incurred, except for expenses related to the development of a major commercial or media campaign, which are expensed in the period in which commercial or campaign is first presented, and is reflected as a component of selling, distribution and marketing in the Company’s consolidated statement of operations. For the years ended December 31, 2020, 2019, and 2018, advertising cost was $ 5.8 million, $ 4.3 million, and $ 0.4 million, respectively. ​ Research and Development Costs ​ Research and development costs are charged to expense as incurred and consist of costs incurred to further the Company’s research and development activities. These include salaries and related employee benefits, costs associated with clinical trials, nonclinical research and development activities, regulatory activities, research-related overhead expenses and fees paid to external service providers. ​ The Company may produce or purchase inventories prior to or with the expectation of receiving marketing authorization in the near term, based on operational decisions about the most effective use of existing resources. This inventory is referred to as pre-launch inventory. It is the Company’s accounting policy that the pre-launch inventory is capitalized if it has a probable future economic benefit. If marketing authorization is received and previously expensed pre-launch inventory is sold, such sales may contribute up to a 100% margin to the Company’s operating results. Pre-launch inventory costs include cost of work in process, materials, and finished drug products. As of December 31, 2020, 2019, and 2018, the Company did not have material capitalized pre-launch inventory. ​ Financial Instruments ​ The carrying amounts of cash and cash equivalents, short-term investments, restricted cash and short-term investments, accounts receivable, accounts payable, accrued expenses, and short-term borrowings approximate fair value due to the short maturity of these items. The majority of the Company’s long-term obligations consist of variable rate debt, and their carrying value approximates fair value as the stated borrowing rates are comparable to rates currently offered to the Company for instruments with similar maturities. The Company at times enters into fixed interest rate swap contracts to exchange the variable interest rates for fixed interest rates without the exchange of the underlying notional debt amounts. Such interest rate swap contracts are recorded at their fair values. ​ Cash and Cash Equivalents ​ Cash and cash equivalents consist of cash, money market accounts, certificates of deposit and highly liquid investments purchased with original maturities of three months or less. ​ Short-Term Investments ​ Short-term investments as of December 31, 2020 and 2019 consisted of certificates of deposit and investment grade corporate bonds with original expiration dates within 12 months. 105 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ Restricted Cash ​ Restricted cash is collateral required for the Company to guarantee certain vendor payments in France. As of December 31, 2020 and 2019, the restricted cash balance was $ 1.9 million. ​ Restricted Short-Term Investments ​ Restricted short-term investments consist of certificates of deposit that are collateral for standby letters of credit to qualify for workers’ compensation self-insurance. The certificates of deposit have original maturities greater than three months, but less than one year. As of December 31, 2020 and 2019, the balance of restricted short-term investments was $ 2.2 million and $ 2.3 million, respectively. ​ Allowance for Credit Losses ​ The Company evaluates the collectability of accounts receivable based on a combination of factors. When the Company is aware of circumstances that may impair a customer’s ability to pay subsequent to the original sale, the Company records a specific allowance to reduce the amounts receivable to the amount that the Company reasonably believes to be collectable. For all other customers, the Company recognizes an allowance for credit losses based on factors that include the length of time the receivables are past due, industry and geographic concentrations, the current economic conditions and historical collection experience. As of December 31, 2020 and 2019, the Company's allowance for credit losses was $ 1.3 million and $ 1.1 million, respectively. ​ Inventories ​ Inventories consist of currently marketed products and products manufactured under contract. Inventories are stated using the first-in, first-out method, on a consistent basis. The Company states inventory at the lower of cost and net realizable value. Provisions are made for slow-moving, unsellable, or obsolete items. Net realizable value is determined using the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose. ​ Property, Plant and Equipment Property, plant and equipment are stated at cost or, in the case of assets acquired in a business combination, at fair value on the purchase date. Depreciation and amortization expense is computed using the straight-line method over the estimated useful lives of the related assets as follows: ​ ​ ​ ​ Buildings 20 - 31 years Machinery and equipment 3 - 12 years Furniture and fixtures 3 - 7 years Automobiles 4 - 5 years Leasehold improvements Lesser of remaining lease term or useful life ​ Intangible Assets ​ Intangible assets with finite lives are amortized using the straight-line method over the period the asset is expected to contribute directly or indirectly to the future cash flows of the Company as follows: ​ ​ ​ ​ Product rights 10 - 15 years Patents 10 - 20 years Land-use rights 37 - 50 years ​ 106 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ Impairment of Long-Lived Assets, including Identifiable Definite-Lived Intangible Assets ​ The Company reviews long-term and identifiable definite-lived intangible assets or asset groups for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset or an asset group, further impairment analysis is performed. An impairment loss is measured as the amount by which the carrying amount of the asset or asset groups exceeds the fair value (assets to be held and used) or fair value less cost to sell (assets to be disposed of). The Company also reviews the useful lives of its assets periodically to determine whether events and circumstances warrant a revision to the remaining useful life. Changes in the useful life are adjusted prospectively by revising the remaining period over which the asset is amortized. ​ Deferred Income Taxes ​ The Company utilizes the liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statements and the tax basis of assets and liabilities using enacted tax rates. A valuation allowance is recorded when it is more likely than not that the deferred tax assets will not be realized. ​ Impairment of Indefinite-Lived Intangible Asset and Goodwill ​ The Company reviews indefinite-lived intangible asset and goodwill for impairment in the fourth quarter of each year or more frequently if indicators of impairment are present. When the Company chooses to perform a qualitative assessment, it evaluates economic, industry and company-specific factors as an initial step. If the Company determines it is more likely than not that the indefinite-lived intangible asset is impaired or the fair value of a reporting unit is less than its carrying amount, further quantitative impairment testing is then performed; otherwise, no further testing is required. An impairment loss is recorded if the asset’s fair value is less than its carrying value. The Company also periodically reviews the indefinite-lived intangible asset to determine if events and circumstances continue to support an indefinite useful life. If the life is no longer indefinite, the asset is tested for impairment. The carrying value, after recognition of any impairment loss, is amortized over its remaining useful life. ​ Self-Insured Claims ​ The Company is primarily self-insured, up to certain limits, for workers’ compensation claims. The Company has purchased stop-loss insurance, which will reimburse the Company for individual claims in excess of $ 350,000 annually or aggregate claims exceeding $ 3.5 million annually. Operations are charged with the cost of claims reported and an estimate of claims incurred but not reported. A liability for unpaid claims and the associated claim expenses, including incurred but not reported losses, is actuarially determined and reflected in accrued liabilities in the accompanying consolidated balance sheets. Total expense under the program was approximately $ 0.5 million, $ 0.4 million, and $ 2.6 million, for the years ended December 31, 2020, 2019 and 2018, respectively. The self-insured claims liability was $ 4.5 million and $ 4.9 million at December 31, 2020 and 2019, respectively. The determination of such claims and expenses and the appropriateness of the related liability is reviewed periodically and updated, as necessary. Changes in estimates are recorded in the period identified. ​ Business Combinations ​ Business combinations are accounted for using the acquisition method of accounting, which requires an acquirer to recognize the assets acquired and the liabilities assumed at the acquisition date measured at their fair values as of that date. Fair value determinations are based on discounted cash flow analyses or other valuation techniques. In determining the fair value of the assets acquired and liabilities assumed in a material acquisition, the Company may utilize appraisals from third party valuation firms to determine fair values of some or all of the assets acquired and liabilities assumed, or may complete some or all of the valuations internally. In either case, the Company takes full responsibility for the 107 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ determination of the fair value of the assets acquired and liabilities assumed. The value of goodwill reflects the excess of the fair value of the consideration conveyed to the seller over the fair value of the net assets received. ​ Acquisition-related costs that the Company incurs to effect a business combination are expensed in the periods in which the costs are incurred. When the operations of the acquired businesses were not material to the Company’s consolidated financial statements, no pro forma presentations were disclosed. ​ Recent Accounting Pronouncements ​ In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU, No. 2016-13 Financial Instruments – Credit Losses , which is aimed at providing financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit. The standard update changes the impairment model for financial assets measured at amortized cost, requiring presentation at the net amount expected to be collected. The measurement of expected credit losses requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Available-for-sale debt securities with unrealized losses will be recorded through an allowance for credit losses. The ASU and the related clarifications subsequently issued by FASB are effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. This new guidance applies to the Company’s held-to-maturity investments and trade receivables. The adoption of this accounting guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures. ​ In January 2017, the FASB issued ASU No. 2017-04 Simplifying the Test for Goodwill Impairment , which eliminates the requirement to calculate the implied fair value of goodwill. An entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The update also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. The adoption of this accounting guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures. ​ In August 2018, the FASB issued ASU No. 2018-13 Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement , which removes, modifies, and adds certain disclosure requirements to Accounting Standard Codification, or ASC, 820, Fair Value Measurement. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. The adoption of this accounting guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures. ​ In August 2018, the FASB issued ASU No. 2018-14 Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans , which removes, modifies, and adds certain disclosure requirements to ASC 715-20, Defined Benefit Plans. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. The adoption of this accounting guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures. ​ In August 2018, the FASB issued ASU No. 2018-15 Customer’s Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement that is a Service Contract , which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalized implementation cost incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The guidance also requires the entity to expense the capitalized implementation cost of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. This guidance is effective for the Company’s interim and annual reporting periods during the year ended December 31, 2020. 