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Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-03-11 · 111 added, 119 removed, 261 unchanged (47% of the section changed)

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For a discussion of the year ended December 31, 2021, to the year ended December 31, 2020, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 11, 2022, which discussion is hereby incorporated herein by reference.

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

We are a bio-pharmaceutical company focusing primarily on developing, manufacturing, marketing, and selling technically challenging generic and proprietary injectable, inhalation, intranasal, and insulin API products.

We currently manufacture and sell over 20 products.

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

In April 2022, the FDA approved our ganirelix acetate injection 250mg/0.5mL prefilled syringe, which we launched in June 2022.

In July 2022, the FDA approved our vasopressin injection, USP 20 Units/mL, 1 mL single-dose vial, which we launched in August 2022.

In May 2022, the FDA approved our regadenoson injection, 0.08mg/mL, 5mL, single-dose prefilled syringe.

The timing of the launch of this product is subject to a confidential settlement agreement with the product’s innovator.

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.

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.

Three of the ANDAs and one new drug application, or NDA, are currently on file with the FDA.

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.

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 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.

In 2021, we completed the restructuring of our Chinese subsidiary, ANP, resulting in the reduction of ANP’s ownership of Hanxin Pharmaceutical Technology Co., Ltd, or Hanxin to 14%.

See Note 3 in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report on Form 10-K.

As a result of the restructuring, we determined that we have significant influence over Hanxin and as such the retained non-controlling 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

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

The ongoing COVID-19 pandemic and the resulting containment measures that have been in effect from time to time in various countries and territories since early 2020 have had a number of substantial negative impacts on businesses around the world and on global, regional, and national economies, including widespread disruptions in supply chains for a wide variety of products and resulting increases in the prices of many goods and services.

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.

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 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 governments imposed 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.

Additionally, certain suppliers had difficulties meeting their delivery commitments, and we are experiencing longer lead times for components.

For example, in the first quarter of 2022, increases in COVID-19 cases in Shanghai, China, led to shutdowns and delays at the ports in Shanghai, which led to temporary delays in shipping certain APIs and starting materials from our facility in China to our U.S.

Future shutdowns could have an adverse impact on our operations.

However, the extent of the impact of any future shutdown or delay is highly uncertain and difficult to predict.

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.

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

Macroeconomic Trends and Uncertainties

The Russia-Ukraine conflict and resulting sanctions and other actions against Russia have led to uncertainty and disruption in the global economy.

Although the conflict has not had a direct material adverse impact on our revenues or other financial results, one of our insulin API customers in Western Europe, that previously bought our product and resold it into Russia, did not purchase API from us this year.

We are closely monitoring the events of the Russia-Ukraine conflict and its impact on Europe and throughout the rest of the world.

It is not clear at this time how long the conflict will endure, or if it will escalate further, which could further compound the adverse impact to the global economy and consequently affect our results of operations.

Certain other worldwide events and macroeconomic factors, such as international trade relations, new legislation and regulations, taxation or monetary policy changes, political and civil unrest, supply chain disruptions, inflationary pressures, and rising interest rates, among other factors, also increase volatility in the global economy.

For example, the United States has recently experienced historically high levels of inflation.

According to the U.S.

Department of Labor, the annual inflation rate for the United States was approximately 6.5% as of December 2022.

The existence of inflation in the United States, and global economy has and may continue to result in higher interest rates and capital costs, increased costs of labor, weakening exchange rates and other similar effects.

See Item 1A, “Risk Factors” for further discussion of the possible impact of the Russia-Ukraine conflict and other macroeconomic factors on our business.

Business Segments

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

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 finished pharmaceutical products segment manufactures, markets and distributes Primatene MIST ® , epinephrine, glucagon, phytonadione, lidocaine, enoxaparin, naloxone, 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

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.

Primatene MIST ® sales continued to grow in 2022 as a result of 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 an increase in unit volumes, due to an increase in demand caused by competitor shortages, contributing $9.0 million in sales, as well as a higher average selling price, which contributed $7.7 million to the increase in sales.

The increase in sales of glucagon was primarily due to an increase in unit volumes as the prior year period did not include a full year of sales due to glucagon’s launch in the first quarter of 2021.

The increase in sales of lidocaine was primarily due to an increase in unit volumes, which contributed $4.4 million, as well as a higher average selling price, which contributed $3.8 million to the increase in sales.

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

The decrease in sales of naloxone was primarily due to a decrease in average selling price, which caused a decrease of $3.2 million, which was partially offset by an increase in unit volumes contributing $1.9 million.

