What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-03-11 · 217 added, 419 removed, 970 unchanged (40% of the section changed)

36 unchanged sentences

As described in Note 4 to the consolidated financial statements, a provision for chargebacks is made at the time of sale and is analyzed and adjusted, if necessary, at each balance sheet date.

Auditing the provision for chargebacks estimate, the resulting impact of which is netted on the statement of operations against product sales, was complex, requires significant judgment, and the amounts involved are material to the financial statements taken as a whole.

Auditing the provision for chargebacks estimate, the resulting impact of which is netted on the statement of operations against product sales, was complex, requires significant judgment, and the

amounts involved are material to the financial statements taken as a whole.

The significant judgment primarily relates to the estimation of the future wholesale customer mix and related contract pricing, which determine the rates at which future chargebacks on current sales will be paid.

3 unchanged sentences

We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the provision for chargebacks estimation process.

This included testing controls over management’s review of significant assumptions and inputs used in the provision for chargebacks estimate, including actual sales, historical experience and wholesaler inventory levels, customer mix and contract pricing.

This included testing controls over management’s review of significant assumptions and inputs used in the provision for chargebacks estimate, including actual sales, historical experience, wholesaler inventory levels, customer mix and contract pricing.

To test the provision for chargebacks estimate, we obtained management’s calculations and performed the following procedures, among others.

1 unchanged sentence

We evaluated the reasonableness of significant assumptions (e.g., estimated wholesale customer mix and related contract pricing) by comparing rates at different time periods, including historical and subsequent periods, obtaining an understanding of the facts supporting the selected rates, and performing sensitivity analyses over those rates.

We assessed subsequent events to determine whether there was any new information that would require adjustment to the initial provision.

Inventory lower of cost or net realizable value estimate

We evaluated subsequent events to assess whether there was any new information that would require adjustment to the initial provision.

Enoxaparin inventory lower of cost or net realizable value estimate

Description of the Matter

2 unchanged sentences

As explained in Note 2 to the consolidated financial statements, the Company states inventory at the lower of cost and net realizable value.

realizable value is determined using the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the inventory.

Net realizable value is determined using the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the inventory.

Auditing management's estimate in determining the net realizable value of enoxaparin inventory involved subjective auditor judgment because the estimation of the average selling price relies on a number of factors that are affected by market conditions outside the Company's control.

In particular, the estimated selling price forecast is sensitive to significant assumptions, including demand for the Company’s products, customer mix, and expected competition.

How We Addressed the Matter in Our Audit

In particular, the estimated selling price forecast is sensitive to changes in significant assumptions, including demand for the Company’s products, customer mix, and expected competition.

How We Addressed the

We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company's lower of cost or net realizable value estimate process.

This included controls over management's assessment of assumptions such as future demand, customer mix and expected competition and data underlying the estimate, including but not limited to the completeness of the underlying inventory.

This included controls over management's assessment of assumptions such as future demand, customer

Matter in Our Audit

mix and expected competition and data underlying the estimate, including but not limited to the completeness of the underlying inventory.

Our substantive audit procedures included, among others, evaluating the significant assumptions stated above and the accuracy and completeness of the underlying data management used to value enoxaparin inventory.

We compared the cost of on-hand enoxaparin inventory and related purchase commitments to the estimated net realizable value estimated based on selling price forecasts and evaluated adjustments to the estimated selling price for specific considerations, such as new significant customers, competitors, or planned price changes.

We compared the cost of on-hand enoxaparin inventory and related purchase commitments to the estimated net realizable value estimated based on selling price forecasts.

We also evaluated adjustments to the estimated selling price for specific considerations, such as new significant customers, competitors, or planned price changes.

We evaluated the reasonableness of management’s forecasted selling price and whether expected changes in demand, competition, or customer mix were appropriate in comparison with the Company’s experience.

We also assessed the historical accuracy of management's estimates by performing retrospective reviews over prior periods' forecasted average selling prices and performed sensitivity analyses over the significant assumptions to evaluate the changes in the selling price forecast that would result from changes in the underlying assumptions.

Accounting for Amphastar Nanjing Pharmaceuticals, Inc.

restructuring transaction

Description of the Matter

In the third quarter of 2021, Amphastar Pharmaceuticals, Inc.

executed a Share Purchase Agreement (SPA) to acquire approximately 18% additional ownership interest in Amphastar Nanjing Pharmaceuticals, Inc.

(“ANP”) for approximately $29.4 million in cash and a Share Repurchase Agreement (SRA) to contribute 80% ownership interest in one of ANP’s wholly owned subsidiaries, Nanjing Hanxin Pharmaceutical Technology Co., Ltd.

("HX") (together with HX’s wholly owned subsidiaries), in exchange for approximately 10% additional ownership interest in ANP.

Upon completion of the restructuring, the Company owned approximately 85% of ANP and ANP owned approximately 20% of HX.

As described in Note 3 to the consolidated financial statements, the disposition of HX is accounted for under Accounting Standards Codification (ASC) 810 and the remaining interest in HX is recognized as an equity method investment.

The Company recorded a gain of $13.6 million for the year ended December 31, 2021 related to the ANP restructuring transaction.

In order to calculate the gain and equity method investment, management was required to estimate the fair value of both the shares received and equity method investment retained.

Auditing the restructuring transaction was complex due to the nature of it being a significant unusual transaction, the involvement of related parties, and significant estimation uncertainty in

assumptions used in the valuations of the shares received and equity method investment retained including the discount rate, revenue base and growth rate, gross margin, and earnings before interest and taxes (EBIT).

These significant assumptions are forward-looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over its accounting for the ANP restructuring transaction.

This included testing controls over management’s judgment and evaluation of underlying assumptions and estimates with regards to the fair values of the shares received and equity method investment retained.

Our substantive audit procedures included, among others, evaluating management’s conclusion that the SPA and SRA should be considered one transaction, and the appropriate accounting for the disposition of HX.

We also involved our valuation specialists to assist in testing the significant assumptions used.

For example, we compared the significant assumptions to current industry, market and economic trends, to the historical results of the entities and to other guidelines used by companies within the same industry.

Further, we assessed the Company’s disclosures related to the transaction pertaining to the related party transaction.

/s/ Ernst & Young LLP

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Treasury stock

Total Amphastar Pharmaceuticals, Inc.

stockholders’ equity

Non-controlling interests

Total liabilities and stockholders’ equity

10 unchanged sentences

Total operating expenses

Income (loss) from operations

Income from operations

Non-operating income (expenses):

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( 5,918,515 )

Beginning balance adjustment as a result of the adoption of new accounting standards

Net income attributable to Amphastar Pharmaceuticals, Inc.

Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.

Proceeds from the private placement of ANP

Other comprehensive income attributable to Amphastar Pharmaceuticals, Inc.

Acquisition of additional ownership interest in ANP

Net loss attributable to non-controlling interest

7 unchanged sentences

Net income attributable to Amphastar Pharmaceuticals, Inc.

Other comprehensive income attributable to Amphastar Pharmaceuticals, Inc.

Acquisition of additional ownership interest in ANP

Net loss attributable to non-controlling interest

Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.

ANP restructuring (see Note 3)

Net income attributable to non-controlling interest

Purchase of treasury stock

7 unchanged sentences

Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.

ANP restructuring (see Note 3)

Net income attributable to non-controlling interest

Purchase of treasury stock

14 unchanged sentences

Gain on deconsolidation of subsidiary

(Gain) loss on interest rate swaps and foreign currency transactions, net

Depreciation of property, plant, and equipment

1 unchanged sentence

Operating lease right-of-use asset amortization

(Income) loss on equity method investment

Equity in losses of unconsolidated affiliate

Share-based compensation expense

10 unchanged sentences

Purchases and construction of property, plant, and equipment

Proceeds from the sale of property, plant and equipment

Purchase of investments

3 unchanged sentences

Cash Flows From Financing Activities:

Proceeds from the private placement of ANP

Acquisition of additional ownership interest in ANP

10 unchanged sentences

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

Cash, cash equivalents, and restricted cash at beginning of period

2 unchanged sentences

Capital expenditure included in accounts payable

Operating lease right-of-use assets

Operating lease right-of-use assets in exchange for operating lease liabilities

Equipment acquired under finance leases

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amphastar Pharmaceuticals, Inc., a Delaware corporation (together with its subsidiaries, hereinafter referred to as the “Company”) is a bio-pharmaceutical company that develops, manufactures, markets, and sells generic and proprietary injectable, inhalation, and intranasal products, including products with high technical barriers to market entry.

Amphastar Pharmaceuticals, Inc., a Delaware corporation (together with its subsidiaries, hereinafter referred to as the “Company”) is a bio-pharmaceutical company that focuses primarily on developing, manufacturing, marketing, and selling technically challenging generic and proprietary injectable, inhalation, and intranasal products, including products with high technical barriers to market entry.

Additionally, the Company sells insulin active pharmaceutical ingredient, or API, products.

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The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, and are prepared in accordance with United States generally accepted accounting principles, or GAAP.

Certain prior period amounts have been reclassified within the operating activities of the consolidated statements of cash flows to conform to the current period presentation.

All intercompany activity has been eliminated in the preparation of the consolidated financial statements.