108 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures. ​ In October 2018, the FASB issued ASU No. 2018-17 Targeted Improvements to Related Party Guidance for Variable Interest Entities , which requires indirect interests held through related parties in common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. The adoption of this accounting guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures. ​ In November 2018, the FASB issued ASU No. 2018-18 Clarifying the Interaction between Topic 808 and Topic 606 , which requires transactions in collaborative arrangements to be accounted for under ASC 606, Revenue from Contracts with Customers, or ASC 606, if the counterparty is a customer for a good or service that is a distinct unit of account. The amendments also preclude entities from presenting consideration from transactions with a collaborator that is not a customer together with revenue recognized from contracts with customers. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures. ​ In December 2019, the FASB issued ASU No. 2019-12 Simplifying the Accounting for Income Taxes (Topic 740) , which simplifies various aspects related to accounting for income taxes. The amendment also improves consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The guidance is effective for the Company’s interim and annual reporting periods during the year ended December 31, 2021, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures. ​ In April 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures. ​ Note 3. Business Acquisitions ​ Acquisition of fourteen injectable products from Hikma Pharmaceuticals PLC ​ In March 2016, the Company acquired 14 abbreviated new drug applications, or ANDAs, representing 11 different injectable chemical entities from Hikma Pharmaceuticals PLC, or Hikma, for $ 4.0 million. This transaction was accounted for as a business combination in accordance with ASC 805. The ANDAs were estimated to have a fair value of $ 4.0 million, and were subject to a straight-line amortization over a useful life of approximately 15 years . ​ In February 2017, the Company sold these products to an unrelated party. (See note 10) ​ ​ Note 4. Revenue Recognition ​ In accordance with ASC 606 Revenue from Contracts with Customers , revenue is recognized at the time that the Company’s customers obtain control of the promised goods. ​ Generally, revenue is recognized at the time of product delivery to the Company’s customers. In some cases, revenue is recognized at the time of shipment when stipulated by the terms of the sale agreements. ​ 109 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ The consideration the Company receives in exchange for its goods or services is only recognized when it is probable that a significant reversal will not occur. The consideration to which the Company expects to be entitled includes a stated list price, less various forms of variable consideration. The Company makes significant estimates for related variable consideration at the point of sale, including chargebacks, rebates, product returns, other discounts and allowances. ​ The Company’s payment terms vary by types and locations of customers and the products or services offered. Payment terms differ by jurisdiction and customer, but payment is generally required in a term ranging from 30 to 75 days from date of shipment or satisfaction of the performance obligation. For certain products or services and certain customer types, we may require payment before products are delivered or services are rendered to customers. ​ Provisions for estimated chargebacks, rebates, discounts, product returns and credit losses are made at the time of sale and are analyzed and adjusted, if necessary, at each balance sheet date. ​ Revenues derived from contract manufacturing services are recognized when third-party products are shipped to customers, and after the customer has accepted test samples of the products to be shipped. ​ The Company’s accounting policy is to review each agreement involving contract development and manufacturing services to determine if there are multiple revenue-generating activities that constitute more than one unit of accounting. Revenues are recognized for each unit of accounting based on revenue recognition criteria relevant to that unit. The Company does not have any revenue arrangements with multiple performance obligations. ​ Provision for Chargebacks and Rebates ​ The provision for chargebacks and rebates is a significant estimate used in the recognition of revenue. Wholesaler chargebacks relate to sales terms under which the Company agrees to reimburse wholesalers for differences between the gross sales prices at which the Company sells its products to wholesalers and the actual prices of such products that wholesalers resell under the Company’s various contractual arrangements with third parties such as hospitals and group purchasing organizations in the United States. Rebates include primarily amounts paid to retailers, payers, and providers in the United States, including those paid to state Medicaid programs, and are based on contractual arrangements or statutory requirements. The Company estimates chargebacks and rebates using the expected value method at the time of sale to wholesalers based on wholesaler inventory stocking levels, historic chargeback and rebate rates, and current contract pricing. ​ The provision for chargebacks and rebates is reflected as a component of net revenues. The following table is an analysis of the chargeback and rebate provision: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2020 ​ 2019 ​ ​ (in thousands) Beginning balance ​ $ 21,644 $ 22,423 ​ Provision for chargebacks and rebates ​ ​ 158,152 ​ 131,524 ​ Credits and payments issued to third parties ​ ​ ( 159,416 ) ​ ( 132,303 ) ​ Ending balance ​ ​ $ 20,380 ​ $ 21,644 ​ ​ Changes in the chargeback provision from period to period are primarily dependent on the Company’s sales to its wholesalers, the level of inventory held by wholesalers, and the wholesalers’ customer mix. Changes in the rebate provision from period to period are primarily dependent on retailer’s and other indirect customers’ purchases. The approach that the Company uses to estimate chargebacks has been consistently applied for all periods presented. Variations in estimates have been historically small. The Company continually monitors the provision for chargebacks and rebates and makes adjustments when it believes that the actual chargebacks and rebates may differ from the estimates. The settlement of chargebacks and rebates generally occurs within 30 days to 60 days after the sale to wholesalers. Accounts receivable and/or accounts payable and accrued liabilities are reduced and/or increased by the 110 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ chargebacks and rebate amounts depending on whether the Company has the right to offset with the customer. Of the provision for chargebacks and rebates as of December 31, 2020 and 2019, $ 16.4 million and $ 15.4 million were included in accounts receivable, net, on the consolidated balance sheets, respectively. The remaining provision as of December 31, 2020 and 2019 was $ 4.0 million and $ 6.2 million, respectively, which were included in accounts payable and accrued liabilities, respectively. ​ Accrual for Product Returns ​ The Company offers most customers the right to return qualified excess or expired inventory for partial credit; however, API product sales are generally non-returnable. The Company’s product returns primarily consist of the returns of expired products from sales made in prior periods. Returned products cannot be resold. At the time product revenue is recognized, the Company records an accrual for product returns estimated using the expected value method. The accrual is based, in part, upon the historical relationship of product returns to sales and customer contract terms. The Company also assesses other factors that could affect product returns including market conditions, product obsolescence, and the introduction of new competition. Although these factors do not normally give the Company’s customers the right to return products outside of the regular return policy, the Company realizes that such factors could ultimately lead to increased returns. The Company analyzes these situations on a case-by-case basis and makes adjustments to the product return reserve as appropriate. ​ The provision for product returns is reflected as a component of net revenues. The following table is an analysis of the product return liability: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2020 ​ 2019 ​ ​ (in thousands) Beginning balance ​ $ 10,339 $ 8,030 ​ Provision for product returns ​ ​ 11,810 ​ 7,305 ​ Credits issued to third parties ​ ​ ( 7,945 ) ​ ( 4,996 ) ​ Ending balance ​ ​ $ 14,204 ​ $ 10,339 ​ ​ Of the provision of product returns as of December 31, 2020 and 2019, $ 10.2 million and $ 7.1 million were included in accounts payable and accrued liabilities on the consolidated balance sheets, respectively. The remaining provision as of December 31, 2020 and 2019, of $ 4.0 million and $ 3.2 million were included in other long-term liabilities, respectively. For the years ended December 31, 2020 and 2019, the Company’s aggregate product return rate was 1.4 % and 1.1 % of qualified sales, respectively. ​ Note 5. Income (Loss) per Share Attributable to Amphastar Pharmaceuticals, Inc. Stockholders ​ Basic net income (loss) per share attributable to Amphastar Pharmaceuticals Inc. stockholders is calculated based upon the weighted-average number of shares outstanding during the period. Diluted net income (loss) per share attributable to Amphastar Pharmaceuticals, Inc. stockholders gives effect to all potential dilutive shares outstanding during the period, such as stock options, non-vested restricted stock units, and shares issuable under the Company’s Employee Stock Purchase Plan, or ESPP, and the reallocation of net income attributable to non-controlling interest from the assumed dilutive effect of stock options issued under the 2018 ANP Equity Incentive Plan, or the 2018 Plan. ​ For the year ended December 31, 2020, options to purchase 1,917,437 shares of stock with a weighted-average exercise price of $ 20.85 per share, and the reallocation of net income attributable to non-controlling interest were excluded in the computation of diluted net income per common share attributable to Amphastar Pharmaceuticals, Inc. stockholders because the effect would be anti-dilutive. ​ 111 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ For the year ended December 31, 2019, options to purchase 803,257 shares of stock with a weighted-average exercise price of $ 21.99 per share, and the reallocation of net income attributable to non-controlling interest were excluded in the computation of diluted net income per common share attributable to Amphastar Pharmaceuticals, Inc. stockholders because the effect would be anti-dilutive. ​ As the Company reported a net loss for the year ended December 31, 2018, the diluted net loss per share attributable to Amphastar Pharmaceuticals, Inc. stockholders, as reported, equals the basic net loss per share attributable to Amphastar Pharmaceuticals, Inc. stockholders since the effect of the assumed exercise of stock options, vesting of non-vested RSUs, and issuance of common shares under the Company’s ESPP are anti-dilutive. Total stock options, non-vested RSUs, and shares issuable under the Company’s ESPP excluded from the year ended December 31, 2018, net loss per share were 10,105,565 stock options, 1,206,661 non-vested RSUs, and 51,792 shares issuable under the ESPP. ​ The following table provides the calculation of basic and diluted net income (loss) per share attributable to Amphastar Pharmaceuticals, Inc. shareholders for each of the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2020 ​ 2019 ​ 2018 ​ ​ (in thousands, except per share data) Basic and dilutive numerator: ​ ​ ​ ​ Net income (loss) attributable to Amphastar Pharmaceuticals, Inc. ​ $ 1,403 ​ $ 48,939 ​ $ ( 5,738 ) ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average shares outstanding — basic ​ 47,038 ​ 46,982 ​ 46,395 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net effect of dilutive securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Incremental shares from equity awards ​ 2,086 ​ 2,925 ​ — ​ Weighted-average shares outstanding — diluted ​ 49,124 ​ 49,907 ​ 46,395 ​ Net income (loss) per share attributable to Amphastar Pharmaceuticals, Inc. stockholders — basic ​ $ 0.03 ​ $ 1.04 ​ $ ( 0.12 ) ​ Net income (loss) per share attributable to Amphastar Pharmaceuticals, Inc. stockholders — diluted ​ $ 0.03 ​ $ 0.98 ​ $ ( 0.12 ) ​ ​ ​ Note 6. Segment Reporting ​ The Company’s business is the development, manufacture, and marketing of pharmaceutical products. The Company has identified two reporting segments that each report to the Chief Operating Decision Maker, or CODM, as defined in ASC 280, Segment Reporting. The Company’s performance is assessed and resources are allocated by the CODM based on the following two reportable segments: ​ ● Finished pharmaceutical products ● API ​ The finished pharmaceutical products segment manufactures, markets and distributes Primatene Mist ® , enoxaparin, naloxone, phytonadione, lidocaine, epinephrine, as well as various other critical and non-critical care drugs. The API segment manufactures and distributes recombinant human insulin API and porcine insulin API for external customers and internal product development. ​ 112 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ Selected financial information