The increase in other finished pharmaceutical products was primarily due to higher unit volumes of calcium chloride, dextrose and sodium bicarbonate, due to increased demand caused by competitor shortages, as well as the launch of ganirelix and vasopressin in June 2022 and August 2022, respectively.

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

We also anticipate that sales of epinephrine and other finished pharmaceutical products will continue to fluctuate depending on the ability of our competitors to supply market demands.

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.

One of our insulin API customers in Western Europe that previously bought our product and resold it into Russia did not purchase API this year, which resulted in a decline of $2.0 million in API sales.

In May 2021, we amended the Supply Agreement with MannKind Corporation, 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 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.

The remaining $1.0 million of the amendment fee was received in January 2022, which we recognized in net revenues during the year ended December 31, 2022 and relates to the amendments to the 2022 supply level.

We anticipate that sales of API will continue to fluctuate and may decrease due to the inherent uncertainties related to sales to MannKind 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.

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

dollar has had, and may 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.

However, as of December 31, 2022, we experienced a backlog of approximately $7.0 million for various products, partially as a result of competitor shortages, supplier constraints and labor shortages at our facilities in California.

We are currently working on resolving backlog related issues and believe that we will be able to reduce the backlog in the near future.

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

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.

The increase in sales of Primatene MIST ® , epinephrine and glucagon, which are higher-margin products, helped increase our gross margins for the year ended December 31, 2022.

These increases in gross margins were partially offset by an overall increase in labor and input costs.

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.

Additionally, the cost of heparin may fluctuate, which could put 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, vasopressin, ganirelix and our pipeline products.

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 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 ® .

The increase in selling, distribution and marketing expenses was primarily due to increased freight expenses and an increase in advertising spending for Primatene MIST ® .

The decrease in general and administrative expense was primarily due to a decrease in legal expenses and a decrease in expenses in China due to the ANP restructuring in 2021.

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

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

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Clinical trials

Testing, operating and lab supplies

Materials and supplies

Other expenses

Total research and development expenses

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.

The increase in research and development expenses is primarily due to an increase in materials and supplies as a result of an increase in expenditures on raw materials and components for our AMP-018 and insulin products.

Additionally, clinical trial expense increased due to external studies related to our insulin and inhalation product pipeline.

Reductions of salaries, depreciation and other expenses are related to the restructuring of our subsidiary in China.

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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We have made, and expect to continue to make, substantial investments in research and development to expand our product portfolio and grow our business.

We expect that research and development expenses will increase on an annual basis due to increased clinical trial costs related to our biosimilar and inhalation product candidates.

We expect that research and development expenses will increase on an annual basis due to increased clinical trial costs related to our insulin and inhalation product candidates.

These expenditures will include costs of APIs developed internally as well as APIs purchased externally, the cost of purchasing reference listed drugs and the costs of performing the clinical trials.

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.

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.

These conditions may continue to increase the costs of clinical trials and also delay spending and results of these trials.

Other income (expense), net

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(in thousands)

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%.

Other income (expenses), net

In January 2022, we received a settlement of $5.4 million in connection with the Regadenoson patent litigation.

For more information regarding our litigation matters, see Note 19 in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report on Form 10-K.

In 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.

For more information regarding our ANP restructuring, see Note 3 in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report on Form 10-K.

Income tax provision

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Effective tax rate

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

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.

Our effective tax rate for the year ended December 31, 2022 decreased in comparison to the year ended December 31, 2021, primarily due to differences in pre-tax income positions and excess tax benefit from share-based compensation.

For more information regarding our income taxes, see Note 15 to the consolidated financial statements.

Liquidity and Capital Resources

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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 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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Net cash provided by operating activities was $89.2 million for the year ended December 31, 2022, which included net income of $91.4 million.

Non-cash items comprised primarily of $28.7 million of depreciation and amortization and $17.9 million of share-based compensation expense.

Additionally, for the year ended December 31, 2022, there was a net cash outflow from changes in operating assets and

liabilities of $32.2 million, which resulted from an increase in accounts receivables;

an increase in inventories, as we increased purchases of certain raw materials and components;

as well as a decrease in accounts payable and accrued liabilities.

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

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

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.

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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.

Additionally, for the year ended December 31, 2020, there was a net cash inflow from changes in operating assets and liabilities of $9.1 million, which resulted from an increase in accounts payable and accrued liabilities and a decrease in inventory, which was partially offset by an increase in accounts receivable.

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

The decrease in inventory was a result of strong sales throughout the year and a decrease in purchases of raw materials of enoxaparin.

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

Investing Activities

Net cash used in investing activities was $32.8 million for the year ended December 31, 2022, primarily as a result of $24.0 million in purchases of property, plant, and equipment, which included $15.4 million incurred in the United States, $1.4 million in France, and $7.2 million in China.