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(1) International Medication Systems, Limited, or IMS, (2) Armstrong Pharmaceuticals, Inc., or Armstrong, (3) Amphastar Nanjing Pharmaceuticals Inc., or ANP, (4) Amphastar France Pharmaceuticals, S.A.S., or AFP, (5) Amphastar UK Ltd., or AUK, and (6) International Medication Systems (UK) Limited, or IMS UK.

COVID-19 Pandemic

The Company is subject to risks and uncertainties as a result of the ongoing novel coronavirus pandemic, or COVID-19.

The complete extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the information is constantly evolving.

The Company considered the impact of COVID-19 on the assumptions and estimates used to determine the results reported and asset valuations as of December 31, 2021.

All of the Company’s production facilities continued to operate during the year as they had prior to the COVID-19 pandemic with very little change, other than for enhanced safety measures intended to prevent the spread of the virus.

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

The Company will continue to monitor the impact of COVID-19 on all aspects of its business.

Investments in Unconsolidated Affiliate

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Judgment regarding the level of influence over each equity method investment includes key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions.

The Company’s proportionate share of the earnings or losses resulting from these investments is reported as “Equity in earnings (losses) of unconsolidated affiliate” in the consolidated statements of operations.

The Company’s proportionate share of the earnings or losses resulting from these investments is reported as “Equity in losses of unconsolidated affiliate” in the accompanying consolidated statements of operations.

Investments accounted for using the equity method may be reported on a lag of up to three months if financial statements of the investee are not available in sufficient time for the investor to apply the equity method as of the current reporting date.

The determination of whether an investee’s results are recorded on a lag is made on an investment-by-investment basis.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The carrying value of equity method investments is reported as “Equity method investment” in the consolidated balance sheets.

The Company’s equity method investment are reported at cost and adjusted each period for the Company’s share of the investee’s earnings or losses and dividends paid, if any.

The carrying value of equity method investments is reported as “Investment in unconsolidated affiliate” in the accompanying consolidated balance sheets.

The Company’s equity method investments are reported at cost and adjusted each period for the Company’s share of the investee’s earnings or losses and dividends paid, if any.

The Company assesses equity method investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable.

1 unchanged sentence

No such impairment was identified for any of the periods presented.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

2 unchanged sentences

The principal accounting estimates include:

determination of allowances for credit losses, fair value of financial instruments, allowance for discounts, provision for chargebacks and rebates, provision for product returns, adjustment of inventory to its net realizable values, impairment of investment, long-lived and intangible assets and goodwill, accruals for workers’ compensation liabilities, litigation reserves, stock price volatilities for share-based compensation expense, valuation allowances for deferred tax assets, and liabilities for uncertain income tax positions.

determination of allowances for credit losses, fair value of financial instruments, allowance for discounts, provision for chargebacks and rebates, provision for product returns, adjustment of inventory to its net realizable value, impairment of investments, long-lived and intangible assets and goodwill, accrual for workers’ compensation liabilities, litigation reserves, stock price volatility for share-based compensation expense, valuation allowances for deferred tax assets, and liabilities for uncertain income tax positions.

Foreign Currency

4 unchanged sentences

These books are remeasured into the functional currency of USD using the current or historical exchange rates.

The resulting currency remeasurement adjustments and other transactional foreign currency exchange gains and losses are reflected in the Company’s consolidated statements of operations.

The resulting currency remeasurement adjustments and other transactional foreign currency exchange gains and losses are reflected in the Company’s accompanying consolidated statements of operations.

The Company’s French subsidiary, AFP, maintains its book of record in euros.

1 unchanged sentence

These local currencies have been determined to be the subsidiaries’ respective functional currencies.

These books of record are translated into USD using average exchange rates during the period.

Activities in the statements of operations are translated to USD using average exchange rates during the period.

Assets and liabilities are translated at the rate of exchange prevailing on the balance sheet date.

2 unchanged sentences

The unrealized gains or losses of intercompany foreign currency transactions that are of a long-term investment nature are reported in other accumulated comprehensive income (loss).

The unrealized gains and losses of intercompany foreign currency transactions that are of a long-term investment nature for the years ended December 31, 2021, 2020, and 2019 were a $ 2.6 million loss, a $ 3.0 million gain, and a $ 0.7 million loss, respectively.

Comprehensive Income (Loss)

For the years ended December 31, 2021, 2020 and 2019, the Company included its foreign currency translation gain (loss) and change in pension obligation of its defined benefit pension plan as part of its comprehensive income (loss) .

There was no material income tax provision (benefit) allocated to other comprehensive loss for the years ended December 31, 2021 and 2019.

The unrealized gains and losses of intercompany foreign currency transactions that are of a long-term investment nature for the years ended December 31, 2022, 2021, and 2020 were a $ 1.8 million loss, a $ 2.6 million loss, and a $ 3.0 million gain, respectively.

Comprehensive Income

The Company’s comprehensive income includes its foreign currency translation gains and losses as well as its share of other comprehensive income from its equity method investments.

There was no material income tax provision allocated to other comprehensive loss for the years ended December 31, 2022 and 2021.

Income tax expense of $ 0.9 million was allocated to other comprehensive income for the year ended December 31, 2020.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Shipping and Handling Costs

For each of the years ended December 31, 2021, 2020, and 2019, the Company included shipping and handling costs of approximately $ 4.3 million in selling, distribution and marketing expenses in the accompanying consolidated statements of operations.

For the years ended December 31, 2022, 2021, and 2020, the Company included shipping and handling costs of approximately $ 7.4 million, $ 4.3 million and $ 4.3 million, respectively, in selling, distribution and marketing expenses in the accompanying consolidated statements of operations.

Advertising Expense

Advertising expenses, primarily associated with Primatene Mist ® are recorded as they are incurred, except for expenses related to the development of a major commercial or media campaign, which are expensed in the period in which the commercial or campaign is first presented, and are reflected as a component of selling, distribution and marketing in the Company’s consolidated statement of operations.

Advertising expenses, primarily associated with Primatene MIST ® , are recorded as they are incurred, except for expenses related to the development of a major commercial or media campaign, which are expensed in the period in which the commercial or campaign is first presented, and are reflected as a component of selling, distribution and marketing in the

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company’s consolidated statements of operations.

For the years ended December 31, 2022, 2021, and 2020, advertising expenses were $ 8.7 million, $ 8.1 million, and $ 5.8 million, respectively.

11 unchanged sentences

The majority of the Company’s long-term obligations consist of variable rate debt, and their carrying value approximates fair value as the stated borrowing rates are comparable to rates currently offered to the Company for instruments with similar maturities.

The Company at times enters into fixed interest rate swap contracts to exchange the variable interest rates for fixed interest rates without the exchange of the underlying notional debt amounts.

Such interest rate swap contracts are recorded at their fair values.

The Company at times enters into interest rate swap contracts to manage its exposure to interest rate changes and its overall cost of long-term debt.

The Company’s interest rate swap contracts exchange the variable interest rates for fixed interest rates.

The Company from time to time may enter into forward currency contracts to lock in currency exchange rates to manage its foreign currency exchange rate exposure.

The Company’s interest rate swaps and forward currency contracts have not been designated as hedging instruments and, therefore are recorded at their fair values at the end of each reporting period with changes in fair value recorded in other income (expenses) on the consolidated statements of operations.

As of December 31, 2022, the Company had an unsettled forward currency contract to purchase foreign currency with a fair value of approximately $ 0.2 million based on Level 2 inputs, which was recorded as a liability in the accounts payable and accrued liabilities line in the accompanying consolidated balance sheets.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash, money market accounts, certificates of deposit and highly liquid investments purchased with original maturities of three months or less.

Investments as of December 31, 2021 and 2020 consisted of certificates of deposit and investment grade corporate bonds with original maturity dates between 3 and 15 months.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and cash equivalents consist of cash, money market accounts, certificates of deposit and highly liquid investments with original maturities of three months or less.

Investments as of December 31, 2022 and 2021 consisted of certificates of deposit and investment grade corporate and municipal bonds with original maturity dates between three and fifteen months.

Restricted Cash

Restricted cash is collateral required for the Company to guarantee certain vendor payments in France.

As of December 31, 2021 and 2020, the restricted cash balance was $ 0.2 million and $ 1.9 million, respectively.

As of December 31, 2022 and 2021, the restricted cash balance was $ 0.2 million.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Short-Term Investments

27 unchanged sentences

37 - 50 years

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairment of Long-Lived Assets, including Identifiable Definite-Lived Intangible Assets

The Company reviews long-term and identifiable definite-lived intangible assets or asset groups for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

The Company assesses long-term and identifiable definite-lived intangible assets or asset groups for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset or an asset group, further impairment analysis is performed.

An impairment loss is measured as the amount by which the carrying amount of the asset or asset groups exceeds the fair value (assets to be held and used) or fair value less cost to sell (assets to be disposed of).

The Company also reviews the useful lives of its assets periodically to determine whether events and circumstances warrant a revision to the remaining useful life.

An impairment loss is measured as the amount by which the carrying amount

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of the asset or asset groups exceeds the fair value (assets to be held and used) or fair value less cost to sell (assets to be disposed of).

The Company also assesses the useful lives of its assets periodically to determine whether events and circumstances warrant a revision to the remaining useful life.

Changes in the useful life are adjusted prospectively by revising the remaining period over which the asset is amortized.

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Impairment of Indefinite-Lived Intangible Asset and Goodwill

The Company reviews indefinite-lived intangible asset and goodwill for impairment in the fourth quarter of each year or more frequently if indicators of impairment are present.