by reporting segment is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2020 ​ 2019 ​ 2018 ​ ​ (in thousands) Net revenues: ​ ​ ​ ​ Finished pharmaceutical products ​ $ 331,368 ​ $ 302,000 ​ $ 271,059 ​ API ​ 18,478 ​ 20,357 ​ 23,607 ​ Total net revenues ​ 349,846 ​ 322,357 ​ 294,666 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit (loss): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Finished pharmaceutical products ​ 151,645 ​ 136,576 ​ 113,220 ​ API ​ ( 8,305 ) ​ ( 4,653 ) ​ ( 6,235 ) ​ Total gross profit ​ 143,340 ​ 131,923 ​ 106,985 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses ​ 132,386 ​ 131,962 ​ 115,608 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income from operations ​ 10,954 ​ ( 39 ) ​ ( 8,623 ) ​ Non-operating (expense) income ​ ( 6,317 ) ​ 60,267 ​ ( 1,303 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income (loss) before income taxes ​ $ 4,637 ​ $ 60,228 ​ $ ( 9,926 ) ​ ​ The Company manages its business segments to the gross profit level and manages its operating and other costs on a company-wide basis. The Company does not identify total assets by segment for internal purposes, as the Company’s CODM does not assess performance, make strategic decisions, or allocate resources based on assets. ​ The amount of net revenues in the finished pharmaceutical product segment is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2020 ​ 2019 ​ 2018 ​ ​ ​ (in thousands) Finished pharmaceutical products net revenues: ​ ​ ​ ​ Primatene Mist ® ​ ​ $ 51,725 ​ $ 18,065 ​ $ 3,574 ​ Enoxaparin ​ ​ ​ 48,681 ​ ​ 42,695 ​ ​ 53,371 ​ Phytonadione ​ ​ 42,646 ​ 45,786 ​ 41,897 ​ Lidocaine ​ ​ ​ 41,113 ​ ​ 46,013 ​ ​ 43,328 ​ Naloxone ​ ​ ​ 33,416 ​ ​ 34,761 ​ ​ 37,195 ​ Epinephrine ​ ​ ​ 23,799 ​ ​ 13,885 ​ ​ 10,055 ​ Other finished pharmaceutical products ​ ​ 89,988 ​ 100,795 ​ 81,639 ​ Total finished pharmaceutical products net revenues ​ ​ $ 331,368 ​ $ 302,000 ​ $ 271,059 ​ ​ The amount of depreciation and amortization expense included in cost of revenues, by reporting segments is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2020 ​ 2019 ​ 2018 ​ ​ (in thousands) Depreciation and amortization expense ​ ​ ​ Finished pharmaceutical products ​ $ 5,766 ​ $ 5,581 ​ $ 4,872 API ​ 3,264 ​ 1,477 ​ 1,181 Total depreciation and amortization expense ​ $ 9,030 ​ $ 7,058 ​ $ 6,053 ​ 113 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ Net revenues and carrying values of long-lived assets by geographic regions are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Revenue ​ Long-Lived Assets ​ Year Ended December 31, ​ December 31, ​ 2020 ​ 2019 ​ 2018 ​ 2020 ​ 2019 ​ (in thousands) United States ​ $ 333,093 $ 304,896 $ 279,122 $ 129,401 $ 126,383 ​ China ​ 3,161 ​ 1,481 ​ — ​ 98,538 ​ 81,428 ​ France ​ 13,592 ​ 15,980 ​ 15,544 ​ 52,770 ​ 45,737 ​ Total ​ $ 349,846 ​ $ 322,357 ​ $ 294,666 ​ $ 280,709 ​ $ 253,548 ​ ​ ​ ​ Note 7. Customer and Supplier Concentration ​ Customer Concentrations ​ Three large wholesale drug distributors, AmerisourceBergen Corporation, or AmerisourceBergen, Cardinal Health, Inc., or Cardinal, and McKesson Corporation, or McKesson, are all distributors of the Company’s products, as well as suppliers of a broad range of health care products. The Company considers these three customers to be its major customers, as each individually and these customers collectively, represented a significant percentage of the Company’s net revenue for the years ended December 31, 2020, 2019, and 2018, and accounts receivable as of December 31, 2020 and 2019, respectively. The following table provides accounts receivable and net revenue information for these major customers: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % of Total Accounts ​ % of Net ​ ​ Receivable ​ Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ Year Ended December 31, ​ 2020 2019 2020 2019 2018 AmerisourceBergen 9 % 13 % 23 % 24 % 27 % McKesson 24 % 34 % 22 % 25 % 27 % Cardinal Health 17 % 17 % 17 % 22 % 21 % ​ Supplier Concentrations ​ The Company depends on suppliers for raw materials, APIs, and other components that are subject to stringent FDA requirements. Some of these materials may only be available from one or a limited number of sources. Establishing additional or replacement suppliers for these materials may take a substantial period of time, as suppliers must be approved by the FDA. Furthermore, a significant portion of raw materials may only be available from foreign sources. If the Company is unable to secure, on a timely basis, sufficient quantities of the materials it depends on to manufacture and market its products, it could have a materially adverse effect on the Company’s business, financial condition, and results of operations. ​ Note 8. Fair Value Measurements ​ GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the measurement date (an exit price). These standards also establish a hierarchy that prioritizes observable and unobservable inputs used in measuring fair value of an asset or liability, as described below: ​ ● Level 1 – Inputs to measure fair value are based on quoted prices (unadjusted) in active markets on identical assets or liabilities; ​ 114 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ ● Level 2 – Inputs to measure fair value are based on the following: a) quoted prices in active markets on similar assets or liabilities, b) quoted prices for identical or similar instruments in inactive markets, or c) observable (other than quoted prices) or collaborated observable market data used in a pricing model from which the fair value is derived; and ​ ● Level 3 – Inputs to measure fair value are unobservable and the assets or liabilities have little, if any, market activity; these inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities based on best information available in the circumstances. ​ As of December 31, 2020, cash equivalents include money market accounts. Short-term investments consist of certificates of deposit as well as investment-grade corporate bonds with original expiration dates within 12 months. The certificates of deposit are carried at amortized cost in the Company’s consolidated balance sheet, which approximates their fair value determined based on Level 2 inputs. The corporate bonds are classified as held-to-maturity and are carried at amortized cost net of allowance for credit losses, which approximates their fair value determined based on Level 2 inputs. The restrictions on restricted cash and short-term investments have a negligible effect on the fair value of these financial assets. ​ The fair value of the Company’s financial assets and liabilities measured on a recurring basis as of December 31, 2020 and 2019, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total (Level 1) (Level 2) (Level 3) ​ ​ (in thousands) Cash equivalents - money market ​ $ 58,710 ​ $ 58,710 ​ $ — ​ $ — ​ Restricted cash - money market ​ ​ 1,865 ​ ​ 1,865 ​ ​ — ​ ​ — ​ Short-term investments - certificates of deposit ​ ​ 9,089 ​ ​ — ​ ​ 9,089 ​ ​ — ​ Restricted short-term investments - certificates of deposit ​ 2,200 ​ — ​ 2,200 ​ — ​ Corporate bonds ​ ​ 1,307 ​ ​ — ​ ​ 1,307 ​ ​ — ​ Interest rate swaps related to variable rate loans ​ ​ ( 902 ) ​ ​ — ​ ​ ( 902 ) ​ ​ — ​ Fair value measurement as of December 31, 2020 ​ $ 72,269 ​ $ 60,575 ​ $ 11,694 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents - money market ​ $ 29,521 ​ $ 29,521 ​ $ — ​ $ — ​ Restricted cash - money market ​ ​ 1,865 ​ ​ 1,865 ​ ​ — ​ ​ — ​ Short-term investments - certificates of deposit ​ ​ 8,867 ​ ​ — ​ ​ 8,867 ​ ​ — ​ Restricted short-term investments - certificates of deposit ​ 2,290 ​ — ​ 2,290 ​ — ​ Corporate bonds ​ ​ 2,789 ​ ​ — ​ ​ 2,789 ​ ​ — ​ Interest rate swaps related to variable rate loans ​ ​ ( 364 ) ​ ​ — ​ ​ ( 364 ) ​ ​ — ​ Fair value measurement as of December 31, 2019 ​ $ 44,968 ​ $ 31,386 ​ $ 13,582 ​ $ — ​ ​ The Company does not hold any Level 3 instruments that are measured at fair value on a recurring basis. ​ Nonfinancial assets and liabilities are not measured at fair value on a recurring basis but are subject to fair value adjustments in certain circumstances. These items primarily include long-lived assets, goodwill, and intangible assets for which the fair value of assets is determined as part of the related impairment test. As of December 31, 2020 and 2019, there were no significant adjustments to fair value for nonfinancial assets or liabilities. ​ 115 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ Note 9. Investments ​ A summary of the Company’s investments that are classified as held-to-maturity are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair ​ Cost Gains Losses Value ​ ​ (in thousands) Corporate bonds ​ $ 1,307 ​ $ — ​ $ — ​ $ 1,307 Total investments as of December 31, 2020 ​ $ 1,307 ​ $ — ​ $ — ​ $ 1,307 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Corporate bonds ​ $ 2,790 ​ $ — ​ $ ( 1 ) ​ $ 2,789 Total investments as of December 31, 2019 ​ $ 2,790 ​ $ — ​ $ ( 1 ) ​ $ 2,789 ​ The Company believes that the unrealized gains and losses disclosed above were primarily driven by interest rate change rather than by unfavorable changes in the credit ratings associated with these securities and as a result, the Company continues to expect to collect the principal and interest due on its debt securities that have an amortized cost in excess of fair value. At each reporting period, the Company evaluates securities for impairment when the fair value of the investment is less than its amortized cost. The Company evaluated the underlying credit quality and credit ratings of the issuers, noting neither a significant deterioration since purchase nor any other factors that would indicate a material credit loss. ​ The Company measures expected credit losses on held-to-maturity investments on a collective basis. All the Company’s held-to-maturity investments were considered to be one pool. The estimate for credit losses considers historical loss information that is adjusted for current conditions and reasonable and supportable forecasts. Expected credit losses on held-to-maturity investments were not material to the consolidated financial statements. ​ Note 10. Goodwill and Intangible Assets ​ The table below shows the weighted-average life, original cost, accumulated amortization, and net book value by major intangible asset classification: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ ​ ​ Accumulated ​ ​ ​ ​ Life (Years) Original Cost Amortization Net Book Value ​ ​ (in thousands) Definite-lived intangible assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ IMS (UK) international product rights ​ 10 ​ $ 9,561 ​ $ 4,223 ​ $ 5,338 ​ Patents 12 ​ 486 ​ ​ 297 ​ 189 ​ Land-use rights 39 ​ 2,540 ​ ​ 617 ​ 1,923 ​ Subtotal 12 ​ 12,587 ​ 5,137 ​ 7,450 ​ Indefinite-lived intangible assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Trademark * ​ 29,225 ​ — ​ 29,225 ​ Goodwill - Finished pharmaceutical products * ​ 3,940 ​ — ​ 3,940 ​ Subtotal * ​ 33,165 ​ — ​ 33,165 ​ As of December 31, 2020 * ​ $ 45,752 ​ $ 5,137 ​ $ 40,615 ​ ​ 116 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ ​ ​ Accumulated ​ ​ ​ ​ Life (Years) Original Cost Amortization Net Book Value ​ ​ (in thousands) Definite-lived intangible assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ IMS (UK) international product rights ​ 10 ​ $ 9,226 ​ $ 3,152 ​ $ 6,074 ​ Patents 12 ​ 486 ​ 255 ​ 231 ​ Land-use rights 39 ​ 2,540 ​ 551 ​ 1,989 ​ Other intangible assets 4 ​ 69 ​ 69 ​ — ​ Subtotal 12 ​ 12,321 ​ 4,027 ​ 8,294 ​ Indefinite-lived intangible assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Trademark * ​ 29,225 ​ — ​ 29,225 ​ Goodwill - Finished pharmaceutical products * ​ 3,634 ​ — ​ 3,634 ​ Subtotal * ​ 32,859 ​ — ​ 32,859 ​ As of December 31, 2019 * ​ $ 45,180 ​ $ 4,027 ​ $ 41,153 ​ * Intangible assets with indefinite lives have an indeterminable average life. ​ Sale of Fourteen Injectable ANDAs ​ In February 2017, the Company sold the 14 ANDAs it acquired in March 2016 from Hikma to an unrelated party. The consideration included a purchase price of $ 6.4 million of which $ 1.0 million was received upon closing, $ 1.0 million was received in the second quarter of 2017 and the remaining $ 4.4 million was received in January 2018. In addition to the purchase price, the purchaser agreed to pay the Company a royalty fee equal to 2 % of net sales derived from purchaser’s sales of the products for the period from February 2017 through February 2027. The Company has not recognized any royalty fee revenue. ​ Goodwill ​ The changes in the carrying amounts of goodwill were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2020 ​ 2019 ​ ​ (in thousands) Beginning balance ​ $ 3,634 $ 3,951 ​ Currency translation ​ ​ 306 ​ ( 317 ) ​ Ending balance ​ ​ $ 3,940 ​ $ 3,634 ​ ​ Primatene ® Trademark ​ In January 2009, the Company acquired the exclusive rights to the trademark, domain name, website and domestic marketing, distribution and selling rights related to Primatene Mist ® , an over-the-counter bronchodilator product, recorded at the allocated fair value of $ 29.2 million, which is its carrying value as of December 31, 2020. ​ The trademark was determined to have an indefinite life. In determining its indefinite life, the Company considered the following: the expected use of the intangible; the longevity of the brand; the legal, regulatory and contractual provisions that affect their maximum useful life; the Company’s ability to renew or extend the asset’s legal or contractual life without substantial costs; effects of the regulatory environment; expected changes in distribution channels; maintenance expenditures required to obtain the expected future cash flows from the asset; and considerations for obsolescence, demand, competition and other economic factors. ​ As a result of environmental concerns about chlorofluorocarbons, or CFCs, the FDA required the CFC formulation of Primatene Mist ® to be phased out on December 31, 2011. 