What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-11 compared with 2021-03-15 · 120 added, 112 removed, 260 unchanged (47% of the section changed)

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We currently manufacture and sell over 20 products.

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

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

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

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

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

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

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

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

Additionally, we have one product with tentative FDA approval, Vasopressin, which we plan to launch in the third quarter of 2022, subject to a confidential settlement agreement with the product’s innovator.

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

In December 2020, the FDA granted approval of our glucagon for injection emergency kit, 1mg, which we launched in February 2021.

To complement our internal growth and expertise, we have made several strategic acquisitions of companies, products, and technologies.

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

Included in these acquisitions are marketing authorizations for 33 products in the UK, Ireland, Australia, and New Zealand, representing 11 different injectable chemical entities from UCB Pharma GmbH.

We are in the process of transferring the manufacturing of these products to our facilities in California, which will require approvals from the UK Medicines and Healthcare products Regulatory Agency before we can relaunch the products.

These acquisitions include marketing authorizations for 33 products in the UK, Ireland, Australia, and New Zealand, representing 11 different injectable chemical entities.

We are in the process of transferring the manufacturing of these products to our facilities in California.

We plan to launch these products in the UK once we receive the required approvals from the UK Medicines and Healthcare products Regulatory Agency.

In July 2018, our Chinese subsidiary, ANP, completed a private placement of its common equity interest and received approximately $56.3 million of cash proceeds.

We have retained approximately 58% of the equity interest in ANP following the private placement.

ANP’s net income or loss after July 2, 2018, is attributed to us in accordance with our equity interest of approximately 58% in ANP.

We retained approximately 58% of the equity interest in ANP following the private placement.

During the third quarter of 2021, we restructured the equity ownership of ANP, whereby we repurchased an additional ownership interest in ANP from certain equity holders of ANP (the “Sellers”), and split-off certain subsidiaries of ANP.

We paid approximately $29.4 million in cash and contributed approximately 80% of Hanxin Pharmaceutical Technology Co., Ltd, or Hanxin, to the Sellers in exchange for additional ownership interest in ANP, resulting in our ownership of ANP increasing to approximately 85%, while ANP retained approximately 20% of ownership in Hanxin.

Hanxin’s wholly-owned subsidiaries, Nanjing Baixin Trading Co., Ltd., and Nanjing Letop Biological Technology Co., Ltd., were included in the split-off of Hanxin.

In August 2021, we entered into a second Share Purchase Agreement, or Second SPA, with the other remaining equity holder of ANP to acquire the remaining approximately 15% of ownership interest in ANP.

The total cash paid for this transaction was approximately $22.5 million.

As a result of the transaction, our ownership interest in ANP increased to 100%.

The Sellers in both transactions include some of our executive officers, directors and other related parties who participated in the ANP Private Placement in 2018, see Note 3 to the condensed consolidated financial statements.

The reduction of our ownership in Hanxin to 20%, resulted in ANP experiencing a “loss of control” of a subsidiary as defined by generally accepted accounting principles, or GAAP.

Loss of control is deemed to have occurred when, among other things, a parent company owns less than a majority of the outstanding common stock in the subsidiary, lacks a controlling financial interest in the subsidiary and, is unable to unilaterally control the subsidiary through other means such as having, or being able to obtain, the power to elect a majority of the subsidiary's board of directors based solely on contractual rights or ownership of shares holding a majority of the voting power of the subsidiary's voting securities.

These loss-of-control factors were met with respect to ANP’s ownership interest in Hanxin after the restructuring.

Accordingly, we deconsolidated Hanxin and recorded a $13.6 million gain on deconsolidation, which is recognized in other income (expenses), net in the consolidated statement of operations.

Subsequent to the restructuring, during the third quarter of 2021, Hanxin received additional capital contributions from its equity owners further reducing ANP’s ownership interest to approximately 14%.

In addition to the retained noncontrolling investment in Hanxin, we maintain a seat on Hanxin’s board of directors.

Additionally, Henry Zhang, a relative of Dr.

Jack Zhang and Dr.

Mary Luo, holds a significant stake in Hanxin and is Hanxin’s General Manager and Chairman of the Board of Directors.