The Company assesses indefinite lived intangible asset and goodwill for impairment in the fourth quarter of each year or more frequently if indicators of impairment are present.

When the Company chooses to perform a qualitative assessment, it evaluates economic, industry and company-specific factors as an initial step.

2 unchanged sentences

An impairment loss is recorded if the asset’s fair value is less than its carrying value.

The Company also periodically reviews the indefinite-lived intangible asset to determine if events and circumstances continue to support an indefinite useful life.

The Company also periodically assesses its indefinite-lived intangible asset to determine if events and circumstances continue to support an indefinite useful life.

If the life is no longer indefinite, the asset is tested for impairment.

2 unchanged sentences

The Company is primarily self-insured, up to certain limits, for workers’ compensation claims.

The Company has purchased stop-loss insurance, which will reimburse the Company for individual claims in excess of $ 350,000 annually or aggregate claims exceeding $ 3.5 million annually.

The Company has purchased stop-loss insurance, which will reimburse the Company for individual claims in excess of $ 350,000 or aggregate minimum attachment of $ 4.4 million annually.

The cost of claims reported and an estimate of claims incurred but not reported are charged to operating expenses.

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Legal fees are expensed as incurred.

Due to the inherent uncertainties surrounding gain contingencies, the Company generally does not recognize potential gains until realized.

Due to the inherent uncertainties surrounding gain contingencies, the Company generally does not recognize potential gains until they are realized.

In the fourth quarter of 2021, the Company settled a legal dispute with an unaffiliated third party and subsequently received a settlement payment, net of contingent legal fees, in the amount of $ 2.7 million.

The net amount of $ 2.7 million was recorded as other income in the other income (expense), net line in the consolidated statements of operations for the year ended December 31, 2021.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The net amount of $ 2.7 million was recorded as other income in the other income (expense), net line in the consolidated statements of operations.

Recent Accounting Pronouncements

1 unchanged sentence

ANP Restructuring

In July 2018, the Company’s Chinese subsidiary, ANP, completed a private placement of its common equity interest to accredited investors and received approximately $ 56.3 million of cash proceeds.

The Company retained approximately 58 % of the equity interest in ANP following the private placement and continues to consolidate the financial results of ANP with the Company’s results of operations.

In May 2021, the Company’s Board of Directors approved a plan for the restructuring of the equity ownership of ANP, whereby the Company purchased an additional ownership interest in ANP from certain equity holders of ANP, or the Sellers, and split-off certain subsidiaries of ANP.

Under the terms of the restructuring plan, the Company entered into a Share Purchase Agreement, or SPA, with certain of the Sellers to acquire an approximately 18 % additional ownership interest in ANP for approximately $ 29.4 million in cash.

The Company also entered into a Share Repurchase Agreement, or SRA, with certain of the Sellers, whereby the Company contributed 80 % of its ownership interest in Hanxin and Hanxin’s existing subsidiaries, Baixin and Letop, to the Sellers in exchange for an approximately 10 % additional ownership interest in ANP.

In July 2021, after receiving regulatory approval, the Company completed these transactions, and the Company’s ownership in ANP increased to approximately 85 %.

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

The total cash payment by the Company for this transaction was approximately $ 22.5 million.

Following completion of the transaction, the Company’s ownership of ANP increased to 100 %.

Certain of the Sellers were the Company’s executive officers, directors and other related parties.

The Sellers who participated in the SPA included executives of the Company William J.

Peters, Rong Zhou, and Jacob Liawatidewi;

directors of the Company Howard Lee and Richard Koo;

relatives of Dr.

Jack Zhang and Dr.

Mary Luo, Henry Zhang, Qingqing Chen, Chongqing Zhang, Lu Zhang, and James Luo, or entities related to such persons.

The Sellers who participated in the SRA included Dr.

Mary Luo and Dr.

Jack Zhang through an affiliated party, and their family members Henry Zhang, Qingqing Chen, Chongqing Zhang, Bill Zhang, and Lu Zhang.

Sellers who participated in the Second SPA include Dr.

Mary Luo, Dr.

Jack Zhang, through an affiliated party, and their family members Chongqing Zhang and Bill Zhang.

The restructuring of ANP was completed in the third quarter of 2021.

As a result of the restructuring activities, the Company’s ownership interest in ANP was increased to 100 %, and ANP’s ownership interest in Hanxin and its subsidiaries was reduced to approximately 20 %.

The reduction of the Company’s ownership in Hanxin to 20 %, resulted in ANP experiencing a “loss of control” of a subsidiary as defined by 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

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, upon completion of the SRA in the third quarter, the Company 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 for the year ended December 31, 2021.

Of the $ 13.6 million gain recorded, approximately $ 2.7 million related to the remeasurement to fair value of the retained noncontrolling investment in Hanxin.

The remainder of the gain relates to the excess of the fair value the consideration received, over the book value of Hanxin’s net assets.

Hanxin continues to be a related party after the deconsolidation.

As a result of the ANP restructuring that was completed during the third quarter of 2021, and subsequent investments by other equity holders of Hanxin, the Company has a 14 % noncontrolling investment in Hanxin as of December 31, 2022 that is accounted for as an equity method investment.

In addition to the retained noncontrolling investment in Hanxin, the Company maintains a seat on Hanxin’s board of directors, and Henry Zhang, a relative of Dr.

2 unchanged sentences

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

As an equity method investment, the retained noncontrolling 20 % investment in Hanxin was recorded at fair value in the amount of $ 4.2 million at the date of the transaction, which exceeds the amount of underlying equity in Hanxin’s net assets by $ 2.7 million.

This basis difference was deemed to be a premium in excess of fair value, which is referred to as equity method goodwill, and is recorded within the “Investment in unconsolidated affiliate” line on the Company’s consolidated balance sheets.

The fair value of the noncontrolling investment in Hanxin was determined using a discounted cash flow model using Level 3 inputs, including discount rates between 25 % and 27 %, revenue base and growth rate, gross margins, and earnings before interest and taxes (EBIT).

Subsequent to the restructuring, during the third quarter of 2021, Hanxin received additional capital contributions resulting in further reduction of ANP’s ownership to approximately 14 %.

Hanxin continues to be a related party after the deconsolidation.

Revenue Recognition

In accordance with ASC 606 Revenue from Contracts with Customers , revenue is recognized at the time that the Company’s customers obtain control of the promised goods.

In accordance with Accounting Standard Codification, or ASC, 606 Revenue from Contracts with Customers , revenue is recognized at the time that the Company’s customers obtain control of the promised goods.

Generally, revenue is recognized at the time of product delivery to the Company’s customers.

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Payment terms differ by jurisdiction and customers, but payment is generally required in a term ranging from 30 to 75 days from date of shipment or satisfaction of the performance obligation.

For certain products or services and certain customer types, we may require payment before products are delivered or services are rendered to customers.

For certain products or services and certain customer types, the Company may require payment before products are delivered or services are rendered to customers.

Provisions for estimated chargebacks, rebates, discounts, product returns and credit losses are made at the time of sale and are analyzed and adjusted, if necessary, at each balance sheet date.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Revenues derived from contract manufacturing services are recognized when third-party products are shipped to customers.

The Company’s accounting policy is to review each agreement involving contract development and manufacturing services to determine if there are multiple revenue-generating activities that constitute more than one unit of accounting.

1 unchanged sentence

The Company does not have any revenue arrangements with multiple performance obligations.

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, the Company assesses 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.

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, the Company assesses the proper method to be used for revenue recognition, either an input method to measure progress toward the satisfaction

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of services or an output method of determining the progress of completion of performance obligation.

Revenue from research and development services at ANP was $ 4.3 million and $ 5.1 million for the years ended December 31, 2022 and 2021, respectively.

Provision for Chargebacks and Rebates

19 unchanged sentences

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, 2021 and 2020 was $ 4.6 million and $ 4.0 million, respectively, which were included in accounts payable and accrued liabilities, respectively.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Accrual for Product Returns

5 unchanged sentences

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

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

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

Although these factors do not normally give the Company’s customers the right to return products outside of the regular return policy, the Company realizes that such factors could ultimately lead to increased returns.

The Company analyzes these situations on a case-by-case basis and makes adjustments to the product return reserve as appropriate.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company analyzes these situations on a case-by-case basis and makes adjustments to the product return reserve as appropriate.

The provision for product returns is reflected as a component of net revenues.

6 unchanged sentences

Ending balance

Of the provision of product returns as of December 31, 2021 and 2020, $ 16.0 million and $ 10.2 million were included in accounts payable and accrued liabilities on the consolidated balance sheets, respectively.

Of the provision for product returns as of December 31, 2022 and 2021, $ 14.9 million and $ 16.0 million were included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets, respectively.

The remaining provision as of December 31, 2022 and 2021, of $ 4.6 million and $ 5.7 million were included in other long-term liabilities, respectively.

5 unchanged sentences

stockholders gives effect to all potential dilutive shares outstanding during the period, such as stock options, non-vested restricted stock units, and shares issuable under the Company’s Employee Stock Purchase Plan, or ESPP.

For the year ended December 31, 2022, options to purchase 704,483 shares of stock with a weighted-average exercise price of $ 34.79 per share were excluded from the computation of diluted net income per share attributable to Amphastar Pharmaceuticals, Inc.

stockholders because their effect would be anti-dilutive.