117 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ In 2013, the Company filed a new drug application, or NDA, for Primatene Mist ® , which utilizes a non-CFC propellant. In November 2018, the FDA granted over-the-counter approval of the NDA for Primatene Mist ® , and the Company re-launched this product in December 2018. ​ Amortization ​ Included in cost of revenues for the years ended December 31, 2020, 2019 and 2018 is product rights amortization expense of $ 1.2 million, $ 1.0 million, and $ 1.8 million, respectively. ​ As of December 31, 2020, the expected amortization expense for all amortizable intangible assets during the next five fiscal years ended December 31 and thereafter is as follows: ​ ​ ​ ​ ​ ​ ​ (in thousands) 2021 ​ $ 1,064 ​ 2022 ​ 1,045 ​ 2023 ​ 1,035 ​ 2024 ​ 1,035 ​ 2025 ​ 1,035 ​ Thereafter ​ 2,236 ​ Total amortizable intangible assets ​ 7,450 ​ Indefinite-lived intangibles ​ 33,165 ​ Total intangibles (net of accumulated amortization) ​ $ 40,615 ​ ​ ​ Note 11. Inventories ​ Inventories consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2020 ​ 2019 ​ ​ (in thousands) Raw materials and supplies ​ $ 47,051 $ 59,233 ​ Work in process ​ ​ 37,257 ​ 35,548 ​ Finished goods ​ ​ 12,523 ​ 15,720 ​ Total inventories ​ ​ $ 96,831 ​ $ 110,501 ​ ​ ​ ​ Charges of $ 13.9 million, $ 9.4 million, and $ 12.9 million were included in the cost of revenues in the Company’s consolidated statements of operations for the years ended December 31, 2020, 2019, and 2018, respectively, to adjust the Company’s inventory and related purchase commitments to their net realizable value. For the year ended December 31, 2020, the charge included $ 9.4 million as a result of an increase in the price of heparin as well as a decrease in the forecasted average selling price. For the year ended December 31, 2019, the charge included $ 5.8 million as a result of an increase in purchases of higher price heparin. For the year ended December 31, 2018, the charge included $ 9.1 million related to enoxaparin inventory due to a decrease in the forecasted average selling price. ​ Losses on firm purchase commitments related to raw materials on order were $ 1.2 million, $ 1.3 million and $ 5.2 million as of December 31, 2020, 2019 and 2018, respectively. ​ ​ ​ ​ 118 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ Note 12. Property, Plant, and Equipment ​ Property, plant, and equipment consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2020 ​ 2019 ​ ​ (in thousands) Buildings ​ $ 124,326 $ 117,928 ​ Leasehold improvements ​ ​ 30,028 ​ 29,531 ​ Land ​ ​ 7,719 ​ 7,603 ​ Machinery and equipment ​ ​ 211,666 ​ 164,802 ​ Furniture, fixtures, and automobiles ​ ​ 26,482 ​ 22,043 ​ Construction in progress ​ ​ 43,981 ​ 56,354 ​ Total property, plant, and equipment ​ ​ 444,202 ​ 398,261 ​ Less accumulated depreciation ​ ​ ( 184,147 ) ​ ( 164,405 ) ​ Total property, plant, and equipment, net ​ ​ $ 260,055 ​ $ 233,856 ​ ​ The Company incurred depreciation expense of $ 20.5 million, $ 17.1 million, and $ 14.5 million for the years ended December 31, 2020, 2019, and 2018, respectively. ​ Interest expense capitalized was approximately $ 1.8 million, $ 2.3 million, and $ 2.2 million, for the years ended December 31, 2020, 2019, and 2018, respectively. ​ Note 13. Accounts Payable and Accrued Liabilities ​ Accounts payable and accrued liabilities consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 ​ 2019 ​ (in thousands) Accrued customer fees and rebates ​ $ 9,029 ​ $ 9,633 Accrued payroll and related benefits ​ ​ 24,597 ​ ​ 21,872 Accrued product returns, current portion ​ ​ 10,190 ​ ​ 7,126 Accrued loss on firm purchase commitments ​ ​ 1,223 ​ ​ 3,352 Accrued litigation settlements ​ ​ 13,780 ​ ​ — Other accrued liabilities ​ ​ 12,328 ​ ​ 10,007 Total accrued liabilities ​ 71,147 ​ 51,990 Accounts payable ​ 24,357 ​ 25,061 Total accounts payable and accrued liabilities ​ $ 95,504 ​ $ 77,051 ​ 119 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ Note 14. Debt ​ Debt consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2020 ​ 2019 ​ ​ (in thousands) Line of Credit Facilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Line of credit facility with China Everbright Bank due June 2021 ​ ​ $ 764 ​ $ — ​ Line of credit facility with China Merchant Bank due August 2021 ​ ​ ​ 382 ​ ​ — ​ Line of credit facility with Bank of Nanjing due October 2021 ​ ​ ​ 153 ​ ​ — ​ Line of credit facility with Cathay Bank due May 2022 ​ ​ — ​ — ​ Line of credit facility with East West Bank due December 2022 ​ ​ ​ — ​ ​ — ​ Equipment line of credit facility with East West Bank due September 2025 ​ ​ ​ 3,216 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage payable with East West Bank due May 2021 ​ ​ ​ 3,306 ​ ​ 3,401 ​ Mortgage payable with East West Bank due October 2026 ​ ​ 3,334 ​ 3,400 ​ Mortgage payable with East West Bank due June 2027 ​ ​ ​ 8,510 ​ ​ 8,659 ​ Mortgage payable with Cathay Bank due August 2027 ​ ​ 7,268 ​ 7,452 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equipment Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equipment loan with East West Bank due June 2021 ​ ​ ​ 612 ​ ​ 1,837 ​ Equipment loan due with East West Bank December 2022 ​ ​ ​ 4,000 ​ ​ 6,000 ​ Equipment loan with East West Bank due February 2024 ​ ​ ​ 5,254 ​ ​ 3,570 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Loans and Payment Obligations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Acquisition loan with Cathay Bank due June 2024 ​ ​ 8,710 ​ 10,928 ​ French government loan paid off June 2020 ​ ​ ​ — ​ ​ 28 ​ French government loan due July 2021 ​ ​ ​ 64 ​ ​ 114 ​ French government loans due December 2026 ​ ​ ​ 350 ​ ​ 374 ​ Payment Obligation to Merck ​ ​ — ​ 561 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equipment under Finance Leases ​ ​ 526 ​ 811 ​ Total debt ​ ​ 46,449 ​ 47,135 ​ Less current portion of long-term debt ​ ​ 12,263 ​ 7,741 ​ Long-term debt, net of current portion ​ ​ $ 34,186 ​ $ 39,394 ​ ​ Line of Credit Facilities ​ Line of Credit Facility with China Everbright Bank – Due June 2021 ​ In June 2020, the Company entered into a line of credit facility with China Everbright bank for $ 0.7 million. The loan bears interest at a fixed rate of 4.05 %. Interest payments are due quarterly and repayment of the principle amount is due in June 2021. As of December 31, 2020, the Company had $ 0.8 million outstanding under this loan. ​ 120 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ Line of Credit Facility with China Merchant Bank – Due August 2021 ​ In March 2020, the Company entered into a credit agreement with China Merchant Bank. The credit agreement allows the Company to borrow up to $ 14.6 million secured by buildings and land use rights held by ANP. The interest rate and other terms will be determined at the time of the borrowing, depending on the type of loan requested. The credit period is for 36 months and expires in March 2023. ​ In August 2020, the Company borrowed $ 0.4 million under the credit agreement. The loan bears interest at a fixed rate of 4.35 %. Interest payments are due quarterly and repayment of the principle amount is due in August 2021. As of December 31, 2020, the Company had $ 0.4 million outstanding under this loan. ​ Line of Credit Facility with Bank of Nanjing – Due October 2021 ​ In October 2020, the Company entered into a line of credit facility with Bank of Nanjing for $ 0.2 million. The loan bears interest at a fixed rate of 4.6 %. Interest payments are due monthly and repayment of the principle amount is due in October 2021. As of December 31, 2020, the Company had $ 0.2 million outstanding under this loan. ​ Line of Credit Facility with Cathay Bank — Due May 2022 ​ In April 2012, the Company entered into a $ 20.0 million revolving line of credit facility with Cathay Bank. Borrowings under the facility are secured by inventory, accounts receivable, and intangibles held by the Company. The facility bears a variable interest rate at the prime rate as published by The Wall Street Journal with a minimum interest rate of 4.00 % . In June 2020, the Company amended the facility to extend the maturity date from May 2020 to May 2022. As of December 31, 2020, the Company did not have any amounts outstanding under this facility. ​ Line of Credit Facility with East West Bank — Due December 2022 ​ In March 2012, the Company entered into a $ 10.0 million line of credit facility with East West Bank, which bears a variable interest rate at the prime rate as published by The Wall Street Journal . Borrowings under the facility are secured by inventory and accounts receivable. In March 2016, the facility was amended to increase the line of credit to $ 15.0 million. This facility matured in December 2020. ​ In December 2020, the Company amended the facility to extend the maturity date to December 2022. As of December 31, 2020, the Company did not have any amounts outstanding under this facility. ​ Equipment Line of Credit with East West Bank — Due September 2025 ​ In September 2020, the Company entered into a $ 10.0 million equipment credit line with a 12-month draw down period with East West Bank. Interest payments are due monthly through September 2021 at the prime rate as published by The Wall Street Journal minus 0.5 %. After the draw down period, the outstanding principal balance converts into a 48-month term loan that bears a variable interest rate at the prime rate as published by The Wall Street Journal minus 0.5 %. The loan matures in September 2025, and the principal and interest payments are due monthly. Borrowings under the facility are secured by equipment. As of December 31, 2020, the Company had $ 3.2 million outstanding under the equipment line of credit. ​ Mortgage Loans ​ Mortgage Payable with East West Bank — Due May 2021 ​ The Company refinanced the mortgage term loan with East West Bank in January 2016, which had an outstanding principal balance of $ 3.7 million at December 31, 2015, and had a maturity date of February 2021. The refinanced loan is payable in monthly installments with a final balloon payment of $ 3.3 million. The refinanced loan is secured by one of 121 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ the buildings at the Company’s Rancho Cucamonga, California, headquarters complex. The refinanced loan has a variable interest rate at the prime rate as published by The Wall Street Journal . As of December 31, 2020, the fair value of the loan approximates its book value. The interest rate used in the fair value estimation was determined to be a Level 2 input. The Company has entered into a fixed interest rate swap contract on this loan to exchange the variable interest rate for a fixed interest rate of 4.39 % over the life of the loan without the exchange of the underlying notional debt amount. ​ In December 2020, the Company extended the maturity date to May 2021, with no changes to the monthly principle payments during the extension. The Company treated the extension as a modification for accounting purposes. ​ Mortgage Payable with East West Bank — Due October 2026 ​ In September 2006, the Company entered into a mortgage term loan with East West Bank in the principal amount of $ 2.8 million, which matured in September 2016. The Company refinanced the mortgage term loan in September 2016, which increased the principal amount to $ 3.6 million and extended the maturity date to October 2026. The refinanced loan is payable in monthly installments with a final balloon payment of $ 2.9 million. The refinanced loan was secured by one of the buildings at the Company’s Rancho Cucamonga, California, headquarters complex. The refinanced loan bears a variable interest rate at the one-month LIBOR rate plus 2.75 %. As of December 31, 2020, the fair value of the loan approximates its book value. The interest rate used in the fair value estimation was determined to be a Level 2 input. Subsequently, the Company entered into a fixed interest rate swap contract on this loan to exchange the variable interest rate for a fixed interest rate of 4.15 % until October 2021 without the exchange of the underlying notional debt amount. ​ Mortgage Payable with East West Bank — Due June 2027 In May 2017, the Company entered into a mortgage term loan with East West Bank in the principal amount of $ 9.0 million, which matures in June 2027. The loan is payable in monthly installments with a final balloon payment of $ 7.4 million plus interest. The loan is secured by one of the buildings at the Company’s Rancho Cucamonga, California, headquarters complex and two buildings at the Company’s Chino, California, facility. The loan bears a variable interest rate at the one-month