As a result, we determined that we have significant influence over Hanxin, and as such, the retained noncontrolling investment in Hanxin is accounted for as an equity method investment.

Hanxin continues to be a related party subsequent to the restructuring.

COVID-19 Pandemic

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

States, China and France.

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

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

We are actively monitoring the COVID-19 pandemic, including the Omicron variant, and its impact globally.

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

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

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

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

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

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

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

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

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

We saw these trends continue in late 2020 and early 2021 when COVID-19 cases trended higher.

The sales of these products, frequently used in elective procedures, returned to their normal level by the second quarter of 2021.

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

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

Additionally, certain suppliers had difficulties meeting their delivery commitments.

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

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

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

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

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

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

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(1) finished pharmaceutical products and (2) API products.

The finished pharmaceutical products segment manufactures markets and distributes Primatene Mist ® , enoxaparin, naloxone, phytonadione, lidocaine, as well as various other critical and non-critical care drugs.

The finished pharmaceutical products segment manufactures markets and distributes Primatene Mist ® , glucagon, enoxaparin, naloxone, phytonadione, lidocaine, as well as various other critical and non-critical care drugs.

The API segment manufactures and distributes RHI API and porcine insulin API for external customers and internal product development.

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Total finished pharmaceutical products net revenues

The increase in sales of Primatene Mist ® for the year ended December 31, 2020 was a result of the continued success of our nationwide digital, television and radio campaign, which will continue throughout 2021.

Additionally, sales of Primatene Mist ® increased as we increased our distribution channels, selling online on Amazon and to Kroger, the largest grocery store chain in the United States starting in the third quarter of 2020.

The increase in sales of enoxaparin was primarily due to an increase in unit volume, as a result of a competitor leaving the market.

The increase in sales of epinephrine was primarily due to the launch of our epinephrine injection, USP 30mg/30mL multiple dose vial product in the second quarter of 2020.

During the second and fourth quarters of 2020, we experienced lower demand for certain products which are frequently used in elective procedures, including lidocaine products and some products such as Cortrosyn ® which are included in other finished pharmaceutical products.

We attribute these declines in products used in elective procedures to a nationwide decline in such procedures by hospitals and individuals in response to the COVID-19 pandemic.

These declines were partially offset by a $5.9 million increase in sales of sodium bicarbonate, included in other finished pharmaceutical products, as we were able to utilize the new production line approved by the FDA earlier in the year to meet strong market demand.

We saw lower volume of several other finished pharmaceutical products including calcium chloride, dextrose and atropine, as a competitor who experienced shortages in 2019 returned to the market in 2020.

We launched glucagon for injection emergency kit, 1mg in the first quarter of 2021.

The continued growth in sales of Primatene Mist ® was due to increased unit volumes, which was primarily a result of the continued success of our advertising campaign.

The increase in sales of epinephrine was primarily due to the launch of our epinephrine injection, USP 30mg/30mL multiple dose vial product in the second quarter of 2020, as well as an increase in unit volumes, as a result of higher demand due to a market shortage for pre-filled syringes.

The increase in sales of phytonadione was primarily due to higher average selling price.

The increase in sales of lidocaine was primarily due to an increase in unit volumes, as a result of a market shortage.

Sales of enoxaparin decreased $12.7 million due to a decrease in unit volumes, as well as a lower average selling price as a competitor re-entered the market during the second quarter of 2021.

decrease in sales of naloxone was primarily due a decrease in unit volumes as well as lower average selling price as a result of a competitor entering the market.

The decrease in other finished pharmaceutical products was primarily due to lower unit volumes as a result of competitors returning to their normal distribution levels during the year after being unable to supply market demands in 2020.

We anticipate that sales of naloxone and enoxaparin will continue to fluctuate in the future as a result of changing levels of competition.

Sales of API primarily depend on the timing of customer purchases.

In May 2021, we amended the Supply Agreement with MannKind, whereby MannKind’s aggregate total commitment of RHI API under the Supply Agreement was modified and extended for an additional year through 2027, which timeframe would have previously lapsed after calendar year 2026.