For the year ended December 31, 2021, options to purchase 1,906,029 shares of stock with a weighted-average exercise price of $ 20.82 per share and the reallocation of net income attributable to non-controlling interest were excluded from the computation of diluted net income per common share attributable to Amphastar Pharmaceuticals, Inc.

stockholders because the effect would be anti-dilutive.

stockholders because their effect would be anti-dilutive.

For the year ended December 31, 2020, options to purchase 1,917,437 shares of stock with a weighted-average exercise price of $ 20.85 per share and the reallocation of net income attributable to non-controlling interest were excluded from the computation of diluted net income per common share attributable to Amphastar Pharmaceuticals, Inc.

stockholders because the effect would be anti-dilutive.

For the year ended December 31, 2019, options to purchase 803,257 shares of stock with a weighted-average exercise price of $ 21.99 per share, and the reallocation of net income attributable to non-controlling interest were excluded from

stockholders because their effect would be anti-dilutive.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the computation of diluted net income per common share attributable to Amphastar Pharmaceuticals, Inc.

stockholders because the effect would be anti-dilutive.

The following table provides the calculation of basic and diluted net income per share attributable to Amphastar Pharmaceuticals, Inc.

31 unchanged sentences

Operating expenses

Income (loss) from operations

Income from operations

Non-operating income (expenses)

9 unchanged sentences

Total finished pharmaceutical products net revenues

The amount of depreciation and amortization expense included in cost of revenues, by reporting segments is presented below:

The amount of depreciation and amortization expense included in cost of revenues, by reporting segment is presented below:

Year Ended December 31,

35 unchanged sentences

these inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities based on best information available in the circumstances.

As of December 31, 2021, cash equivalents include money market accounts.

Investments consist of certificates of deposit as well as investment-grade municipal bonds with original maturity dates between 3 and 15 months.

The certificates of deposit are carried at amortized cost in the Company’s consolidated balance sheet, which approximates their fair value determined based on Level 2 inputs.

As of December 31, 2022, cash equivalents include money market accounts and corporate and municipal bonds with original maturities of less than three months.

Investments consist of certificates of deposit as well as investment-grade corporate and municipal bonds with original maturity dates between three and twelve months.

The certificates of deposit are carried at amortized cost in the Company’s consolidated balance sheets, which approximates their fair value determined based on Level 2 inputs.

The corporate and municipal bonds are classified as held-to-maturity and are carried at amortized cost net of allowance for credit losses, which approximates their fair value determined based on Level 2 inputs.

The restrictions on restricted cash and investments have a negligible effect on the fair value of these financial assets.

The restrictions on restricted cash and investments have an immaterial effect on the fair value of these financial assets.

The fair value of the Company’s financial assets and liabilities measured on a recurring basis as of December 31, 2022 and 2021, are as follows:

(in thousands)

Cash equivalents - money market

Restricted cash - money market

Short-term investments - certificates of deposit

Restricted short-term investments - certificates of deposit

Corporate and municipal bonds

Interest rate swap related to variable rate loans

Cash equivalents

Restricted cash

Short-term investments

Restricted short-term investments

Corporate, agency and municipal bonds

Interest rate swaps related to variable rate loans

Fair value measurement as of December 31, 2022

Cash equivalents - money market

Restricted cash - money market

Short-term investments - certificates of deposit

Restricted short-term investments - certificates of deposit

Cash equivalents

Restricted cash

Short-term investments

Restricted short-term investments

Corporate and municipal bonds

Interest rate swap related to variable rate loans

Interest rate swaps related to variable rate loans

Fair value measurement as of December 31, 2021

8 unchanged sentences

(in thousands)

Corporate bonds (due within 1 year)

Corporate bonds (due within 1 to 3 years)

Corporate and agency bonds (due within 1 year)

Municipal bonds (due within 1 year)

1 unchanged sentence

Corporate bonds (due within 1 year)

Corporate bonds (due within 1 to 3 years)

Municipal bonds (due within 1 year)

6 unchanged sentences

Expected credit losses on held-to-maturity investments were not material to the consolidated financial statements.

Investment in Hanxin

As a result of the ANP restructuring that was completed during the third quarter of 2021 (see Note 3), and subsequent investments by other equity holders of Hanxin, the Company has a 14 % noncontrolling investment in Hanxin that is accounted for as an equity method investment.

The Company accounts for its share of the earnings or losses of Hanxin with a reporting lag of three months, as the financial statements of Hanxin are not completed on a basis that is sufficient for the Company to apply the equity method on a current basis.

The Company’s share of Hanxin’s losses for the year ended December 31, 2021 was $ 0.2 million, which was recorded in the “Equity in losses of unconsolidated affiliate” line on the consolidated statement of operations.

Investment in unconsolidated affiliate

The Company accounts for its share of the earnings or losses of its unconsolidated affiliate (Hanxin) with a reporting lag of three months, as the financial statements of Hanxin are not completed on a basis that is sufficient for the Company to apply the equity method on a current basis.

The Company’s share of Hanxin’s losses for the years ended December 31, 2022 and 2021 was $ 1.2 million and $ 0.2 million, respectively, which was recorded in the “Equity in losses of unconsolidated affiliate” line on the accompanying consolidated statement of operations.

AMPHASTAR PHARMACEUTICALS, INC.

23 unchanged sentences

Intangible assets with indefinite lives have an indeterminable average life.

The changes in the carrying amounts of goodwill were as follows:

The changes in the carrying amounts of goodwill are as follows:

(in thousands)

29 unchanged sentences

Total inventories

Charges of $ 24.6 million, $ 13.9 million, and $ 9.4 million were included in the cost of revenues in the Company’s consolidated statements of operations for the years ended December 31, 2021, 2020, and 2019, respectively, to adjust the Company’s inventory and related purchase commitments to their net realizable value.

Charges of $ 17.2 million, $ 24.6 million, and $ 13.9 million were included in the cost of revenues in the Company’s consolidated statements of operations for the years ended December 31, 2022, 2021, and 2020, respectively, to adjust the Company’s inventory and related firm purchase commitments to their net realizable value.

For the year ended December 31, 2022, the charge included $ 14.9 million in the cost of revenues to adjust the Company’s enoxaparin inventory and related firm purchase commitments to their net realizable value.

For the year ended December 31, 2021, the charge included $ 20.7 million as a result of an increase in the price of heparin as well as a decrease in the forecasted average selling price of enoxaparin.

For the year ended December 31, 2020, the charge included $ 9.4 million as a result of an increase in the price of heparin as well as a decrease in the forecasted average selling price of enoxaparin.

For the year ended December 31, 2019, the charge included $ 5.8 million as a result of an increase in purchases of higher price heparin.

Losses on firm purchase commitments related to raw materials on order were $ 7.1 million, $ 1.2 million and $ 1.3 million as of December 31, 2021, 2020 and 2019, respectively.

Losses on firm purchase commitments related to raw materials on order as of December 31, 2022 and 2021 were $ 2.7 million and $ 7.1 million, respectively, which are recorded in cost of revenues in the Company’s consolidated statement of operations.

AMPHASTAR PHARMACEUTICALS, INC.

19 unchanged sentences

Accrued loss on firm purchase commitments

Accrued litigation and settlements

Other accrued liabilities

6 unchanged sentences

(in thousands)

Line of Credit Facilities

Line of credit facility with China Everbright Bank - closed June 2021

Line of credit facility with China Merchant Bank

Line of credit facility with Bank of Nanjing - deconsolidated (see Note 3)

Line of credit facility with Cathay Bank - closed in August 2021

Line of credit facility with East West Bank - closed in August 2021

Equipment line of credit facility with East West Bank - closed in August 2021

Revolving line of credit facility with Capital One N.A.

due August 2026

Term loan with Capital One N.A.

1 unchanged sentence

Mortgage Loans

Mortgage payable with East West Bank paid off May 2021

Mortgage payable with East West Bank paid off August 2021

Mortgage payable with Cathay Bank paid off August 2021

Mortgage payable with East West Bank due June 2027

Equipment Loans

Equipment loan with East West Bank paid off June 2021

Equipment loan with East West Bank paid off August 2021

Other Loans and Payment Obligations

Acquisition loan with Cathay Bank paid off August 2021

French government loan paid off July 2021

French government loans due December 2026

Line of Credit Facilities

Line of credit facility with China Merchant Bank

Revolving line of credit facility with Capital One N.A.

due August 2026

Equipment under Finance Leases

2 unchanged sentences

Long-term debt, net of current portion and unamortized debt issuance costs

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Credit Agreement

7 unchanged sentences

The loan matures in August 2026.

At December 31, 2021, the interest rate on this loan was 1.84 %.

The loan requires principal payments of $ 1.8 million per year for the first two years, which increases to $ 3.5 million during the third and fourth year and to $ 3.9 million in the fifth year, with the remaining balance due at maturity.

2 unchanged sentences

In conjunction with the new credit agreement, the Company entered into an interest rate swap agreement with Capital One N.A., with a notional amount of $ 55.0 million to exchange the variable interest rate on the new term loan for a fixed rate of 0.93 %.

The Company incurred approximately $ 1.7 million in issuance costs in connection with this credit agreement, which are being amortized over the term of the loan.

Line of Credit Facilities

Line of Credit Facility with China Everbright Bank – Closed June 2021

In June 2020, the Company entered into a line of credit facility with China Everbright bank for $ 0.7 million.