LIBOR rate plus 2.5 %. As of December 31, 2020, the fair value of the loan approximates its book value. The interest rate used in the fair value estimation was determined to be a Level 2 input. The Company entered into a fixed interest rate swap contract on this loan to exchange the variable interest rate for a fixed interest rate of 4.79 % until June 2024 without the exchange of the underlying notional debt amount. ​ Mortgage Payable with Cathay Bank — Due August 2027 ​ In August 2017, the Company refinanced the mortgage term loan with Cathay Bank that had been entered into on April 2014, with a principal balance outstanding of $ 7.9 million. The loan is payable in monthly installments and is secured by the building at the Company’s Canton, Massachusetts location. The loan bears interest at a fixed rate of 4.70 % for the first five years of the loan; thereafter, the loan bears a variable interest rate at the prime rate as published by The Wall Street Journal and matures in June 2027. As of December 31, 2020, the fair value of the loan approximates its book value. The interest rate used in the fair value estimation was determined to be a Level 2 input. ​ Equipment Loans ​ Equipment Loan with East West Bank – Due June 2021 ​ In March 2016, the Company entered into a $ 5.0 million equipment credit facility with East West Bank. In May 2017, the Company converted the outstanding balance of $ 5.0 million into a term equipment loan that matures in June 2021. Borrowings under the loan are secured by equipment. The loan bears a variable interest rate at the prime rate as published by The Wall Street Journal . As of December 31, 2020, the fair value of the loan approximates its book value. The interest rate used in the fair value estimation was determined to be a Level 2 input. The Company has entered into a fixed interest rate swap contract on this facility to exchange the variable interest rate for a fixed interest rate of 4.86 % 122 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ over the life of the facility without the exchange of the underlying notional debt amount. ​ Equipment Loan with East West Bank — Due December 2022 ​ In June 2017, the Company entered into an $ 8.0 million equipment credit line with an 18 -month draw down period with East West Bank. Interest payments are due monthly through December 2018 at the prime rate as published by The Wall Street Journal . After the draw down period, the outstanding principal balance converts into a 48 -month term loan which bears a variable interest rate at the prime rate as published by The Wall Street Journal . The loan matures in December 2022, and the principal and interest payments are due monthly. Borrowings under the facility are secured by equipment. ​ In June 2018, the Company drew down $ 8.0 million on the equipment credit line and in December 2018, the credit line converted into an equipment loan. As of December 31, 2020, the fair value of the loan approximates its book value. The interest rate used in the fair value estimation was determined to be a Level 2 input. The Company entered into a fixed interest rate swap contract on this facility to exchange the variable interest rate for a fixed interest rate of 5.87 % over the life of the facility without the exchange of the underlying notional debt amount. ​ Equipment loan with East West Bank — Due February 2024 ​ In January 2019, the Company entered into a $ 10.0 million equipment credit line with East West Bank which has a 12 -month draw down period. Interest payments are due monthly through February 2020 at the prime rate as published by The Wall Street Journal minus 1 % . After the draw down period, the outstanding principal balance converts into a 48 -month term loan which bears a variable interest rate at the prime rate as published by The Wall Street Journal minus 1 % . The loan matures in February 2024, and the principal and interest payments are due monthly. Borrowings under the facility are secured by equipment. As of December 31, 2019, the Company has drawn $ 3.6 million from the equipment line of credit. ​ Subsequently, in January 2020, the Company drew an additional $ 3.0 million on the equipment credit line and in February 2020, the credit line converted into a $ 6.6 million equipment loan. As of December 31, 2020, the fair value of the loan approximates its book value. The Company entered into a fixed interest rate swap contract on this facility to exchange the variable interest rate for a fixed interest rate of 3.85 % over the life of the facility without the exchange of the underlying notional debt amount. ​ Other Loans and Payment Obligations ​ Acquisition Loan with Cathay Bank — Due June 2024 ​ On April 22, 2014, in conjunction with the Merck API Transaction, the Company entered into a secured term loan with Cathay Bank as lender. The principal amount of the loan was $ 21.9 million and had a variable interest rate at the prime rate as published by The Wall Street Journal , with a minimum interest rate of 4.00 %. The loan was secured by 65 % of the issued and outstanding shares of stock in AFP and certain assets of the Company, including accounts receivable, inventory, certain investment property, goods, deposit accounts, and general intangibles but not including the Company’s equipment and real property. ​ In July 2019, the Company amended the acquisition loan relating to the AFP acquisition. The amendment was effective in June 2019. Under the amended loan agreement, the maturity date was extended to June 2024. The acquisition loan bears a variable interest rate at the prime rate as published by The Wall Street Journal , with a minimum interest rate of 5.00 %. Beginning in August 2019, and through the maturity date, the Company must make monthly payments of principal and interest based on the then outstanding amount of the loan amortized over a 60-month period. As of December 31, 2020, the fair value of the loan approximates its book value. The interest rate used in the fair value estimation was determined to be a Level 2 input. ​ 123 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ The loan includes customary restrictions on, among other things, the Company’s ability to incur additional indebtedness, pay dividends in cash or make other distributions in cash, make certain investments, create liens, sell assets, and make loans. The loan also includes customary events of defaults, the occurrence and continuation of any of which provide Cathay Bank the right to exercise remedies against the Company and the collateral securing the loan. These events of default include, among other things, the Company’s failure to pay any amounts due under the loan, the Company’s insolvency, the occurrence of any default under certain other indebtedness or material agreements, and a final judgment against the Company that is not discharged in 30 days. ​ Loans with Seine-Normandie Water Agency ​ In January 2015, the Company entered into three French government loans with the Seine-Normandie water agency in the aggregate amount of $ 0.7 million. The loans have maturities that range between three to six years , include annual equal payments and bears no interest. ​ In December 2018, the Company entered into two additional French government loans with the Seine-Normandie water agency in the aggregate amount $ 0.5 million. The loans have 8 year lives, and include annual equal payments and bear no interest. ​ As of December 31, 2020, the payment obligation had an aggregate book value of $ 0.4 million, which approximates fair value. The fair value of the payment obligation was determined by using the interest rate associated with the Company’s acquisition loan with Cathay Bank that bears a variable interest rate at the prime rate as published by The Wall Street Journal , with a minimum interest rate of 4.00 %. Such interest rate is deemed to be a Level 2 input for measuring fair value. ​ Payment Obligation to Merck ​ On April 30, 2014, in conjunction with the Company’s acquisition of Merck Sharpe & Dohme’s, API manufacturing business in Éragny-sur-Epte, France, or the Merck API Transaction, the Company entered into a commitment obligation with Merck, in the principal amount of $ 16.0 million. The terms of the purchase price include annual payments over four years and beard a fixed interest rate of 3.00 %. In February 2020, the Company repaid all outstanding amounts due under this obligation. ​ Covenants ​ At December 31, 2020 and 2019, the Company was in compliance with its debt covenants. ​ Long-Term Debt Maturities As of December 31, 2020, the principal amounts of long-term debt maturities during each of the next five fiscal years ending December 31 are as follows: ​ ​ ​ ​ ​ ​ ​ Long-term ​ ​ Debt ​ ​ (in thousands) 2021 $ 11,950 2022 ​ 7,450 2023 ​ 5,666 2024 ​ 3,069 2025 ​ 1,273 Thereafter ​ 16,515 ​ ​ $ 45,923 ​ ​ ​ ​ 124 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ Note 15. Income Taxes ​ The Company’s income (loss) before income taxes generated from its United States and foreign operations were: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2020 ​ 2019 ​ 2018 ​ ​ (in thousands) Income (loss) before income taxes: ​ ​ ​ ​ United States ​ $ 15,634 ​ $ 77,092 ​ $ 3,580 ​ Foreign ​ ( 10,997 ) ​ ( 16,864 ) ​ ( 13,506 ) ​ Total income (loss) before taxes ​ $ 4,637 ​ $ 60,228 ​ $ ( 9,926 ) ​ ​ The Company’s provision (benefit) for income taxes consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2020 ​ 2019 ​ 2018 ​ ​ (in thousands) Current provision: ​ ​ ​ ​ Federal ​ $ 1,803 ​ $ 4,283 ​ $ 32 ​ State ​ 541 ​ 430 ​ 343 ​ Foreign ​ 279 ​ 1,514 ​ 773 ​ Total current provision ​ 2,623 ​ 6,227 ​ 1,148 ​ Deferred provision (benefit): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal ​ 1,770 ​ 9,825 ​ ( 687 ) ​ State ​ ( 1,489 ) ​ 499 ​ ( 3,900 ) ​ Foreign ​ 636 ​ ( 2,828 ) ​ 173 ​ Total deferred provision (benefit) ​ 917 ​ 7,496 ​ ( 4,414 ) ​ Total provision (benefit) for income taxes ​ $ 3,540 ​ $ 13,723 ​ $ ( 3,266 ) ​ ​ A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Statutory federal income tax (benefit) ​ 21.0 % 21.0 % 21.0 % State tax expense, net of federal tax benefit ( 16.2 ) 1.2 28.3 Foreign tax rate differences ( 20.1 ) 1.2 4.0 Foreign valuation allowance ​ 89.5 ​ 2.5 ​ ( 42.0 ) ​ Research and development credits ( 65.1 ) ( 4.8 ) 28.0 Share-based compensation 18.7 ( 1.5 ) 5.1 Executive compensation ​ 48.1 ​ 2.9 ​ ( 12.4 ) ​ Deferred tax remeasurement ​ — ​ — ​ 1.0 ​ Employee-related expenses ​ 1.7 ​ 0.2 ​ ( 0.4 ) ​ Other ( 1.3 ) 0.1 0.3 Effective tax rate (benefit) ​ 76.3 % 22.8 % 32.9 % ​ The Company’s effective tax rate for 2020 increased in comparison to 2019 primarily due to differences in pre-tax income positions and the recording of a valuation allowance on Hanxin deferred tax assets. ​ Deferred Tax Assets and Liabilities ​ Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and 125 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ liabilities for financial reporting purposes and the amounts used for income tax purposes, tax credit carryforwards, and the tax effects of net operating loss carryforwards. ​ The significant components of the Company’s deferred tax assets and liabilities are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2020 ​ 2019 ​ ​ (in thousands) Deferred tax assets: ​ ​ ​ Research and development credits ​ $ 18,531 ​ $ 18,603 ​ Net operating loss carryforward ​ ​ 16,187 ​ ​ 10,782 ​ Inventory capitalization and reserve ​ 7,744 ​ 8,518 ​ Share-based compensation ​ 5,564 ​ 6,390 ​ Operating leases ​ ​ 4,999 ​ ​ 4,741 ​ Accrued expenses ​ 4,340 ​ 4,153 ​ Accrued chargebacks ​ 3,927 ​ 3,729 ​ Product return allowance ​ 3,798 ​ 2,835 ​ Intangibles ​ 2,124 ​ 2,124 ​ Other ​ ​ 2,633 ​ ​ 85 ​ Total deferred tax assets ​ 69,847 ​ 61,960 ​ Deferred tax liabilities: ​ ​ ​ ​ ​ ​ ​ Depreciation/amortization ​ 13,735 ​ 11,528 ​ Intangibles ​ 7,298 ​ 6,743 ​ Operating leases ​ ​ 4,808 ​ ​ 4,571 ​ Federal impact of state deferred taxes ​ 3,987 ​ 3,674 ​ Total deferred tax liabilities ​ 29,828 ​ 26,516 ​ Valuation allowance ​ ( 15,780 ) ​ ( 10,438 ) ​ Net deferred tax assets ​ $ 24,239 ​ $ 25,006 ​ ​ Net Operating Loss Carryforwards and Tax Credits ​ At December 31, 2020, the Company had approximately $ 1.6 million California net operating loss carryforwards, or NOL carryforwards, and no material U.S. federal or other state NOL carryforwards. The California NOL carryforwards begin to expire in 2032 . The Company had France, United Kingdom, and China foreign NOL carryforwards of approximately $ 55.6 million, $ 1.4 million, and $ 12.4 million, respectively. The France and United Kingdom NOL carryforward can be used annually with certain limitations and have an indefinite carryforward period while the China NOL carryforward begins to expire in 2024 . At December 31, 2020, the Company had federal and California research and development tax credit carryforwards of approximately $ 2.1 million and $ 21.9 million, respectively. The federal research and development tax credit begins to expire in 2041 . The California research and development tax credit has an indefinite carryforward period. ​ The utilization of NOL and credit carryforwards and other tax attributes could be subject to an annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, or the Code, whereby they could be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period