MannKind has agreed to pay us an amendment fee of $2.0 million.

We received the first payment of the amendment fee of $1.0 million in June 2021 which we recognized in net revenues during the year ended December 31, 2021.

The remaining $1.0 million of the amendment fee was received in January 2022 and relates to the amendments to the 2022 supply level and will be recognized ratably to net revenues in 2022.

We anticipate that sales of API will continue to fluctuate and may decrease due to the inherent uncertainties related to sales to MannKind Corporation pursuant to our supply agreement with them.

In addition, most of our API sales are denominated in euros, and the fluctuation in the

value of euros versus the U.S.

In addition, most of our API sales are denominated in euros, and the fluctuation in the value of euros versus the U.S.

dollar has had, and will continue to have, an impact on API sales revenues in the near term.

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

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

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

Gross Margins

Gross margins remained approximately the same compared to the prior period.

We saw an increase in sales of Primatene Mist ® and launched epinephrine injection multiple dose vial, which are both higher-margin products.

These increases in gross margins were offset by charges included in cost of revenue to adjust our inventory and related purchase commitments to their net realizable value.

Additionally, the gross margin in 2019 benefited from a one-time $2.8 million amendment fee paid by MannKind, which temporarily increased gross margin as a percentage of revenue in 2019.

The cost of heparin, which is the starting material for enoxaparin, has increased and is expected to increase further, putting downward pressure on our gross margins.

However, we believe that this trend will be offset by sales of our higher-margin products, such as Primatene Mist ® , and epinephrine multi dose vials, which were launched over the past few years and by glucagon which was launched in 2021.

Additionally, we have not seen significant supply disruption due to the COVID-19 pandemic at this time, but we are carefully monitoring for any potential problems.

The increase in sales of Primatene Mist ® , the launch of glucagon for injection emergency kit during the first quarter of 2021, and the launch of our epinephrine injection multiple dose vial in the second quarter of 2020, which are all higher-margin products, helped increase our gross margins for the year ended December 31, 2021.

These increases in gross margins were partially offset by lower pricing and increased costs for enoxaparin, particularly the cost for heparin raw material, which is used as the starting material for enoxaparin.

We are experiencing increased costs for labor and certain purchased components.

Additionally, the cost of heparin may increase further, putting downward pressure on our gross margins.

However, we believe that this trend will be offset by increased sales of our higher-margin products, including Primatene Mist ® , glucagon and new products we anticipate launching in 2022.

Selling, distribution, and marketing, and general and administrative

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General and administrative

The increase in selling, distribution, and marketing expenses was primarily due to marketing and distribution expenses related to Primatene Mist ® , including the cost of a national digital, television and radio marketing campaign which began in July 2019.

The increase in general and administrative expense was primarily due to an expense of $4.9 million relating to cash compensation and share-based compensation expense in connection with a separation agreement with a former executive during the second quarter of 2020.

This was partially offset by a decrease in legal expenses as a result of the enoxaparin patent and antitrust litigation settlement reached in the second quarter of 2019.

The increase in selling, distribution, and marketing expenses was primarily due to marketing and distribution expenses related to Primatene Mist ® , including the cost of creating a new commercial for our national digital, television and radio marketing campaign.

The increase in general and administrative expense was primarily due to an increase in legal expenses (see Note 20 to the consolidated financial statements for more information regarding litigation matters).

This was partially offset by a decrease in compensation expense relating to the separation agreement that we entered into with a former executive during the second quarter of 2020.

We expect that selling, distribution and marketing expenses will increase due to the increase in marketing expenditures for Primatene Mist ® .

We expect that general and administrative expenses will increase on an annual basis due to increased costs associated with ongoing compliance with public company reporting obligations.

Legal fees may fluctuate due to the timing of patent challenges and other litigation matters.

Legal fees may fluctuate from period to period due to the timing of patent challenges and other litigation matters.

Research and development

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Total research and development expenses

Clinical trial expense decreased due to the completion of one of our external studies in 2020 and the delay in other studies caused by COVID-19.

The decrease in testing, operating and lab supplies was primarily due to a decrease in expenses at our ANP facility.