The loan bore interest at a fixed rate of 4.05 %.

Interest payments were due quarterly and repayment of the principal amount was due in June 2021.

In June 2021, the Company repaid all outstanding amounts due under this line of credit.

Line of Credit Facility with China Merchant Bank – Due March 2023

In March 2020, the Company entered into a credit agreement with China Merchant Bank.

The credit agreement allows the Company to borrow up to $ 14.6 million secured by buildings and land use rights held by ANP.

The interest rate and other terms will be determined at the time of the borrowing, depending on the type of loan requested.

The credit period is for 36 months and expires in March 2023.

In August 2020, the Company borrowed $ 0.4 million under the credit agreement.

The loan bore interest at a fixed rate of 4.35 %.

Interest payments were due quarterly and repayment of the principal amount was due in August 2021.

In August 2021, the Company repaid all outstanding amounts due under this loan.

As of December 31, 2021, the Company did not have any amounts outstanding under this line of credit.

Line of Credit Facility with Bank of Nanjing – Deconsolidated

In October 2020, Hanxin entered into a line of credit facility with Bank of Nanjing for $ 0.2 million.

The loan bore interest at a fixed rate of 4.6 %.

Interest payments were due monthly and repayment of the principal amount was due in

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 2021.

As a result of the deconsolidation of Hanxin during the third quarter of 2021, the line of credit was no longer on the Company’s consolidated balance sheets.

Line of Credit Facility with Cathay Bank — Closed August 2021

In April 2012, the Company entered into a $ 20.0 million revolving line of credit facility with Cathay Bank.

Borrowings under the facility were secured by inventory, accounts receivable, and intangibles held by the Company.

The facility had a variable interest rate at the prime rate as published by The Wall Street Journal with a minimum interest rate of 4.00 %.

As a result of the credit agreement that the Company entered into with Capital One N.A.

in August 2021, the Company closed this line of credit.

Line of Credit Facility with East West Bank — Closed August 2021

In March 2012, the Company entered into a $ 10.0 million line of credit facility with East West Bank, which had a variable interest rate at the prime rate as published by The Wall Street Journal .

Borrowings under the facility were secured by inventory and accounts receivable.

In March 2016, the facility was amended to increase the line of credit to $ 15.0 million.

As a result of the credit agreement that the Company entered into with Capital One N.A.

in August 2021, the Company closed this line of credit.

Equipment Line of Credit with East West Bank — Closed August 2021

In September 2020, the Company entered into a $ 10.0 million equipment credit line with a 12-month draw down period with East West Bank.

Interest payments were due monthly through September 2021 at the prime rate as published by The Wall Street Journal minus 0.5 %.

After the draw down period, the outstanding principal balance converted into a 48-month term loan that had a variable interest rate at the prime rate as published by The Wall Street Journal minus 0.5 %.

The loan would have matured in September 2025, and the principal and interest payments were due monthly.

Borrowings under the facility were secured by equipment.

As a result of the credit agreement that the Company entered into with Capital One N.A.

in August 2021, the Company repaid all outstanding amounts and closed this line of credit.

As of December 31, 2022, the Company has incurred approximately $ 2.1 million in issuance costs in connection with this credit agreement, which are being amortized over the term of the loan.

Mortgage Loans

Mortgage Payable with East West Bank — Paid off May 2021

The Company refinanced the mortgage term loan with East West Bank in January 2016, which had an outstanding principal balance of $ 3.7 million at December 31, 2015, and had a maturity date of May 2021.

The refinanced loan was payable in monthly installments with a final balloon payment of $ 3.3 million.

The refinanced loan was secured by one of the buildings at the Company’s Rancho Cucamonga, California, headquarters complex.

The refinanced loan had a variable interest rate at the prime rate as published by The Wall Street Journal .

In May 2021, the Company repaid all outstanding amounts due under this loan.

Mortgage Payable with East West Bank — Paid off August 2021

In September 2006, the Company entered into a mortgage term loan with East West Bank in the principal amount of $ 2.8 million, which matured in September 2016.

The Company refinanced the mortgage term loan in September 2016, which increased the principal amount to $ 3.6 million and extended the maturity date to October 2026.

The refinanced loan was payable in monthly installments with a final balloon payment of $ 2.9 million.

The refinanced loan was secured by one of the buildings at the Company’s Rancho Cucamonga, California, headquarters complex.

The refinanced loan had a variable interest rate at the one-month LIBOR rate plus 2.75 %.

As a result of the credit agreement that the Company entered into with Capital One N.A.

in August 2021, the Company repaid all outstanding amounts under this loan.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Mortgage Payable with Cathay Bank — Paid off August 2021

In August 2017, the Company refinanced the mortgage term loan with Cathay Bank that had been entered into on April 2014, with a principal balance outstanding of $ 7.9 million.

The loan was payable in monthly installments and was secured by the building at the Company’s Canton, Massachusetts location.

The loan bore interest at a fixed rate of 4.70 % for the first five years of the loan;

thereafter, the loan had a variable interest rate at the prime rate as published by The Wall Street Journal and would have matured in June 2027.

As a result of the credit agreement that the Company entered into with Capital One N.A.

in August 2021, the Company repaid all outstanding amounts under this loan.

Mortgage Payable with East West Bank — Due June 2027

6 unchanged sentences

The Company entered into a fixed interest rate swap contract on this loan to exchange the variable interest rate for a fixed interest rate of 4.79 % until June 2024.

Equipment Loans

Equipment Loan with East West Bank – Paid off June 2021

In March 2016, the Company entered into a $ 5.0 million equipment credit facility with East West Bank.

In May 2017, the Company converted the outstanding balance of $ 5.0 million into a term equipment loan that matured in June 2021.

Borrowings under the loan were secured by equipment.

The loan had a variable interest rate at the prime rate as published by The Wall Street Journal .

In June 2021, the Company repaid all outstanding amounts under this loan.

Equipment Loan with East West Bank — Paid off August 2021

In June 2017, the Company entered into an $ 8.0 million equipment credit line with an 18 -month draw down period with East West Bank.

Interest payments were due monthly through December 2018 at the prime rate as published by The Wall Street Journal .

After the draw down period, the outstanding principal balance converted into a 48 -month term loan which had a variable interest rate at the prime rate as published by The Wall Street Journal .

The loan would have matured in December 2022, and the principal and interest payments were due monthly.

Borrowings under the facility were secured by equipment.

In June 2018, the Company drew down $ 8.0 million on the equipment credit line and in December 2018, the credit line converted into an equipment loan.

As a result of the credit agreement that the Company entered into with Capital One N.A.

in August 2021, the Company repaid all outstanding amounts under this loan.

Equipment loan with East West Bank — Paid off August 2021

In January 2019, the Company entered into a $ 10.0 million equipment credit line with East West Bank which had a 12 -month draw down period.

Interest payments were due monthly through February 2020 at the prime rate as published by The Wall Street Journal minus 1 % .

After the draw down period, the outstanding principal balance converted into a 48 -month term loan which had a variable interest rate at the prime rate as published by The Wall Street Journal minus 1 % .

The loan would have matured in February 2024, and the principal and interest payments were due monthly.

Borrowings under the facility were secured by equipment.

In January 2020, the Company drew an additional $ 3.0 million on the equipment credit line and in February 2020, the credit line converted into a $ 6.6 million equipment loan.

As a result of the credit agreement that the Company entered into with Capital One N.A.

in August 2021, the Company repaid all outstanding amounts under this loan.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Line of Credit Facilities

Line of Credit Facility with China Merchant Bank – Due March 2023

In March 2020, the Company entered into a credit agreement with China Merchant Bank.

The credit agreement allows the Company to borrow up to $ 14.6 million secured by buildings and land use rights held by ANP.

The interest rate and other terms will be determined at the time of the borrowing, depending on the type of loan requested.

The credit period is for 36 months and expires in March 2023.

Other Loans and Payment Obligations

Acquisition Loan with Cathay Bank — Paid off August 2021

On April 22, 2014, in conjunction with the Merck API Transaction, the Company entered into a secured term loan with Cathay Bank as lender.

The principal amount of the loan was $ 21.9 million and had a variable interest rate at the prime rate as published by The Wall Street Journal , with a minimum interest rate of 4.00 %.

The loan was secured by 65 % of the issued and outstanding shares of stock in AFP and certain assets of the Company, including accounts receivable, inventory, certain investment property, goods, deposit accounts, and general intangibles but not including the Company’s equipment and real property.

In July 2019, the Company amended the acquisition loan relating to the AFP acquisition.

The amendment was effective in June 2019.

Under the amended loan agreement, the maturity date was extended to June 2024.

The acquisition loan had a variable interest rate at the prime rate as published by The Wall Street Journal , with a minimum interest rate of 5.00 %.

Beginning in August 2019, and through the maturity date, the Company made monthly payments of principal and interest based on the then outstanding amount of the loan amortized over a 60-month period.

As a result of the credit agreement that the Company entered into with Capital One N.A.

in August 2021, the Company repaid all outstanding amounts under this loan.

Loans with Seine-Normandie Water Agency

2 unchanged sentences

As of December 31, 2022, the payment obligation had an aggregate book value of $ 0.2 million, which approximates fair value.

Interest Rate Swap Contracts

As of December 31, 2022, the fair value of the loans listed above approximated their carrying amount.