as defined in the Code. ​ Valuation Allowance ​ In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. Ultimately, the realization of deferred tax assets depends on the existence of future taxable income. Management considers sources of taxable income such as income in prior carryback 126 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ periods, future reversal of existing deferred taxable temporary differences, tax-planning strategies, and projected future taxable income. ​ The Company continues to record a full valuation allowance on AFP’s net deferred income tax assets and will continue to do so until AFP generates sufficient taxable income to realize its deferred income tax assets. However, a tax benefit is included in the annual effective tax rate computation due to AFP reporting a year-to-date foreign exchange gain in other comprehensive income. As of December 31, 2020 and 2019, the Company had a full valuation allowance against the net deferred tax assets of AFP, which totaled $ 13.7 million and $ 10.4 million, respectively. ​ For the year ended December 31, 2020, the Company also determined that Hanxin more likely than not would not realize the benefit of its deferred tax assets due to recent operating losses. Therefore, the Company recorded a full valuation allowance of $ 2.1 million against Hanxin’s deferred tax assets. ​ Undistributed Earnings from Foreign Operations ​ As of December 31, 2020 and 2019, deferred income taxes have not been provided for any undistributed earnings from foreign operations. The foreign subsidiaries have accumulated losses of approximately $ 51.6 million and $ 44.9 million, respectively, and as such there are no earnings in which to provide taxes. It is the Company’s plan not to repatriate future foreign earnings to the U.S. and indefinitely reinvest such earnings in the foreign jurisdiction. ​ CARES Act ​ On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was signed into law in the U.S. to provide certain relief as a result of the COVID-19 pandemic. In addition, governments around the world have enacted or implemented various forms of tax relief measures in response to the economic conditions in the wake of COVID-19. As of December 31, 2020, neither the CARES Act nor changes to income tax laws or regulations in other jurisdictions had a significant impact on the Company’s effective tax rate. ​ Uncertain Income Tax Positions ​ A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2020 ​ 2019 2018 ​ ​ (in thousands) Balance at the beginning of the year $ 8,331 $ 6,994 $ 7,438 Deductions based on tax positions related to prior years ​ ​ — ​ ​ — ​ ​ ( 1,566 ) Additions based on tax positions related to the current year ​ 1,815 ​ 1,382 ​ 1,304 Deductions based on tax audit settlement ​ — ​ ( 45 ) ​ ( 126 ) Deductions based on statute of limitations ​ ( 93 ) ​ — ​ ( 56 ) Balance at the end of the year ​ $ 10,053 ​ $ 8,331 ​ $ 6,994 ​ Included in the balance of unrecognized tax benefits as of December 31, 2020 and 2019, was $ 9.9 million and $ 8.1 million, respectively that represents the portion that would impact the effective income tax rate if recognized. During the year ended December 31, 2018, the Company reduced unrecognized tax benefits for tax positions related to prior years by $ 1.6 million and for tax audit settlement by $ 0.1 million as the result of a state tax audit resolution. ​ The Company recognizes interest and penalties related to unrecognized tax benefits in its income tax provision. For the years ended December 31, 2020, 2019 and 2018, the Company accrued interest of approximately $ 0.2 million, $ 0.3 million and $ 0.1 million, respectively, related to its uncertain tax positions. The Company and/or one or more of its subsidiaries filed income tax returns in the U.S. federal jurisdiction and various 127 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ U.S. states and foreign jurisdictions. In February 2018, the IRS completed an examination of the Company’s 2015 income tax return resulting in no changes to reported tax. In June 2018, the Franchise Tax Board completed an examination of the Company’s 2007, 2008, and 2009 tax return resulting in no material tax liability. As of December 31, 2020, the Company does not have a tax examination in progress for federal, state, or foreign jurisdictions. The Company is subject to income tax audit by tax authorities for tax years 2017 to 2019 for federal, 2016 to 2019 for states and 2010 to 2019 for foreign. ​ Note 16. Stockholders' Equity ​ Common and Preferred Stock ​ The Company’s Certificate of Incorporation authorizes the Company to issue 300,000,000 shares of common stock, $ 0.0001 par value per share, and 20,000,000 shares of preferred stock, $ 0.0001 par value per share. As of December 31, 2020 and 2019, there were no shares of preferred stock issued or outstanding. ​ Equity Plans ​ As of December 31, 2020, the Company has two equity plans: the Amended and Restated 2015 Equity Incentive Plan, or 2015 Plan, and the 2014 Employee Stock Purchase Plan or ESPP. Prior to the adoption of these plans, the Company granted options pursuant to the Amended and Restated 2005 Equity Incentive Award Plan. Upon termination of the predecessor plans, the shares available for grant at the time of termination, and shares subsequently returned to the plans upon forfeiture or option termination, were transferred to the successor plan in effect at the time of share return. The Company issues new shares of common stock upon exercise of stock options, vesting of restricted stock units, or RSU, and settlement of ESPP, with the exception of the awards granted to employees at AFP, which are settled through re-issuance of the Company’s treasury shares. ​ Amended and Restated 2015 Equity Incentive Plan ​ In March 2015, the Board of Directors adopted the Company’s 2015 Equity Incentive Plan, or the 2015 Plan, which was approved by the Company’s stockholders in May 2015 and is set to expire in March 2025. The 2015 Plan is designed to meet the needs of a publicly traded company, including the requirements for granting “performance based compensation” under Section 162(m) of the Internal Revenue Code. The 2015 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, performance shares, and other stock or cash awards to employees of the Company and its subsidiaries, members of the Board of Directors and consultants. ​ In November 2020, the Board of Directors approved the Amendment and Restated 2015 Equity Incentive Plan to provide that at least 95 % of the shares awarded under the plan will be subject to a minimum vesting requirement of at least one year . ​ The Company initially reserved 5,000,000 shares of common stock for issuance under the 2015 Plan. This number will be increased by the number of shares available for issuance under the Company’s prior equity incentive plans or arrangements that are not subject to options or other awards, plus the number of shares of common stock related to options or other awards granted under the Company’s prior equity incentive plans or arrangements that are repurchased, forfeited, expired, or cancelled on or after the effective date of the 2015 Plan. The 2015 Plan also contains an “evergreen provision” that allows for an annual increase in the number of shares available for issuance on January 1 of each year during the 10 year term of the 2015 Plan, beginning January 1, 2016. The annual increase in the number of shares shall be the lesser of (i) 3,000,000 shares, (ii) two and one-half percent ( 2.5 % ) of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares as determined by the Board of Directors. As of the effective date, there were 5,300,296 shares available for grant under the 2015 Plan. ​ 128 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ As of December 31, 2020, the Company reserved an aggregate of 6,386,666 shares of common stock for future issuance under the 2015 Plan. In January 2021, an additional 1,187,386 shares were reserved under the 2015 Plan pursuant to the evergreen provision. ​ Amended and Restated 2005 Equity Incentive Award Plan ​ The Amended and Restated 2005 Equity Incentive Award Plan, or 2005 Plan, provided for the grant of incentive stock options, or ISOs, nonqualified stock options, or NQSOs, restricted stock awards, restricted stock unit awards, stock appreciation rights, or SARs, dividend equivalents and stock payments to the Company’s employees, members of the Board of Directors and consultants. Stock options under the 2005 Plan were granted with a term of up to ten years and at prices no less than the fair market value of the Company’s common stock on the date of grant. To date, stock options granted to existing employees generally vest over three to five years and stock options granted to new employees vest over four years . Stock options granted to Board of Directors and consultants generally vested over one year . ​ As of March 2015, consequent to the 2015 Plan becoming effective, awards were no longer granted under the 2005 Plan. ​ 2014 Employee Stock Purchase Plan ​ In June 2014, the Company adopted the ESPP in connection with its initial public offering. A total of 2,000,000 shares of common stock are reserved for issuance under this plan. The Company’s ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Under the ESPP, the Company may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of its common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances. The price at which the stock is purchased is equal to 85 % of the lower of the fair market value of the common stock at the beginning of an offering period or on the date of purchase. ​ As of December 31, 2020, the Company has issued 807,550 shares of common stock under the ESPP and 1,192,450 shares of its common stock remains available for issuance under the ESPP. ​ For the year ended December 31, 2020, 2019, and 2018, the Company recorded ESPP expense of $ 0.8 million, $ 0.7 million, and $ 0.7 million, respectively. ​ Share Buyback Program ​ As of December 31, 2020, the Company’s Board of Directors have authorized a total of $ 140.0 million. The primary goal of the program is to offset dilution created by the Company’s equity compensation programs. The Company’s share buyback program is expected to continue for an indefinite period of time. ​ Purchases are made through open market and private block transactions pursuant to Rule 10b5-1 plans, privately negotiated transactions or other means as determined by the Company’s management and in accordance with the requirements of the SEC. The timing and actual number of treasury share purchases will depend on a variety of factors including price, corporate and regulatory requirements, and other conditions. These treasury share purchases are accounted for under the cost method and are included as a component of treasury stock in the Company’s consolidated balance sheets. ​ Pursuant to the Company’s share buyback program, the Company purchased 1,366,384 shares, 1,122,781 shares, and 1,414,924 , shares of its common stock during the years ended December 31, 2020, 2019 and 2018, totaling $ 24.4 million, $ 22.3 million, and $ 25.0 million, respectively. ​ 129 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ Share-Based Award Activity and Balances (excluding the ANP Equity Plan) ​ The Company accounts for share-based compensation payments in accordance with ASC 718, which requires measurement and recognition of compensation expense at fair value for all share-based payment awards made to employees and directors. Under these standards, the fair value of option awards and the option components of the ESPP awards are estimated at the grant date using the Black-Scholes option-pricing model. The fair value of RSUs is estimated at the grant date using the Company’s common share price. Prior to the adoption of ASU No. 2018-07, Improvements to Non-employees Share-Based Payment Accounting , non-vested stock options held by non-employees are revalued at each balance sheet date. As a result of the Company’s early adoption of the guidance on July 1, 2018, stock options held by non-employees are no longer revalued after grant. The portion that is expected to vest is amortized and recognized in compensation expense on a straight-line basis over the requisite service period, generally from the grant date to the vesting date. ​ Options issued under the Company’s 2015 Plan and 2005 Plan, are granted at exercise prices equal to or greater than the fair value of the underlying common shares on the date of grant and vest based on continuous service. There have been no awards with performance conditions and no awards with market conditions. The options have a contractual term of five to ten years and generally vest over a three - to five -year period. The Black-Scholes option pricing model has various inputs such as the common share price on the date of grant, exercise price, the risk-free interest rate, volatility, expected life and dividend yield, all of which are estimates. The Company records share-based compensation expense net of expected forfeitures. The change of any of these inputs could significantly impact the determination of the fair value of the Company’s options as well as significantly impact its results of operations. The significant assumptions used in the Black-Scholes