The decrease in research and development expenses is primarily due to a decrease in clinical trial expense as a result of the completion of one of our clinical trial studies at the end of 2020, and delays in other studies.

Additionally, the restructuring of ANP and the deconsolidation of Hanxin and its subsidiaries resulted in a decrease in our testing, operating and lab supplies expenses.

Research and development costs consist primarily of costs associated with the research and development of our product candidates including the cost of developing APIs.

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As we undertake new and challenging research and development projects, we anticipate that the associated costs will increase significantly over the next several quarters and years.

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

These conditions may in turn delay spending and delay the results of these trials.

Over the past year, some of our ongoing clinical trials experienced short term interruptions in the recruitment of patients due to the COVID-19 pandemic, as hospitals prioritized their resources towards the COVID-19 pandemic and government imposed travel restrictions.

These conditions may in turn delay spending and the results of these trials.

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

Other income (expense), net

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(in thousands)

Other income (expenses), net

In June 2019, we recognized a gain of $59.9 million relating to our settlement of the enoxaparin patent and antitrust litigation with Momenta Pharmaceuticals, Inc.

and Sandoz Inc.

In December 2020, we recorded $12.8 million of expense in connection with the Aventis litigation.

For more information regarding our litigations matters, see Note 20 to the consolidated financial statements.

This was partially offset by $5.1 million relating to foreign currency gains in 2020.

Other income (expense), net

During the third quarter of 2021, we completed the restructuring of ANP, whereby our ownership interest in ANP increased to 100% and ANP’s ownership interest in Hanxin and its subsidiaries was reduced to approximately 14%.

As a result of the loss in control over Hanxin, we deconsolidated Hanxin and recorded a $13.6 million gain on deconsolidation.

For more information regarding our ANP restructuring, see Note 3 to the consolidated financial statements.

We received a settlement payment, net of contingent legal fees, in the amount of $2.7 million.

The payment was related to the settlement of a legal dispute and is recorded as other income (expense), see Note 2 to the consolidated financial statements.

Income tax provision

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Our tax rate is affected by recurring items, such as tax rates in non-U.S.

jurisdiction as compared to notional U.S.

federal statutory tax rate, and the relative amount of income or loss in those various jurisdictions.

It is also impacted by certain items that may occur in any given period, but are not consistent from period to period.

jurisdictions as compared to statutory U.S.

federal and state tax rates, and the relative amount of income or loss in those various jurisdictions.

It is also impacted by

certain items that may occur in any given period, but are not consistent from period to period.

For additional information on our income taxes, including information about the impact of the CARES Act, refer to Note 15 to the consolidated financial statements.

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We expect our cash requirements to increase significantly in the foreseeable future as we sponsor clinical trials for, seek regulatory approvals of, and develop, manufacture and market our current development-stage product candidates and pursue strategic acquisitions of businesses or assets.

Our future capital expenditures include projects to upgrade, expand, and improve our manufacturing facilities in the United States, China, and France.

Our future capital expenditures include projects to upgrade, expand, and improve our manufacturing facilities in the United States and China, including a significant increase in capital expenditure in 2022.

We plan to fund this facility expansion with cash flows from operations.

Our cash obligations include the principal and interest payments due on our existing loans and lease payments, as described below and throughout this Annual Report on Form 10-K.

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We believe that our cash reserves, operating cash flows, and borrowing availability under our credit facilities will be sufficient to fund our operations for at least the next 12 months.

We expect additional cash flows to be generated in the longer term from future product introductions, although there can be no assurance as to the receipt of regulatory

approval for any product candidates that we are developing or the timing of any product introductions, which could be lengthy or ultimately unsuccessful.

We maintain a shelf registration statement on Form S-3 pursuant to which we may, from time to time, sell up to an aggregate of $250 million of our common stock, preferred stock, depositary shares, warrants, units, or debt securities.

We expect additional cash flows to be generated in the longer term from future product introductions, although there can be no assurance as to the receipt of regulatory approval for any product candidates that we are developing or the timing of any product introductions, which could be lengthy or ultimately unsuccessful.