The interest rate used in the fair value estimation was determined to be a Level 2 input.

For the mortgage loan with East West Bank, as well as the term loan with Capital One N.A., the Company has entered into fixed interest rate swap contracts to exchange the variable interest rates for fixed interest rates.

The interest rate swap contracts are recorded at fair value in the other assets line in the condensed consolidated balance sheets.

Gains from changes in the fair values of interest rate swaps were $ 5.5 million and $ 1.5 million for the years ended December 31, 2022 and 2021, respectively.

At December 31, 2022 and 2021, the Company was in compliance with all of its debt covenants.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-Term Debt Maturities

1 unchanged sentence

(in thousands)

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s income (loss) before income taxes generated from its United States and foreign operations were:

The Company’s income (loss) before income taxes generated from its operations were:

Year Ended December 31,

11 unchanged sentences

Total provision for income taxes

For tax years beginning after December 31, 2021, certain research and development costs are required to be capitalized and amortized over a five or fifteen-year period under the Tax Cuts and Jobs Act of 2017.

The Company has reviewed and incorporated this change, which increases the current U.S.

federal and state tax expense and cash taxes to be paid for the tax year ending December 31, 2022.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

9 unchanged sentences

Effective tax rate

The Company’s effective tax rate for 2021 decreased in comparison to 2020 primarily due to differences in pre-tax income positions.

The Company’s effective tax rate for 2022 decreased in comparison to 2021 primarily due to differences in pre-tax income positions and excess tax benefit from share-based compensation.

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, tax credit carryforwards, and the tax effects of net operating loss carryforwards.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The significant components of the Company’s deferred tax assets and liabilities are as follows:

9 unchanged sentences

Product return allowance

Research and development capitalization

Total deferred tax assets

6 unchanged sentences

Net deferred tax assets

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net Operating Loss Carryforwards and Tax Credits

At December 31, 2021, the Company had approximately $ 0.8 million California net operating loss carryforwards, or NOL carryforwards, and no material U.S.

federal or other state NOL carryforwards.

The California NOL carryforwards begin to expire in 2032 .

At December 31, 2022, the Company had no material U.S.

federal or state net operating loss carryforwards, or NOL carryforwards.

The Company had France and United Kingdom foreign NOL carryforwards of approximately $ 75.3 million and $ 2.5 million, respectively.

The France and United Kingdom NOL carryforward can be used annually with certain limitations and have an indefinite carryforward.

The France and United Kingdom NOL carryforwards can be used annually with certain limitations and have an indefinite carryforward.

At December 31, 2022, the Company had California research and development tax credit carryforwards of approximately $ 21.9 million.

2 unchanged sentences

Valuation Allowance

In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

Ultimately, the realization of deferred tax assets depends on the existence of future taxable income.

Management considers sources of taxable income such as income in prior carryback periods, future reversal of existing deferred taxable temporary differences, tax-planning strategies, and projected future taxable income.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will be realized.

Ultimately, realization depends on the existence of future taxable income.

Management considers sources of taxable income such as future reversal of existing deferred taxable temporary differences, tax-planning strategies, and projected future taxable income.

The Company continues to record a full valuation allowance on AFP’s net deferred income tax assets and will continue to do so until AFP generates sufficient taxable income to realize its deferred income tax assets.

However, a tax benefit is included in the annual effective tax rate computation for 2020 due to AFP reporting a year-to-date foreign exchange gain in other comprehensive income.

As of December 31, 2022 and 2021, the Company had a full valuation allowance against the net deferred tax assets of AFP, which totaled $ 18.9 million and $ 16.9 million, respectively.

The Company continued to record a full valuation allowance on Hanxin’s net deferred tax assets until the July 2021 Hanxin split-off transaction caused Hanxin to be deconsolidated.

As such, the Company had no valuation allowance on Hanxin’s deferred tax assets as of December 31, 2021, and a valuation allowance of $ 2.1 million as of December 31, 2020.

The Company records a valuation allowance on net deferred income tax assets in states where it files separately and will continue to do so until sufficient taxable income is generated to realize these state deferred income tax assets.

Undistributed Earnings from Foreign Operations

As of December 31, 2022 and 2021, deferred income taxes have not been provided for any undistributed earnings from foreign operations.

The foreign subsidiaries have accumulated losses of approximately $ 30.3 million and $ 51.6 million, respectively, and as such there are no earnings in which to provide taxes.

The foreign subsidiaries have significant accumulated losses, and as such there are no earnings in which to provide taxes.

It is the Company’s plan not to repatriate future foreign earnings to the U.S.

and indefinitely reinvest such earnings in the foreign jurisdiction.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was signed into law in the U.S.

to provide certain relief as a result of the COVID-19 pandemic.

In addition, governments around the world have enacted or implemented various forms of tax relief measures in response to the economic conditions in the wake of COVID-19.

As of December 31, 2021, neither the CARES Act nor changes to income tax laws or regulations in other jurisdictions had a significant impact on the Company’s effective tax rate.

Uncertain Income Tax Positions

2 unchanged sentences

Balance at the beginning of the year

Deductions based on tax positions related to prior year

Additions based on tax positions related to the current year

Deductions based on tax audit settlement

Deductions based on statute of limitations

1 unchanged sentence

Included in the balance of unrecognized tax benefits as of December 31, 2022 and 2021, was $ 12.2 million and $ 11.4 million, respectively that represents the portion that would impact the effective income tax rate if recognized.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recognizes interest and penalties related to unrecognized tax benefits in its income tax provision.

5 unchanged sentences

The Company is subject to income tax audit by tax authorities for tax years 2019 to 2021 for federal, 2018 to 2021 for states, and 2012 to 2021 for foreign.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholders' Equity

Common and Preferred Stock

The Company’s Certificate of Incorporation authorizes the Company to issue 300,000,000 shares of common stock, $ 0.0001 par value per share, and 20,000,000 shares of preferred stock, $ 0.0001 par value per share.

As of December 31, 2021 and 2020, there were no shares of preferred stock issued or outstanding.

As of December 31, 2022, the Company has two equity plans:

12 unchanged sentences

The annual increase in the number of shares shall be the lesser of (i) 3,000,000 shares, (ii) two and one-half percent ( 2.5 % ) of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares as determined by the Board of Directors.

As of the effective date, there were 5,300,296 shares available for grant under the 2015 Plan.

As of December 31, 2021, the Company reserved an aggregate of 6,059,138 shares of common stock for future issuance under the 2015 Plan.

In January 2022, an additional 1,192,873 shares were reserved under the 2015 Plan pursuant to the evergreen provision.

Amended and Restated 2005 Equity Incentive Award Plan

As of the effective date of the 2015 Plan, there were 5,300,296 shares available for grant under the 2015 Plan.

As of December 31, 2022, the Company reserved an aggregate of 6,499,954 shares of common stock for future issuance under the Amended and Restated 2015 Equity Incentive Plan, or the 2015 Plan, including 1,202,802 shares, which were reserved in January 2023 pursuant to the evergreen provision in the 2015 Plan.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

appreciation rights, or SARs, dividend equivalents and stock payments to the Company’s employees, members of the Board of Directors and consultants.

Amended and Restated 2005 Equity Incentive Award Plan

The Amended and Restated 2005 Equity Incentive Award Plan, or 2005 Plan, provided for the grant of incentive stock options, or ISOs, nonqualified stock options, or NQSOs, restricted stock awards, restricted stock unit awards, stock appreciation rights, or SARs, dividend equivalents and stock payments to the Company’s employees, members of the Board of Directors and consultants.

Stock options under the 2005 Plan were granted with a term of up to ten years and at prices no less than the fair market value of the Company’s common stock on the date of grant.

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As of December 31, 2022, the Company has issued 1,089,545 shares of common stock under the ESPP and 910,455 shares of its common stock remains available for issuance under the ESPP.

For the year ended December 31, 2021, 2020, and 2019, the Company recorded ESPP expense of $ 0.7 million, $ 0.8 million, and $ 0.7 million, respectively.

For the years ended December 31, 2022, 2021, and 2020, the Company recorded ESPP expense of $ 0.9 million, $ 0.7 million, and $ 0.8 million, respectively.

Share Buyback Program

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The Company’s share buyback program is expected to continue for an indefinite period of time.

Purchases are made through open market and private block transactions pursuant to Rule 10b5-1 plans, privately negotiated transactions or other means as determined by the Company’s management and in accordance with the requirements of the SEC.

The timing and actual number of treasury share purchases will depend on a variety of factors including price, corporate and regulatory requirements, and other conditions.

These treasury share purchases are accounted for under the cost method and are included as a component of treasury stock in the Company’s consolidated balance sheets.

Pursuant to the Company’s share buyback program, the Company purchased 1,477,305 shares, 1,366,384 shares, and 1,122,781 , shares of its common stock during the years ended December 31, 2021, 2020 and 2019, totaling $ 28.9 million, $ 24.4 million, and $ 22.3 million, respectively.

Pursuant to the Company’s existing share buyback program, the Company purchased 1,335,528 shares, 1,477,305 shares, and 1,366,384 , shares of its common stock during the years ended December 31, 2022, 2021 and 2020, for total consideration of $ 39.9 million, $ 28.9 million, and $ 24.4 million, respectively.

Share-Based Award Activity and Balances (excluding the ANP Equity Plan)

The Company accounts for share-based compensation payments in accordance with ASC 718, which requires measurement and recognition of compensation expense at fair value for all share-based payment awards made to employees and directors.