option-pricing are as follows: ● Determination of Fair Value of the Underlying Common Stock. For options and ESPP awards granted, the fair value for its underlying common stock is determined using the closing price on the date of grant as reported on the Nasdaq Global Select Market, or Nasdaq. Following the listing of our common stock on Nasdaq, we use the closing stock price as reported on Nasdaq on the grant date for the fair value of its stock. ​ ● Expected Volatility. Starting in 2020, the Company estimates its volatility based on the weighted-average historical volatility of its stock price since IPO. Prior to that, the Company had limited data regarding company-specific historical or implied volatility of its share price. Consequently, the Company estimated its volatility based on the weighted average historical volatility of its stock price since IPO and the stock price from a set of peer companies, since our shares did not have sufficient trading history. Management considered factors such as stage of life cycle, competitors, size, market capitalization and financial leverage in the selection of similar entities. ​ ● Expected Term. The expected term represents the period of time in which the options granted are expected to be outstanding. The Company estimates the expected term of options with consideration of vesting date, contractual term, and historical experience for exercise and post-vesting employment or contractual termination behavior after its common stock has been publicly traded. The expected term of “plain vanilla” options is estimated based on the midpoint between the vesting date and the end of the contractual term under the simplified method permitted by the SEC implementation guidance. The weighted-average expected term of the Company’s options is approximately five years. ​ ● Risk- Free Rate. The risk-free interest rate is selected based upon the implied yields in effect at the time of the option grant on U.S. Treasury zero-coupon issues with a term approximately equal to the expected life of the option being valued. ​ 130 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ ● Dividends. The Company does not anticipate paying cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield rate of zero. ​ The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual experience differs from those estimates. For the years ended December 31, 2020, 2019 and 2018, the Company estimated an average overall forfeiture rate of approximately 5 %, based on historical experience. Forfeiture rates are separately estimated for its (1) directors and officers, (2) management personnel and (3) other employees. Share-based compensation is recorded net of expected forfeitures. The Company periodically assesses the forfeiture rate and the amount of expense recognized based on estimated historical forfeitures as compared to actual forfeitures. Changes in estimates are recorded in the period they are identified. ​ Tax benefits resulting from tax deductions in excess of the share-based compensation cost recognized (excess tax benefits) are recorded in the statements of cash flows as financing activities. ​ The weighted-averages for key assumptions used in determining the fair value of options granted during the years ended December 31, 2020, 2019, and 2018 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2020 2019 2018 Average volatility ​ 43.1 % 42.5 % 39.9 % Average risk-free interest rate ​ 0.8 % 2.4 % 2.7 % Weighted-average expected life in years ​ 5.7 ​ 5.7 ​ 5.7 ​ Dividend yield rate ​ — % — % — % ​ Stock Options ​ A summary of option activity under all plans for the year ended December 31, 2020, is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ Remaining ​ Aggregate ​ ​ ​ ​ Exercise ​ Contractual ​ Intrinsic ​ ​ Options ​ Price ​ Term (Years) ​ Value (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Outstanding as of December 31, 2019 9,763,485 $ 15.26 ​ ​ Options granted 1,803,048 ​ ​ 13.57 ​ ​ ​ ​ ​ ​ Options exercised ( 1,761,104 ) ​ ​ 13.96 ​ ​ ​ ​ ​ ​ Options cancelled ( 112,180 ) ​ ​ 16.42 ​ ​ ​ ​ ​ ​ Options expired ( 1,112,774 ) ​ ​ 16.45 ​ ​ ​ ​ ​ ​ Outstanding as of December 31, 2020 8,580,475 ​ $ 15.00 ​ 5.20 ​ $ 45,392 ​ Exercisable as of December 31, 2020 5,754,823 ​ $ 14.41 ​ 3.93 ​ $ 33,548 ​ (1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the Company’s common stock for those awards that have an exercise price below the estimated fair value at December 31, 2020. ​ During the years ended December 31, 2020, 2019, and 2018, the Company recorded expense of $ 9.1 million, $ 8.1 million, and $ 8.2 million, respectively, related to stock options granted under all plans. ​ 131 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ Information relating to option grants and exercises is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 ​ (in thousands, except per share data) Weighted-average grant date fair value per option share ​ $ 5.51 ​ $ 8.48 ​ $ 7.80 ​ Intrinsic value of options exercised ​ 9,169 ​ 7,718 ​ 7,372 ​ Cash received from options exercised ​ 24,357 ​ 7,761 ​ 11,753 ​ Total fair value of the options vested during the year ​ 9,978 ​ 7,613 ​ 7,972 ​ ​ A summary of the status of the Company’s non-vested options as of December 31, 2020, and changes during the year ended December 31, 2020, are presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ ​ ​ Grant Date ​ ​ Options ​ Fair Value Non-vested as of December 31, 2019 ​ 2,747,133 ​ $ 6.99 ​ Options granted 1,803,048 ​ ​ 5.51 ​ Options vested ( 1,612,349 ) ​ ​ 6.19 ​ Options forfeited ( 112,180 ) ​ ​ 7.09 ​ Non-vested as of December 31, 2020 2,825,652 ​ 6.50 ​ ​ As of December 31, 2020, there was $ 11.2 million of total unrecognized compensation cost, net of forfeitures, related to non-vested stock option based compensation arrangements granted under all plans. The cost is expected to be recognized over a weighted-average period of 2.2 years and will be adjusted for future changes in estimated forfeitures. ​ In April 2020, Jason Shandell resigned from his position as the Company’s President and General Counsel and as a member of the Company’s board of directors. In connection with his resignation, the Company and Mr. Shandell entered into a separation agreement. As part of the separation agreement, the Company agreed to accelerate 80 % of his unvested stock options and extended the expiration date of certain vested stock option awards. As a result of this modification, the Company incurred share-based compensation expense of $ 0.7 million, which is included within general and administration expenses in the consolidated statement of operations for the year ended December 31, 2020. ​ Restricted Stock Units ​ The Company grants restricted stock units, or RSUs, to certain employees and members of the Board of Directors with a vesting period of up to five years . The grantee receives one share of common stock at a specified future date for each RSU awarded. The RSUs may not be sold or otherwise transferred until certificates of common stock have been issued, recorded, and delivered to the participant. The RSUs do not have any voting or dividend rights prior to the issuance of certificates of the underlying common stock. The share-based expense associated with these grants was based on the Company’s common stock fair value at the time of grant and is amortized over the requisite service period, which generally is the vesting period, using the straight-line method. During the years ended December 31, 2020, 2019, and 2018, the Company recorded expenses of $ 10.0 million, $ 8.2 million, and $ 7.7 million, respectively, related to RSU awards granted under all plans. ​ As part of the separation agreement with Mr. Shandell, the Company agreed to accelerate the vesting of 80 % of his RSU awards. As a result of this modification, the Company incurred share-based compensation expense of $ 1.6 million, which is included within general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2020. ​ 132 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ As of December 31, 2020, there was $ 12.0 million of total unrecognized compensation cost, net of forfeitures, related to non-vested RSU-based compensation arrangements granted under all plans. The cost is expected to be recognized over a weighted-average period of 2.2 years and will be adjusted for future changes in estimated forfeitures. ​ Information relating to RSU grants and deliveries is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Fair Market ​ ​ ​ ​ Value of RSUs ​ ​ ​ ​ Issued ​ ​ Total RSUs ​ as ​ Issued Compensation (1) ​ ​ ​ ​ (in thousands) RSUs outstanding at December 31, 2019 1,099,496 ​ ​ ​ ​ RSUs granted 733,566 ​ $ 9,926 ​ RSUs forfeited ( 48,490 ) ​ ​ ​ ​ RSUs vested (2) ( 628,054 ) ​ ​ ​ ​ RSUs outstanding at December 31, 2020 1,156,518 ​ ​ ​ ​ (1) The total FMV is derived from the number of RSUs granted times the current stock price on the date of grant. (2) Of the vested RSUs, 240,318 shares of common stock were surrendered to fulfil tax withholding obligations ​ The 2018 ANP Equity Incentive Plan ​ In December 2018, ANP’s board of directors approved the 2018 Plan, which is set to expire in December 2023. The 2018 Plan permits the grant of stock options and other equity awards in ANP shares to ANP employees. During the year ended December 31, 2020, ANP has granted 2,433,445 stock options to its employees under the 2018 Plan. In 2019, 3,648,932 stock options were granted to its employees under the 2018 Plan. As of December 31, 2020, the number of stock options outstanding was 5,709,977 . The options vest over a period of approximately four years and have up to a 10 year contractual term. For the years ended December 31, 2020 and 2019, the Company recorded expense of $ 0.7 million and $ 0.3 million related to stock options issued by ANP under the 2018 Plan, respectively. ​ Share-based Compensation Expense ​ The Company recorded share-based compensation expense under all plans and is included in the Company’s consolidated statement of operations as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2020 ​ 2019 ​ 2018 ​ ​ (in thousands) Cost of revenues ​ $ 4,248 $ 3,819 $ 3,923 ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, distribution, and marketing ​ ​ 456 ​ 387 ​ 383 ​ General and administrative ​ ​ 14,089 ​ 11,538 ​ 10,853 ​ Research and development ​ ​ 1,705 ​ 1,551 ​ 1,521 ​ Total share-based compensation ​ ​ $ 20,498 ​ $ 17,295 ​ $ 16,680 ​ ​ ​ ​ ​ ​ ​ Note 17. Employee Benefits ​ 401(k) Plan ​ The Company has a defined contribution 401(k) plan, or the Plan, whereby eligible employees voluntarily contribute up to a defined percentage of their annual compensation. The Company matches contributions at a rate of 50 % on the first 133 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ 6 % of employee contributions, and pays the administrative costs of the Plan. Total employer contributions for the years ended December 31, 2020, 2019, and 2018 were approximately $ 1.9 million, $ 1.5 million, and $ 1.3 million, respectively. ​ Defined Benefit Pension Plan ​ The Company’s subsidiary, AFP, has an obligation associated with a defined-benefit plan for its eligible employees. This plan provides benefits to the employees from the date of retirement and is based on the employee’s length of time employed by the Company. The calculation is based on a statistical calculation combining a number of factors that include the employee’s age, length of service, and AFP employee turnover rate. ​ The liability under the plan is based on a discount rate of 0.30 % and 0.90 % as of December 31, 2020 and 2019, respectively. The liability is included in accrued liabilities in the accompanying consolidated balance sheets. The plan is currently unfunded, and the benefit obligation under the plan was $ 3.0 million and $ 2.4 million at December 31, 2020 and 2019, respectively. Expense under the plan was $ 0.2 million, $ 0.2 million, and $ 0.3 million for the years ended December 31, 2020, 2019, and 2018, respectively. Gain or loss due to change in actuarial valuation of the Company’s defined benefit pension plan is recorded in other comprehensive income (loss). ​ Deferred Compensation Plan ​ In December 2019, the Company established a non-qualified deferred compensation plan. The deferred compensation plan allows certain eligible participants to defer a portion of their cash compensation and provides a matching contribution at the discretion of the Company. The plan obligations are payable upon retirement, termination of employment and/or certain other times in a lump-sum distribution or in installments, as elected by the participant in accordance with the plan. Participants can allocate their deferred compensation amongst various investment options with earnings accruing to the participant. The Company has established a Rabbi Trust to fund the plan obligations and to hold the plan assets. Eligible participants began contributing to the plan in January 2020. As of December 31, 2020, the plan assets and liabilities were valued at approximately $ 1.6 million and $ 1.7 million, respectively. ​ Note 18. Commitments and Contingencies ​ Lease Liabilities ​ On January 1, 2019, the Company adopted ASC 842, which resulted in the recognition of right-of-use, or ROU, assets of approximately $ 13.9 million and related lease liabilities