We maintain a shelf registration statement on Form S-3 pursuant to which we may, from time to time, sell up to an aggregate of $250 million of our common stock, preferred stock, debt securities, depositary shares, warrants, subscription rights, purchase contracts, or units.

If we require or elect to seek additional capital through debt or equity financing in the future, we may not be able to raise capital on terms acceptable to us or at all.

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Effect of exchange rate changes on cash

Net increase (decrease) in cash, cash equivalents, and restricted cash

Net increase in cash, cash equivalents, and restricted cash

Sources and Use of Cash

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Net cash provided by operating activities was $98.0 million for the year ended December 31, 2021, which included net income of $63.3 million.

Non-cash items comprised primarily of $26.8 million of depreciation and amortization, $18.7 million of share-based compensation expense and a $13.6 million gain relating to the deconsolidation of Hanxin and its subsidiaries as result of the ANP restructuring during the third quarter of 2021.

Additionally, for the year ended December 31, 2021, there was a net cash outflow from changes in operating assets and liabilities of $1.9 million, which resulted from an increase in accounts receivable, which was partially offset by a decrease in inventory, as well as an increase in accounts payable and accrued liabilities.

Accounts payable and accrued liabilities increased primarily due to the timing of payments.

The increase in accounts receivable was due to both increases in sales and the timing of sales.

Net cash provided by operating activities was $57.3 million for the year ended December 31, 2020, which included net income of $1.1 million.

Non-cash items comprised primarily of $25.2 million of depreciation and amortization, and $20.5 million of share-based compensation expense.

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The increase in accounts receivable was due to the timing of sales.

Net cash provided by operating activities was $41.8 million for the year ended December 31, 2019, which included net income of $46.5 million, primarily as a result of the receipt of the $59.9 million relating to the litigation settlement with Momenta Pharmaceuticals, Inc.

and Sandoz Inc.

Non-cash items were primarily comprised of $18.1 million of depreciation and amortization, and $17.3 million of share-based compensation expense.

Additionally, there was a net cash outflow from changes in operating assets and liabilities of $51.7 million which resulted from the decrease in accounts receivable, offset by an increase in inventory, as well as a decrease in accounts payable and accrued liabilities.

The decrease in accounts receivable was due to the timing of sales.

The increase in inventory was primarily due to increased purchases of raw materials and the production of finished goods for enoxaparin and Primatene Mist ® with an impact of $29.2 million and $9.3 million, respectively.

We utilized deferred tax credits to offset a significant portion of the tax liability related to our 2019 U.S.

federal and California state taxable income,

resulting in only $4.6 million tax payments.

Accounts payable and accrued liabilities decreased primarily due to the timing of payments.

Investing Activities

Net cash used in investing activities was $28.7 million for the year ended December 31, 2021, primarily as a result of $27.5 million in purchases of property, plant, and equipment, which included $15.3 million incurred in the United States, $0.8 million in France, and $11.4 million in China.

Additionally, we purchased $1.1 million in short-term investments in 2020.

Net cash used in investing activities was $36.4 million for the year ended December 31, 2020, primarily as a result of $33.9 million in purchases of property, plant, and equipment, which included $11.5 million incurred in the United States, $2.9 million in France, and $19.5 million in China.

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Financing Activities

Net cash used in financing activities was $37.0 million for the year ended December 31, 2021, primarily as a result of $53.6 million in payments relating to the purchase of additional ANP ownership interest in connection with the ANP restructuring completed during the third quarter of 2021 (see Note 3 to the condensed consolidated financial statements).

We borrowed $70.0 million in connection with a credit agreement with Capital One N.A., which was partially offset by $37.9 million in principal payments on our long-term debt and lines of credit.

We used $28.9 million to purchase treasury stock and received $15.9 million in net proceeds from the settlement of share-based compensation awards under our equity plans.

Net cash used in financing activities was $2.2 million for the year ended December 31, 2020, primarily as a result of $24.4 million used to purchase treasury stock offset by $23.2 million in net proceeds from the settlement of share-based compensation awards under our equity plans.