Under these standards, the fair value of option awards and the option components of the ESPP awards are estimated at the grant date using the Black-Scholes option-pricing model.

The fair value of RSUs is estimated at the grant date using the Company’s common share price.

Compensation cost for all share-based payments granted with service-based graded vesting schedules is recognized using the straight-line method over the requisite service period.

Under these standards, the fair value of option awards and the option components of the ESPP

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

awards are estimated at the grant date using the Black-Scholes option-pricing model.

The fair value of RSUs is estimated at the grant date using the Company’s common share price.

Compensation cost for all share-based payments granted with service-based graded vesting schedules is recognized using the straight-line method over the requisite service period.

Options issued under the Company’s 2015 Plan and 2005 Plan are granted at exercise prices equal to or greater than the fair value of the underlying common shares on the date of grant and vest based on continuous service.

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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.

The Black-Scholes option pricing model has various inputs such as the common share price on the date of grant, exercise price, the risk-free interest rate, volatility, expected life and dividend yield, all of which are estimates.

The Black-Scholes option pricing model has various inputs such as the common share price on the date of grant, exercise price, the risk-free interest rate, volatility, expected term and dividend yield, all of which are estimates.

The Company records share-based compensation expense net of expected forfeitures.

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● Determination of Fair Value of the Underlying Common Stock.

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.

For options and ESPP awards granted, the fair value for its underlying common stock is determined using the closing price on the date of grant as reported on the Nasdaq Global Select Market, or Nasdaq with consideration of whether there is material nonpublic information that could impact that estimated fair value when it is released.

● Expected Volatility.

Starting in 2020, the Company estimates its volatility based on the historical volatility of its stock price since IPO.

Prior to that, the Company had limited data regarding company-specific historical or implied volatility of its share price.

Consequently, the Company estimated its volatility based on the weighted average historical volatility of its stock price since its IPO and the stock price volatility from a set of peer companies, since our shares did not have sufficient trading history.

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

The Company estimates its volatility based on the historical volatility of its stock price since IPO.

● Expected Term.

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The Company estimates the expected term of options with consideration of vesting date, contractual term, and historical experience for exercise and post-vesting employment or contractual termination behavior after its common stock has been publicly traded.

The expected term of “plain vanilla” options is estimated based on the midpoint between the vesting date and the end of the contractual term under the simplified method permitted by the SEC implementation guidance.

The expected term of “plain vanilla” options is estimated (using the simplified method as outlined in SAB Topic 14 due to a lack of sufficient historical exercise data) based on the midpoint between the vesting date and the end of the contractual term under the simplified method permitted by the SEC implementation guidance.

● Risk- Free Rate.

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Tax benefits resulting from tax deductions in excess of the share-based compensation cost recognized (excess tax benefits) are recorded in the statements of cash flows as financing activities.

The weighted-averages for key assumptions used in determining the fair value of options granted during the years ended

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The weighted-averages for key assumptions used in determining the fair value of options granted during the years ended December 31, 2021, 2020, and 2019 are as follows:

December 31, 2022, 2021, and 2020 are as follows:

Year Ended December 31,

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Vested and expected to vest as of December 31, 2022

(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the Company’s common stock for those awards that have an exercise price below the estimated fair value at December 31, 2021.

(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the estimated fair value of the Company’s stock for those awards that have an exercise price below the estimated fair value at December 31, 2022.

During the years ended December 31, 2022, 2021, and 2020, the Company recorded expense of $ 8.5 million, $ 8.0 million, and $ 9.1 million, respectively, related to stock options granted under all plans.

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The grantee receives one share of common stock at a specified future date for each RSU awarded.

The RSUs may not be sold or otherwise transferred until certificates of common stock have been issued, recorded, and delivered to the participant.

The RSUs may not be sold or otherwise transferred until vested.

The RSUs do not have any voting or dividend rights prior to the issuance of certificates of the underlying common stock.

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The 2018 ANP Equity Incentive Plan

In December 2018, ANP’s board of directors approved the 2018 ANP Equity Incentive Plan, or the 2018 Plan, which was set to expire in December 2023.

In December 2018, ANP’s board of directors approved the 2018 Plan, which was set to expire in December 2023.

The 2018 Plan permitted the grant of stock options and other equity awards in ANP shares to ANP employees.

During the second quarter of 2021, in connection with the ANP restructuring, the 2018 Plan was terminated.

At the time of the 2018 Plan termination, the number of stock options outstanding was 5,018,880 .

At the time the 2018 Plan was terminated, the number of stock options outstanding under the 2018 Plan was 5,018,880 .

As part of the termination, ANP cash settled 4,091,080 stock options, of which 1,944,771 stock options were vested and 2,146,309 stock options were unvested, for $ 0.8 million which approximated the fair value of these awards at the time of the settlement.

The cash settlement of these awards was recorded as a reduction in equity.

For the remaining 927,800 stock option awards that were outstanding under the 2018 Plan, of which 56,925 stock options were vested and 870,875 were unvested, the Company cancelled these awards and issued replacement awards under the 2015 Plan.

For the remaining 927,800 stock option awards that were outstanding under the 2018 Plan at the time the 2018 Plan was terminated, of which 56,925 stock options were vested and 870,875 were unvested, the Company cancelled these awards and issued replacement awards under the 2015 Plan.

The modified awards vest over periods ranging from 1 to 2 years and have a 10-year contractual term.

The cancellation and replacement of the awards was accounted for as a modification in accordance with ASC 718.

As a result of the modification, the Company incurred $ 2.3 million of share-based compensation expense, of which $ 1.8 million was recorded within general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2021, and the remaining $ 0.5 million which will be recognized over the vesting period of the modified awards.

Prior to the termination of the 2018 Plan, for the years ended December 31, 2021, 2020 and 2019, the Company recorded expense of $ 0.5 million, $ 0.7 million and $ 0.3 million related to stock options issued by ANP under the 2018 Plan, respectively.

As a result of the modification, the cost to the Company was $ 2.3 million, of which $ 1.8 million was recorded as share-based compensation within general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2021, and the remaining $ 0.5 million which will be recognized over the vesting period of the modified awards.

Prior to the termination of the 2018 Plan, for the years ended December 31, 2021 and 2020, the Company recorded expense of $ 0.5 million and $ 0.7 million related to stock options issued by ANP under the 2018 Plan, respectively.

AMPHASTAR PHARMACEUTICALS, INC.

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Share-based Compensation Expense

The Company recorded share-based compensation expense under all plans and is included in the Company’s consolidated statement of operations as follows:

The Company recorded share-based compensation expense, which is included in the Company’s consolidated statement of operations as follows:

Year Ended December 31,

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The liability under the plan is based on a discount rate of 3.75 % and 1.00 % as of December 31, 2022 and 2021, respectively.

The liability is included in accrued liabilities in the accompanying consolidated balance sheets.

The liability is included in other long-term liabilities in the accompanying consolidated balance sheets.

The plan is currently unfunded, and the benefit obligation under the plan was $ 2.2 million and $ 2.7 million at December 31, 2022 and 2021, respectively.

Expense under the plan was $ 0.2 million for each of the years ended December 31, 2021, 2020, and 2019.

The Company recorded an immaterial amount of expense under the plan for each of the years ended December 31, 2022, 2021 and 2020.

Gain or loss due to change in actuarial valuation of the Company’s defined benefit pension plan is recorded in other comprehensive income (loss).

Deferred Compensation Plan

Non-qualified Deferred Compensation Plan

In December 2019, the Company established a non-qualified deferred compensation plan.

The deferred compensation plan allows certain eligible participants to defer a portion of their cash compensation and provides a matching contribution at the discretion of the Company.

The plan allows certain eligible participants to defer a portion of their cash compensation and provides a matching contribution at the discretion of the Company.

The plan obligations are payable upon retirement, termination of employment and/or certain other times in a lump-sum distribution or in installments, as elected by the participant in accordance with the plan.

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Eligible participants began contributing to the plan in January 2020.

The plan assets were valued at approximately $ 3.4 million as of December 31, 2021.

The plan liabilities were valued at approximately $ 3.5 million as of December 31, 2021.

As of December 31, 2020, the plan assets and liabilities were valued at approximately $ 1.6 million

The plan assets were valued at approximately $ 4.5 million and $ 3.4 million as of December 31, 2022 and December 31, 2021, respectively.

The plan liabilities were valued at approximately $ 4.6 million and $ 3.5 million as of December 31, 2022 and December 31, 2021, respectively.

The plan assets and liabilities are included in other long-term assets and other long-term liabilities, respectively, on the Company’s

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and $ 1.7 million, respectively.

The plan assets and liabilities are included in other long-term assets and other long-term liabilities, respectively, on the Company’s consolidated balance sheets.

consolidated balance sheets.

Commitments and Contingencies

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As of December 31, 2022, the Company has entered into commitments to purchase equipment and raw materials for an aggregate amount of approximately $ 58.2 million.

The Company anticipates that most of these commitments with a remaining term in excess of one year will be fulfilled by 2023.

AMPHASTAR PHARMACEUTICALS, INC.

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Jack Zhang, through an affiliated entity, have an ownership interest in Hanxin and as such Hanxin continues to be a related party after the restructuring.