of approximately $ 14.1 million in the consolidated balance sheet as of December 31, 2019, related to its operating lease commitments. ROU assets represent the Company’s right to control an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Lease terms are generally based on their initial non-cancelable terms, unless there is a renewal option that is reasonably certain to be exercised. Various factors, including economic incentives, intent, past history and business needs are considered to determine if a renewal option is reasonably certain to be exercised. As most of its leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at the commencement date in determining the discount rate used to present value the lease payments. The Company has lease agreements with both lease and non-lease components, which are accounted for as a single component for all asset classes. The Company leases real and personal property, in the normal course of business, under various non-cancelable operating leases. The Company, at its option, can renew a substantial portion of its leases, at the market rate, for various renewal periods ranging from one to six years . ​ ​ 134 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ The components of lease costs for the years ended December 31, 2020 and 2019 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ ​ ​ 2020 2019 ​ ​ ​ (in thousands) Operating lease costs $ 4,462 $ 3,981 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Short-term lease costs ​ ​ ​ 649 ​ ​ 613 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Finance lease costs ​ ​ ​ ​ ​ ​ ​ ​ Amortization of right-of-use assets ​ ​ 351 ​ 351 ​ Interest on lease liabilities ​ ​ 33 ​ 46 ​ Total finance lease costs ​ ​ $ 384 ​ $ 397 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total lease costs ​ ​ $ 5,495 ​ $ 4,991 ​ ​ Other information pertaining to leases is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ ​ 2020 ​ ​ 2019 ​ ​ ​ (in thousands, except lease term and discount rate) Cash paid for amounts included in the measurement of lease liabilities ​ ​ ​ ​ ​ ​ ​ ​ Operating cash flows from operating leases $ 4,491 ​ $ 3,531 ​ Operating cash flows from finance leases ​ ​ 33 ​ ​ ​ 46 ​ Financing cash flows from finance leases ​ ​ 369 ​ ​ ​ 354 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Right-of use assets obtained in exchange for lease liabilities ​ ​ ​ ​ ​ ​ Operating leases ​ ​ 4,819 ​ ​ ​ 7,978 ​ Finance leases ​ 61 ​ ​ 143 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average remaining lease term (years) ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ 8.7 ​ ​ 8.1 ​ Finance leases ​ 2.3 ​ ​ 2.8 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average discount rate ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ 5.2 % ​ 5.9 % Finance leases ​ 5.0 % ​ 4.6 % ​ ​ 135 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ Future minimum rental payments under leases that have initial or remaining non-cancelable lease terms in excess of 12 months as of December 31, 2020, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating ​ Finance ​ ​ ​ ​ Leases ​ Leases ​ Total ​ ​ (in thousands) 2021 $ 4,362 ​ $ 250 ​ $ 4,612 2022 ​ 4,071 ​ 210 ​ 4,281 2023 ​ 2,819 ​ 50 ​ 2,869 2024 ​ 2,308 ​ 38 ​ 2,346 2025 ​ 1,976 ​ 18 ​ 1,994 Thereafter ​ ​ 10,691 ​ ​ — ​ ​ 10,691 Total lease payments ​ $ 26,227 ​ $ 566 ​ $ 26,793 Less: interest ​ ​ 5,406 ​ ​ 40 ​ ​ 5,446 Total ​ $ 20,821 ​ $ 526 ​ $ 21,347 ​ Purchase Commitments ​ As of December 31, 2020, the Company has entered into commitments to purchase equipment and raw materials for an aggregate amount of approximately $ 48.8 million. The Company anticipates that most of these commitments with a remaining term in excess of one year will be fulfilled by 2022. ​ In accordance with certain agreements between ANP and the Chinese government, in January 2010 and November 2012, the Company acquired certain land-use rights for $ 1.2 million and $ 1.3 million, respectively. As required by these agreements, the Company was committed to spend approximately $ 15.0 million in the related land development, which primarily includes the construction of fixed assets according to a specific timetable. As of December 31, 2020, the Company has spent $ 19.5 million on such construction, fulfilling its commitment. ​ Note 19. Related-Party Transactions ​ ANP Private Placement ​ As discussed in footnote 2, in July 2018, ANP completed a private placement of its common equity interest and received approximately $ 56.3 million of cash proceeds. In connection with the private placement, all of the executive officers of the Company, Stephen Shohet, Howard Lee, and Richard Koo, directors of the Company, certain relatives of Dr. Jack Zhang and Dr. Mary Luo, and certain employees of ANP entered into subscription agreements (each, a “Subscription Agreement”) for the indirect investment in ANP. These Subscription Agreements were transacted either through an investment in Amphastar Cayman, a Cayman Islands limited liability company, or Qianqia or Zhongpan, Chinese partnerships. The aggregate gross proceeds received as of December 31, 2020, from such executive officers, directors and related parties were approximately $ 36.4 million. ​ Retirement of James Luo ​ In December 2020, James Luo retired from his position as the Company’s Senior Vice President of Engineering and President of AFP. Mr. Luo is a relative of the Company’s Chief Operating Officer, Dr. Mary Luo. In connection with his retirement, the Company and Mr. Luo entered into a retirement agreement where the Company agreed to pay Mr. Luo approximately $ 1.0 million in cash compensation over a period of three years as well as provide health insurance coverage for a six year period beginning in 2021. As a result, the Company recorded a total of $ 1.1 million in general and administrative expense in the fourth quarter of 2020 related to this agreement. 136 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ Note 20. Litigation ​ Momenta/Sandoz Enoxaparin Patent and Antitrust Litigation ​ In September 2011, Momenta Pharmaceuticals, Inc., or Momenta, a Boston based pharmaceutical company, and Sandoz Inc., or Sandoz, the generic division of Novartis, initiated litigation against the Company for alleged patent infringement of two patents related to testing methods for batch release of enoxaparin, which the Company refers to as the “’886 patent” and the “’466 patent.” ​ On September 17, 2015, the Company initiated an antitrust lawsuit by filing a complaint in the California District Court against Momenta and Sandoz. This lawsuit was subsequently transferred to the Massachusetts District Court. ​ On May 20, 2019, the Company and Momenta and Sandoz entered into a Settlement Agreement to settle the patent litigation and antitrust litigation. On June 27, 2019, Momenta and Sandoz paid the Company $ 59.9 million. The Company recorded the settlement amount as other income (expenses), in its consolidated statements of operations. ​ Amphastar Pharmaceuticals, Inc. v Aventis Pharma, SA ​ In January 2009, the Company filed a qui tam complaint in the U.S. District Court for the Central District of California, alleging that Aventis Pharma S.A., or Aventis, through its acquisition of a patent through false and misleading statements to the U.S. Patent and Trademark Office, as well as through false and misleading statements to the FDA, overcharged the federal and state governments for its Lovenox ® product. ​ On May 11, 2017, the Company’s lawsuit against Aventis was dismissed for lack of jurisdiction. On July 14, 2017, Aventis filed an application with the District Court for entitlement to attorneys’ fees and expenses. On November 20, 2017, the District Court issued its order granting Aventis’ application for fees. ​ On November 13, 2020, the Court issued an Opinion and Order (“Fee Order”) awarding Aventis $ 12.1 million in attorneys’ fees and $ 0.7 million in costs and expenses, and ordered Aventis to submit updated calculations on accrued interest. ​ On December 14, 2020, Aventis submitted a supplemental application to the Court seeking interest for the time between the case’s inception and April 30, 2018, and fees, expenses, and interest for the period between May 1, 2018 and November 13, 2020. The Supplemental Application also identified a mathematical error in the Court’s Fee Order and requested that the Court revise the Fee Order to $ 12.2 million to correct the error. ​ On December 14, 2020, the Company filed an appeal of the Fee Order to the United States Court of Appeals for the Ninth Circuit. On January 12, 2021, the Company submitted an opposition to the Supplemental Application identifying several issues with the Supplemental Application including Aventis’ incorrect calculation of fees based on the Fee Order, incorrect calculation of interest, among other procedural and factual arguments. The Court has not yet ruled on the Supplemental Application and has not provided a timeline by which the parties should expect a ruling. ​ The Company has accrued $ 12.8 million relating to this litigation as of December 31, 2020 in other income (expenses) in the consolidated statement of operations. This amount represents management’s best estimate of the probable loss at this time. The final fee award could be higher and the final amount cannot be reasonably estimated at this time. The Company intends to continue to vigorously defend against any imposition of attorneys’ fees and expenses in this case. ​ Regadenoson (0.4 mg/5 mL, 0.08 mg/mL) Patent Litigation ​ On February 25, 2020, Astellas US LLC, Astellas Pharma US, Inc., and Gilead Sciences, Inc. (collectively, “Astellas-Gilead”) filed a Complaint in the United States District Court for the District of Delaware against IMS for infringement 137 Table of Contents AMPHASTAR PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ​ of U.S. Patent Nos. 8,106,183 (the “‘183 patent”), RE47,301 (the “‘301 patent”), and 8,524,883 (the “‘883 patent”) (collectively, “Astellas-Gilead Patents”) with regard to IMS’s ANDA No. 214,252 for approval to manufacture and sell 0.4 mg/5 mL (0.08 mg/mL) intravenous solution of Regadenoson. On March 4, 2020, IMS filed its Answer and Counterclaims. On March 30, 2020, the Court issued an Order allowing the Company to join pending consolidated litigation with five other generic Regadenoson ANDA filers involving similar claims. Trial is currently scheduled for June 14, 2021. The Company’s 30-month FDA stay expires August 10, 2022. The Company intends to vigorously defend this patent lawsuit. ​ Employee Litigations ​ Brenes v. International Medication Systems, Limited ​ On September 11, 2019, a former employee, Raquel Brenes, (“Brenes”), initiated an employment litigation against IMS et al. by filing a Complaint in the Superior Court of California, Los Angeles County alleging individual and class action claims for alleged violations of various California labor laws pertaining to wage and hour, and other state laws. On September 18, 2019, Brenes filed a First Amended Complaint maintaining the individual and class action claims. On January 21, 2020, Brenes filed a Second Amended Complaint that alleges only Private Attorney General Act, or PAGA, claims and omitted the individual and class action claims. On February 9, 2021, the Company was able to successfully resolve these claims, as well as Brenes’ personal employment claims at mediation for $ 1.0 million. The agreement is still subject to approval by the court. The Company accrued the amount of $ 1.0 million as of December 31, 2020. ​ Navarrette v. International Medication Systems, Limited ​ On January 30, 2020, a former employee, Robert Navarrette, (“Navarrette”), provided written notice, through his counsel to IMS that he intends to file a PAGA lawsuit for alleged violations of various California labor laws pertaining to wage and hour. On April 7, 2020, Navarrete filed his PAGA lawsuit against IMS and Amphastar Pharmaceuticals, Inc. in the Superior Court of California, Los Angeles County, Central District. As to IMS, the Brenes settlement subsumes the claims of Navarrette. ​ Ramirez v. Amphastar Pharmaceuticals, Inc. ​ On May 29, 2020, Priscilla Ramirez, (“Ramirez”), a former employee filed a PAGA lawsuit for alleged violations of various California labor laws pertaining to wage and hour against the Company. The parties have agreed to a mediation scheduled in April 2021. At this time, neither potential liability nor a reasonable and calculable estimate of exposure can be determined as initial evaluation is ongoing. The Company intends to vigorously defend this lawsuit. ​ Other Litigation ​ The Company is also subject to various other claims, arbitrations, and lawsuits from time to time arising in the ordinary course of business, including contractual employment matters. ​ The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In the opinion of management, the ultimate resolution of any such matters is not expected to have a material adverse effect on its financial position, results of operations, or cash flows; however, the results of litigation and claims are inherently unpredictable and the Company’s view of these matters may change in the future. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. ​ ​ ​ ​ ​ 138 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.