Additionally, we also made $8.4 million in principal payments on our long-term debt and received $7.5 million from borrowings on our lines of credit, of which $3.1 million was converted into an equipment loan during the year.

Net cash used in financing activities was $3.8 million for the year ended December 31, 2019, primarily as a result of $22.3 million used to purchase treasury stock, which was partially offset by the receipt of $18.3 million for the ANP private placement, and $3.4 million in net proceeds received from our equity plans.

Additionally, we received $3.6 million from borrowings on an equipment line of credit, and made $6.8 million in principal payments on our long-term debt and lines of credit.

Debt and Borrowing Capacity

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Long-term debt

As of December 31, 2020, we had $56.0 million in unused borrowing capacity under revolving lines of credit and equipment lines of credit with Cathay Bank, East West Bank, and China Merchant Bank.

Lines of credit bear variable interest rates and are secured by inventory, accounts receivable, intangible assets, and equipment.

As of December 31, 2021, we had $84.6 million in unused borrowing capacity under revolving lines of credit with Capital One N.A.

and China Merchant Bank.

The weighted average interest rates on lines of credit as of December 31, 2021 and 2020 were 1.8% and 3.8%, respectively.

We have also entered into or refinanced certain mortgage and equipment loans with Cathay Bank and East West Bank, which bear variable or fixed interest rates and are secured by buildings and equipment.

On certain loans with East West Bank, we have entered into fixed interest rate swap contracts to exchange the variable interests for fixed interest rates without the exchange of underlying notional debt amounts.

For our loans with Capital One N.A.

and East West Bank, we have entered into fixed interest rate swap contracts to exchange the variable interests for fixed interest rates.

For more information regarding our outstanding indebtedness, see “Part II – Item 8.

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Revenues derived from contract manufacturing services are recognized when third-party products are shipped to customers, after customers have accepted test samples of the products to be shipped.

The results for the reporting period beginning after January 1, 2018, are presented in accordance with the new standard, although comparative information continues to be reported under the accounting standards and policies in effect for those periods.

The results for the reporting period beginning after January 1, 2018, are presented in accordance

with the new standard, although comparative information continues to be reported under the accounting standards and policies in effect for those periods.

Our net revenues consist principally of revenues generated from the sale of our pharmaceutical products.

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As discussed under “Accrual for Product Returns” below, we are generally obligated to accept from our customers the return of pharmaceuticals that have reached or will soon reach their expiration dates.

We establish reserves for such amounts

based on historical experience and other information available at the time of sale, but the actual returns will not occur until several years after the sale.

We establish reserves for such amounts based on historical experience and other information available at the time of sale, but the actual returns will not occur until several years after the sale.

Although we believe that our estimates and assumptions are reasonable as of the date when made, actual results may differ significantly from these estimates.

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● anticipated pricing strategy changes by us and/or our competitors.

Service revenues derived from research and development contracts is recognized over time based on progress toward complete satisfaction of the performance obligation.

For each performance obligation satisfied over time, we assess the proper method to be used for revenue recognition, either an input method to measure progress toward the satisfaction of services or an output method of determining the progress of completion of performance obligation.

Revenue from research and development services at ANP was $5.1 million.

Provision for Chargebacks and Rebates

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Wholesaler chargebacks relate to sales terms under which we agree to reimburse wholesalers for differences between the gross sales prices at which we sell our products to wholesalers and the actual prices of such products that wholesalers resell them under our 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.

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.

We estimate 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.

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Accounts receivable and/or accounts payable and accrued liabilities are reduced and/or increased by the chargebacks and rebate amounts depending on whether we have 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,

which were included in accounts payable and accrued liabilities, respectively.

Of the provision for chargebacks and rebates as of December 31, 2021 and 2020, $15.6 million and $16.4 million were included as a reduction to accounts receivable, net, on the consolidated balance sheets, respectively.

The remaining provision as of December 31, 2021 and 2020, was $4.6 million and $4.0 million, which were included in accounts payable and accrued liabilities, respectively.

Accrual for Product Returns

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Inventories are stated using the first-in, first-out method, on a consistent basis.

Inventory is stated at the lower of cost and net realizable value.