Contract manufacturing agreement with Hanxin

In April 2022, the Company’s Chinese subsidiary, ANP, entered into a contract manufacturing agreement with Hanxin, a related party, whereby Hanxin will develop several active pharmaceutical ingredients and finished products for the Chinese market and will engage ANP to manufacture the products on a cost-plus basis.

Hanxin will commit to purchase certain quantities from ANP subject to the terms and conditions set forth in the agreement, including Hanxin filing for and obtaining any required marketing authorizations.

During the year ended December 31, 2022, the Company recognized $ 0.4 million of revenue from manufacturing services provided to Hanxin.

As of December 31, 2022, the Company did not have any Receivables from Hanxin.

Contract Research Agreement with Hanxin

In July 2022, the Company entered into a three-year contract research agreement with Hanxin, a related party, whereby Hanxin will develop Recombinant Human Insulin Research Cell Banks, or RCBs, for the Company and license the RCBs to the Company subject to a fully paid, exclusive, perpetual, transferable, sub-licensable worldwide license.

The RCBs will be used by the Company to make Master Cell Banks for one of its product candidates.

Per the terms of the agreement with Hanxin, all title to the RCBs developed, prepared and produced by Hanxin in conducting research and development will belong to the Company.

The Company will also own any confidential and proprietary information, technology regarding development and manufacturing of the RCBs, which shall include engineering, scientific and practical information and formula, research data, design, and procedures and others to develop and manufacture the RCBs, in use or developed by Hanxin.

The total cost of the agreement to the Company shall not exceed approximately $ 2.2 million, with payments adjusted based on the then current exchange rates.

Any additional work or changes to the scope of work requested by the Company will be charged by Hanxin to the Company on a cost-plus basis, plus any applicable taxes.

During the year ended December 31, 2022, the Company paid $ 0.6 million under this agreement and has accrued an additional $ 0.4 million payable to Hanxin as of December 31, 2022.

Supply Agreement with Letop

In November 2022, the Company’s Chinese subsidiary, ANP, entered in to a supply agreement with Nanjing Letop Biotechnology Co., Ltd., or Letop, a related party, whereby Letop would manufacture and deliver chemical intermediates for ANP on a cost-plus basis.

The agreement is effective for three years and the total cost of the agreement shall not exceed approximately $ 1.5 million, with payments adjusted based on the then current exchange rates.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year ended December 31, 2022, ANP paid $ 0.2 million under this agreement.

As of December 31, 2022, the Company did not have any additional accruals payable to Letop.

Retirement of James Luo

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As a result, the Company recorded a total of $ 1.1 million in general and administrative expense in the fourth quarter of 2020 related to this agreement.

Momenta/Sandoz Enoxaparin Patent and Antitrust Litigation

In September 2011, Momenta Pharmaceuticals, Inc., or Momenta, a Boston based pharmaceutical company, and Sandoz Inc., or Sandoz, the generic division of Novartis, initiated litigation against the Company for alleged patent infringement of two patents related to testing methods for batch release of enoxaparin, which the Company refers to as the “’886 patent” and the “’466 patent.”

On September 17, 2015, the Company initiated an antitrust lawsuit by filing a complaint in the California District Court against Momenta and Sandoz.

This lawsuit was subsequently transferred to the Massachusetts District Court.

On May 20, 2019, the Company and Momenta and Sandoz entered into a Settlement Agreement to settle the patent litigation and antitrust litigation.

On June 27, 2019, Momenta and Sandoz paid the Company $ 59.9 million.

The Company recorded the settlement amount as other income (expenses), in its consolidated statements of operations.

Amphastar Pharmaceuticals, Inc.

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Patent and Trademark Office, as well as through false and misleading statements to the FDA, overcharged the federal and state governments for its Lovenox ® product (the “Aventis FCA Action”).

On May 11, 2017, the Company’s lawsuit against Aventis was dismissed for lack of jurisdiction.

On July 14, 2017, Aventis filed an application with the District Court for entitlement to attorneys’ fees and expenses.

On November 20, 2017, the District Court issued its order granting Aventis’ application for fees, and on November 13, 2020, the Court issued an Order (“November Order”) awarding Aventis $ 12.1 million in attorneys’ fees and $ 0.7 million in costs and

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On November 13, 2020, the Court issued an Order (“November Order”) awarding Aventis $ 12.1 million in attorneys’ fees and $ 0.7 million in costs and expenses.

The Company recorded $ 12.8 million in other income (expenses) in the consolidated statement of operations for the year ended December 31, 2020.

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The settlement was paid in full in the third quarter of 2021.

Hatch-Waxman Litigations

Hatch-Waxman Litigation

Regadenoson (0.4 mg/5 mL, 0.08 mg/mL) Patent Litigation

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On March 30, 2020, the Court issued an Order allowing the Company to join pending consolidated litigation with five other generic Regadenoson ANDA filers involving similar claims.

The Company’s 30-month FDA stay expires August 10, 2022.

The Company’s 30-month FDA stay expired August 10, 2022.

On January 26, 2022, the Company and Astellas-Gilead reached an agreement to resolve the lawsuit.

The parties submitted, and the Court granted, a motion to dismiss without prejudice Astellas-Gilead’s complaint of infringement against IMS on January 27, 2022.

Teriparatide (0.25 mg/mL) Patent Litigation

On June 29, 2021, the Company filed a Complaint in the United States District Court for the Southern District of Indiana against Eli Lilly and Company (“Lilly”) seeking a declaratory judgment of non-infringement of U.S.

7,517,334 with regard to Amphastar’s ANDA No.

213,641 for approval to manufacture and sell 0.25 mg/mL prefilled pens.

On September 30, 2021, the Company and Lilly submitted a motion for entry of a consent judgment of non-infringement of Amphastar’s ANDA No.

213,641 in favor of Amphastar and against Lilly.

The Court endorsed the consent judgment and issued a final determination in favor of Amphastar and against Lilly on October 1, 2021.

Employee Litigations

International Medication Systems, Limited

On September 11, 2019, a former employee, Raquel Brenes, (“Brenes”), initiated an employment litigation against IMS et al.

by filing a Complaint in the Superior Court of California, Los Angeles County alleging individual and class action claims for alleged violations of various California labor laws pertaining to wage and hour, and other state laws.

On September 18, 2019, Brenes filed a First Amended Complaint maintaining the individual and class action claims.

On January 21, 2020, Brenes filed a Second Amended Complaint that alleges only Private Attorney General Act, or PAGA, claims and omitted the individual and class action claims.

On February 9, 2021, the Company was able to successfully resolve these claims, as well as Brenes’ personal employment claims at mediation for $ 1.0 million.

The settlement was approved by the Court on April 7, 2021.

The Company accrued the amount of $ 1.0 million as of December 31, 2020.

Amphastar Pharmaceuticals, Inc.

On May 29, 2020, Priscilla Ramirez, (“Ramirez”), a former employee filed a PAGA lawsuit for alleged violations of various California labor laws pertaining to wage and hour against the Company.

The Company accrued the amount of

The parties submitted, and the Court granted on January 27, 2022, a Motion to Dismiss Without Prejudice for Astellas-Gilead’s complaint of infringement against IMS.

Under the terms of the agreement, the Company received $ 5.4 million from Astellas constituting saved litigation expenses.

The Company recorded the settlement amount in the other income (expenses) line in its consolidated statement of operations for the year ended December 31, 2022.

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$ 1.0 million for this litigation as of March 31, 2021.

On April 5, 2021, the parties reached a settlement for $ 1.0 million.

On June 9, 2021, Ramirez submitted a motion to the Court seeking approval of the settlement.

On August 16, 2021, the Court approved the settlement.

On September 13, 2021, consistent with the terms of the settlement agreement, the Company remitted payment for this case, thus resolving the matter.

Navarrette v.

International Medication Systems, Limited

On January 30, 2020, a former employee, Robert Navarrette, (“Navarrette”), provided written notice, through his counsel to IMS that he intends to file a PAGA lawsuit for alleged violations of various California labor laws pertaining to wage and hour.

On April 7, 2020, Navarrete filed his PAGA lawsuit against IMS and Amphastar Pharmaceuticals, Inc.

in the Superior Court of California, Los Angeles County, Central District.

As to IMS, the Brenes settlement subsumes the claims of Navarrette.

As to the Company, the Ramirez settlement subsumes the claims of Navarette covering overlapping periods.

Employee Litigations

In 2021 and 2020, the Company settled employee litigations relating to alleged violations of various California labor laws pertaining to wage and hour against the Company.

For each of the years ended December 31, 2021 and 2020, the Company recorded $ 1.0 million, related to the settlement of employment litigation, in general and administrative expense in the Company’s consolidated statements of operations.

Other Litigation

The Company is also subject to various other claims, arbitrations, and lawsuits from time to time arising in the ordinary course of business.

The Company is also subject to various other claims, arbitrations, investigations, and lawsuits from time to time arising in the ordinary course of business.

In addition, third parties may, from time to time, assert claims against the Company in the forms of letters and other communications.

The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

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Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.

Subsequent Events

On January 26, 2022, the Company reached an agreement with Astellas US, LLC, Astellas Pharma US, Inc.

(together with Astellas US, LLC, “Astellas”), and Gilead Sciences, Inc.

to settle the Regadenoson patent litigation (See Note 20).

Under the terms of the agreement, the Company received $ 5.4 million from Astellas constituting saved litigation expenses.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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 8. Financial Statements and Supplementary Data