Additionally, net cash outflows from purchases and sales of short-term investments during the period was $7.8 million.

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.

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).

Net cash used in financing activities was $26.4 million for the year ended December 31, 2022, primarily as a result of purchases of $39.9 million of treasury stock, which was partially offset by $15.7 million in net proceeds from the settlement of share-based compensation awards under our equity plan.

Additionally, we also made $1.8 million in principal payments on our long-term debt.

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 (For more information, see Note 3 in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report on Form 10-K).

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.

Debt and Borrowing Capacity

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As of December 31, 2022, we had an aggregate amount of approximately $58.2 million.

We anticipate that most of these commitments with a remaining term in excess of one year will be fulfilled by 2023.

Critical Accounting Policies

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Revenue Recognition

In 2018, we adopted ASC 606, Revenue from Contracts with Customers , or ASC 606, using the modified retrospective transition method.

The adoption of ASC 606 did not have a material impact on our revenues recognition or on the consolidated financial statements and related disclosures.

According to ASC 606, revenue is recognized at the time that our customers obtain control of the promised goods.

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.

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

We also generate a small amount of revenues from contract manufacturing services.

Generally, we recognize revenues at the time of product delivery to our customers.

Generally, we recognize revenues at the time of product delivery to our customers in accordance with ASC, 606 Revenue from Contracts with Customers .

In some cases, revenues are recognized at the time of shipment when stipulated by the terms of the sale agreements.

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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.

Service revenues derived from research and development contracts is recognized over time based on progress toward completion 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.

For the years ended December 31, 2022 and 2021, revenue from research and development services at ANP were $4.3 million and $5.1 million, respectively.

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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Ending balance

Changes in the chargeback provision from period to period are primarily dependent on our sales to wholesalers, the level of inventory held by wholesalers, and the wholesalers’ customer mix.

Changes in the chargeback provision from period to period are primarily dependent on our 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.

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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, 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.

Of the provision for chargebacks and rebates as of December 31, 2022 and 2021, $20.5 million and $15.6 million were included as a reduction to accounts receivable, net, on the

consolidated balance sheets, respectively.

The remaining provision as of December 31, 2022 and 2021, was $6.1 million and $4.6 million, respectively, were included in accounts payable and accrued liabilities on the consolidated balance sheets.

Accrual for Product Returns

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The accrual is based, in part, upon the historical relationship of product returns to sales and customer contract terms.

We also assess other factors that could affect product returns including market conditions, product obsolescence and the introduction of new competition.

We also assesses other factors that could affect product returns including market conditions, product obsolescence, and new competition.

Although these factors do not normally give our customers the right to return products outside of the regular return policy, we realize that such factors could ultimately lead to increased returns.

23 unchanged sentences

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.

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.

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.

16 unchanged sentences

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.

7 unchanged sentences

Treasury securities at the time of grant for instruments with maturities commensurate with the expected term of the stock option.

Starting in 2020, our volatility estimate was based on the weighted average historical volatility of our stock price since IPO.

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.

Our volatility estimate was based on the weighted average historical volatility of our stock price since IPO.

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

6 unchanged sentences

There have been no recent accounting pronouncements or changes in accounting pronouncements during the year ended December 31, 2022 that could have a material impact on our balance sheets or statement of operations.

Non-GAAP Financial Measures

We report our financial results in accordance with accounting principles generally accepted in the United States, or GAAP.

Off Balance Sheet Arrangements

5 unchanged sentences

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

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.

From May 17 through May 25, 2022, our IMS facility in South El Monte, California was subject to routine cGMP inspection by the FDA.

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

The inspection resulted in one observation on Form 483.

We responded to that observation.

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

From May 17, 2022 to June 30, 2022, five of our clinical trial sites were subject to pre-approval biomonitoring inspections by the FDA.

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

Each inspection resulted in no Form 483 findings.

No further actions will be necessary.

On June 21, 2022, our IMS facility in South El Monte, California was subject to routine inspection by the DEA.

The inspection included a review of manufacture, storage and handling of our controlled substances.

The inspection resulted in no findings.

No further actions will be necessary.

From July 18 through July 21, 2022, our Amphastar facility in Rancho Cucamonga, California was subject to a remote pre-approval inspection by the FDA.

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

The inspection resulted in no Form 483 findings.

No further actions will be necessary.

From November 22 through November 25, 2022, our AFP facility in France was subject to a GMP inspection from ANSM, the French Health Authority.

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

The inspection resulted in three observations that were provided during the inspection.

A final report from ANSM is forthcoming at which time we will provide a response.

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