Inventory is stated at the lower of cost or net realizable value.

We adjust inventories to their net realizable value:

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We review long-lived assets and definite-lived identifiable intangible assets or asset groups for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

regulatory agencies regarding the safety and efficacy of our products under review, the use of the asset in current research and development projects, any potential alternative uses of the asset in other research and development projects in the short-to-medium term, clinical trial results and research and development portfolio management options.

Such events and circumstances include decisions by the FDA regarding evidence of effectiveness of proprietary drug candidates or bioequivalence (sameness) of our generic product candidates as compared to the reference drug, communication with the regulatory agencies regarding the safety and efficacy of our products under review, the use of the asset in current research and development projects, any potential alternative uses of the asset in other research and development projects in the short-to-medium term, clinical trial results and research and development portfolio management options.

Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset or asset groups and its eventual disposition.

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The number of years for which we can be subject to audit varies depending on the tax jurisdiction.

While it is often difficult to predict the final outcome or the timing of the resolution of an audit, we believe that our reserves for uncertain tax benefits reflect the outcome of tax positions that is more likely than not to occur.

While it is often difficult to predict the final outcome or the timing of the resolution of an audit, we believe that our

reserves for uncertain tax benefits reflect the outcome of tax positions that is more likely than not to occur.

The resolution of a matter could be recognized as an adjustment to our provision for income taxes and our effective tax rate in the period of resolution, and may also require a use of cash.

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The options have a contractual term of five to ten years and generally vest over a three- to five-year period.

For awards issued prior to the listing of our common stock on The Nasdaq Global Select Market, or Nasdaq, the fair value of the common stock utilized in the fair value estimation of award arrangements has been determined by our board of directors, utilizing contemporaneous third-party valuations.

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.

We use the Black-Scholes option pricing model to determine the fair value of options awards.

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Prior to 2020, our volatility estimate was based on the weighted average historical volatility of our stock price and the stock price from a set of peer companies, since our shares did not have sufficient trading history.

We consider factors such as stage of life cycle, competitors, size, market capitalization and financial leverage in the selection of

similar entities.

We consider factors such as stage of life cycle, competitors, size, market capitalization and financial leverage in the selection of similar entities.

Our dividend yield was assumed to be 0%, because we have no plans to pay dividends.

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Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or 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 our interim and annual reporting periods during the year ended December 31, 2021, with early adoption permitted.

We are currently evaluating the impact that the adoption of this guidance will have on our consolidated financial statements and related disclosures.

There have been no recent accounting pronouncements or changes in accounting pronouncements during the year ended December 31, 2021 that could have a material impact on our balance sheets or statement of operations.

Non-GAAP Financial Measures

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In addition, we do not engage in trading activities involving non-exchange traded contracts.

Investment in China

In accordance with certain agreements between ANP and the Chinese government, in January 2010 and November 2012, we acquired certain land-use rights for $1.2 million and $1.3 million, respectively.

As required by these agreements, we were committed to spend approximately $15.0 million in the related land development, which primarily included the construction of fixed assets according to a specific timetable.

As of December 31, 2020, we have spent $19.5 million on such construction, fulfilling our commitment.

Government Regulation

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The Drug Enforcement Administration, or DEA, maintains oversight over our products that are considered controlled substances.

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

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

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

a “paper inspection”).

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

From June 14 through June 22, 2021, our Amphastar facility in Rancho Cucamonga, California was subject to a pre-approval inspection by the FDA.

The inspection included a review of our corrective actions taken from the previous cGMP inspection in February 2019, as well as review of data to support our pending applications.

The inspections resulted in multiple observations on Form 483.

We fully responded to those observations on July 14, 2021.

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

From July 12 through July 16, 2021, our IMS facility in South El Monte, California was subject to a post-approval inspection by the FDA.

The inspection included a review progress and updates since the October 2019 pre-approval inspection.

The inspection resulted in no Form 483 findings.

No further actions will be necessary.

From July 12 through July 14, 2021, our Armstrong facility in Canton, Massachusetts was subject to a routine inspection by the FDA.

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

The inspection resulted in no Form 483 findings.

No further actions will be necessary.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis