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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-03-01 · 180 added, 138 removed, 234 unchanged (58% of the section changed)

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For a discussion of the year ended December 31, 2022, to the year ended December 31, 2021, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023, which discussion is hereby incorporated herein by reference.

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

We currently manufacture and sell over 25 products.

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

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

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

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

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

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

In May 2022, the FDA approved our regadenoson injection, 0.08mg/mL, 5mL, single-dose prefilled syringe, which we launched in April 2023.

On June 30, 2023, we completed our acquisition of BAQSIMI ® .

BAQSIMI ® is the first and only nasally administered glucagon for the treatment of severe hypoglycemia in people with diabetes and is currently available in 27 international markets.

In March 2023, the FDA approved our naloxone hydrochloride nasal spray 4mg, REXTOVY TM , which we plan to launch in the first quarter of 2024.

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

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

Four of the ANDAs and one of the biosimilar insulin candidates are currently on file with the FDA.

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

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

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

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

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

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

COVID-19 Pandemic

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

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

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

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

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

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

Future shutdowns could have an adverse impact on our operations.

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

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

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

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

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

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

Macroeconomic Trends and Uncertainties

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

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

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

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

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

Certain other worldwide events and macroeconomic factors, such as international trade relations, new legislation and regulations, taxation or monetary policy changes, public sector budgetary cycles and funding authorization in the United

States, political and civil unrest, global conflicts such as the Middle East conflict, supply chain disruptions, inflationary pressures, and rising interest rates, among other factors, also increase volatility in the global economy.

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

According to the U.S.

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

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

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

Recent Developments

BAQSIMI ® Acquisition

On June 30, 2023, we completed our acquisition of BAQSIMI ® pursuant to an Asset Purchase Agreement, or the Purchase Agreement, with Lilly and Amphastar Medication Co., LLC, a wholly owned subsidiary of Amphastar, dated April 21, 2023.

In connection with the closing of the transaction, or the Closing, we paid Lilly $500.0 million in cash.

In addition, we are required to pay Lilly a $125.0 million guaranteed payment on the first anniversary of the closing.

We may also be required to pay additional contingent consideration of up to $450.0 million to Lilly based on the achievement of certain milestones.

On June 30, 2023, in conjunction with our acquisition of BAQSIMI ® , we entered into a $700.0 million syndicated credit agreement, or the Credit Agreement by and among the Company, certain subsidiaries of the Company, as guarantors, certain lenders, and Wells Fargo, as Administrative Agent, (in such capacity, Agent), Swing Line Lender and L/C Issuer.

The Wells Fargo Term Loan matures on June 30, 2028.

The Wells Fargo Term Loan was fully funded on June 30, 2023.

The Credit Agreement provides for a senior secured revolving credit facility, or the Revolving Credit Facility, in an aggregate principal amount of $200.0 million, with a $15.0 million letter of credit sublimit and a $15.0 million swingline loan sublimit.

The Revolving Credit Facility matures on June 30, 2028.

In September 2023, we repaid $200.0 million of the Wells Fargo Term Loan with the proceeds from the issuance of the 2029 Convertible Notes.

In October 2023, we repaid an additional $50.0 million of the Wells Fargo Term Loan.

As of December 31, 2023, we had no borrowings outstanding under the Revolving Credit Facility.

Revenues from the sales of BAQSIMI ® under the TSA with Lilly during the year ended December 31, 2023, were recognized on a net basis similar to a royalty arrangement.

The impact of this revenue recognition method resulted in lower reported revenues relative to the revenue that would have been reported had we recognized gross revenues from sales of BAQSIMI ® .

Once we assume distribution responsibilities to our customers, we will begin recognizing gross revenues and cost of revenues from sales of BAQSIMI ® , which will be classified as product revenues, net and cost of revenues, respectively.

The assumption of distribution activities will occur on a country by country basis throughout 2024, once the marketing authorizations for each territory have been transferred to us, we have setup distribution agreements, and we have obtained sufficient inventory.

For more information regarding our acquisition of BAQSIMI ® , see “Part II – Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 4.

BAQSIMI ® Acquisition.”

Business Segments

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

Revenues from the sale of BAQSIMI ® are also accounted for as a component of the finished pharmaceutical product segment.

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

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

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Segment Reporting Information.”

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 7.

– Segment Reporting Information.”

Results of Operations

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Finished pharmaceutical products

Total product revenues, net

Other revenues

Total net revenues

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Total finished pharmaceutical products net revenues

Primatene MIST ® sales continued to grow in 2022 as a result of increased unit volumes, which was primarily a result of the continued success of our advertising campaign.

The increase in sales of epinephrine was primarily due to an increase in unit volumes, due to an increase in demand caused by competitor shortages, contributing $9.0 million in sales, as well as a higher average selling price, which contributed $7.7 million to the increase in sales.

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

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

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

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

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

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

Product Revenues, net

The increase in sales of glucagon was primarily due to an increase in unit volumes, as a result of two competitors discontinuing their glucagon injection products at the end of 2022.

Primatene MIST ® sales increased primarily due to an increase in average selling price.

The increase in sales of epinephrine and lidocaine was primarily due to an increase in unit volumes, as a result of an increase in demand caused by supplier shortages.

The decrease in sales of phytonadione was due to a decrease in unit volumes, as a result of increased competition.

The decrease in sales of enoxaparin was primarily due to a decrease in unit volumes.

The decrease in sales of naloxone was due to a decrease in unit volumes reducing sales by $4.6 million, as well as a lower average selling price reducing sales by $2.7 million as a result of increased competition.

The increase in other finished pharmaceutical products was primarily due to higher unit volumes of dextrose, atropine, calcium chloride, and sodium bicarbonate, due to increased demand caused by supplier shortages, as well as a full period of sales for ganirelix and vasopressin, which were launched in June 2022 and August 2022, respectively, and the launch of regadenoson in April 2023.

We anticipate that sales of naloxone and enoxaparin will continue to fluctuate in the future due to competitive dynamics.

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

Sales of medroxyprogesterone had essentially halted as of August 2023 as our API supplier discontinued manufacturing this product.

During the fourth quarter of 2023, we qualified our subsidiary ANP to manufacture this API.

Sales of medroxyprogesterone totaled $12.8 million in the year ended December 31, 2023, compared to $26.6 million in the year ended December 31, 2022.

We plan to relaunch the product during the first quarter of 2024.

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

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

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

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

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

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

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

In December 2023, we amended the Supply Agreement with MannKind Corporation, whereby MannKind’s aggregate total commitment of RHI API under the Supply Agreement was modified and extended for an additional period of time upon receipt of FDA approval of RHI produced from inclusion bodies made at AFP, which timeframe would have previously lapsed after calendar year 2027.

MannKind agreed to pay us a capacity fee quarterly beginning in 2025, until it resumes purchases.

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

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

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

Other Revenues

Other revenues includes revenues from the sales of BAQSIMI ® of $51.2 million during the year ended December 31, 2023, based on total BAQSIMI ® sales of $86.3 million as reported to us by Lilly, which was recognized on a net basis similar to a royalty arrangement.

Currently, BAQSIMI ® is being sold by Lilly on our behalf under the TSA, whereby Lilly would provide certain services to support the transition of the BAQSIMI ® operations to us.

The transfer of the BAQSIMI ® distribution to us is anticipated to occur at different points in time depending on the jurisdiction, with the United States occurring in the first quarter of 2024, which makes up approximately 80% of BAQSIMI ® worldwide revenues.

The assumption of distribution in countries outside the United States will occur on a country by country basis once the marketing authorizations for each territory have been transferred to us, we have set up distribution agreements, and we have obtained sufficient inventory.

Upon the assumption of distribution responsibilities, we will begin to recognize gross revenues and cost of revenues in their respective lines on the consolidated statements of operations.

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

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

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

As of December 31, 2023, our backlog was minimal, primarily as a result of competitor shortages and supplier constraints.

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

Gross Margins

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

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

The increase in sales of glucagon, Primatene MIST ® , and epinephrine, which are higher-margin products, the sales of ganirelix and vasopressin, both of which we launched last year, as well as the sales of regadenoson, which we launched in April 2023, contributed to the increase in our gross margins for the year ended December 31, 2023.

Additionally, as a result of the TSA with Lilly, revenues relating to BAQSIMI ® are reported on a net basis similar to a royalty arrangement with no amount reported as cost of revenues.

These increases in gross margins were partially offset by an impairment charge of $2.7 million in June 2023 relating to the impairment of the IMS (UK) international product rights, as well as charges included in cost of revenue to adjust our inventory and related purchase commitments to their net realizable value.

As a result of amending the Supply Agreement with MannKind in December 2023, we booked a $3.6 million inventory reserve.

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

Additionally, the cost of heparin may fluctuate, which could put downward pressure on our gross margins.

However, we believe that this trend will be offset by increased sales of our higher-margin products, including Primatene MIST ® , glucagon, vasopressin, ganirelix and our pipeline products.

However, we believe that this trend will be offset by increased sales of our higher-margin products, including glucagon, vasopressin, ganirelix, regadenoson and new products we anticipate launching in 2024.

Selling, distribution, and marketing, and general and administrative

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General and administrative

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

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

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

The increase in selling, distribution and marketing expenses was primarily due to expenses related to the expansion of our sales and marketing efforts related to BAQSIMI ® , as well as an increase in advertising spending for Primatene MIST ® .

The increase in general and administrative expense was primarily due to an increase in salary and personnel-related expenses, as well as costs related to the acquisition of BAQSIMI ® , which was partially offset by a decrease in legal fees.

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

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

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Salaries and personnel-related expenses

Pre-launch inventory

Clinical trials

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Total research and development expenses

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

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

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

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

The decrease in research and development expenses is primarily due to a decrease in materials and supply expense, as a result of a ramp-up of expenses in 2022 for AMP-018 and insulin pipeline products.

This was partially offset by an increase in salary and personnel-related expenses.

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

We expense research and development costs as incurred.

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

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

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

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

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

Over the past year, some of our ongoing clinical trials experienced short term interruptions in the recruitment of patients due to the COVID-19 pandemic, as hospitals prioritized their resources towards the COVID-19 pandemic and trial sites changed their operating protocols to protect participants from COVID-19.

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

Other income (expense), net

Non-operating income (expenses), net

Year Ended December 31,

(in thousands)

Non-operating income (expenses)

Interest income

Interest expense

Other income (expenses), net

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

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

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

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

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

Total non-operating income (expenses), net

The change in non-operating income (expenses), net is primarily a result of:

● Interest income increased as a result of an increase in cash and investments.

● Interest incurred in connection with the Wells Fargo Term Loan used to finance the acquisition of BAQSIMI ® , as well as the interest incurred in connection with the 2029 Convertible Notes.

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

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note.

● Other income (expenses), net is primarily a result of foreign currency fluctuation, as well as the mark-to-market adjustments relating to our interest rate swap contracts during the year ended December 31, 2023.

For the year ended December 31, 2022, we received a settlement of $5.4 million in connection with the Regadenoson patent litigation.

For more information regarding our litigation matters, see “Part II – Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note.

21 – Litigation .”

Income tax provision

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Effective tax rate

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

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

Our effective tax rate for the year ended December 31, 2023 decreased in comparison to the year ended December 31, 2022, primarily due to differences in pre-tax income positions, including jurisdictions where we maintain valuation allowance reserves against our deferred tax assets, and additional research and development credit benefit.

For more information regarding our income taxes, see “Part II – Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 16.

– Income Taxes.”

Liquidity and Capital Resources

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

Our future capital expenditures include projects to upgrade, expand, and improve our manufacturing facilities in the United States and China, including a significant increase in capital expenditures in 2023 We plan to fund this facility expansion with cash flows from operations.

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

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

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

To the extent we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities will result in dilution to our stockholders.

To the extent we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities will result in

dilution to our stockholders.

If we are required and unable to raise additional capital when desired, our business, operating results and financial condition may be adversely affected.

Working capital increased $69.2 million to $283.5 million at December 31, 2022, compared to $214.3 million at December 31, 2021.

Working capital decreased $19.3 million to $264.2 million at December 31, 2023, compared to $283.5 million at December 31, 2022.

Cash Flows from Operations

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Effect of exchange rate changes on cash

Net increase in cash, cash equivalents, and restricted cash

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

Sources and Use of Cash

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Net cash provided by operating activities was $183.5 million for the year ended December 31, 2023, which included net income of $137.5 million.

Non-cash items comprised primarily of $53.2 million of depreciation and amortization, which includes $25.2 million related to deprecation of property, plant and equipment, $12.8 million related to amortization of product rights, trademarks and patents, $11.4 million related to amortization of discounts, premiums, and debt issuance costs.

Additionally, non-cash items included share-based compensation expense of $20.2 million, and an impairment charge of $2.7 million relating to the impairment of the IMS (UK) international product rights.

Additionally, for the year ended December 31, 2023, there was a net cash outflow from changes in operating assets and liabilities of $24.2 million, which resulted from an increase in accounts receivables, an increase in inventories, which was partially offset by an increase in accounts payable and accrued liabilities.

Accounts payable and accrued liabilities increased primarily due to the deferred acquisition payment for BAQSIMI ® of $129.0 million.

The increase in accounts receivables was primarily due to the timing of the payment from Lilly for BAQSIMI ® revenues during the fourth quarter, which was received subsequent to the year end.

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

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

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

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

Additionally, for the year ended December 31, 2022, there was a net cash outflow from changes in operating assets and liabilities of $32.2 million, which resulted from an increase in accounts receivables;

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

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

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

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

Additionally, for the year ended December 31, 2021, there was a net cash outflow from changes in operating assets and liabilities of $2.0 million, which resulted from an increase in accounts receivable, which was partially offset by a decrease in inventory, as well as an increase in accounts payable and accrued liabilities.

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

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

Investing Activities

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

Net cash used in investing activities was $649.1 million for the year ended December 31, 2023, primarily as a result of $506.4 million relating to the BAQSIMI ® acquisition, $38.2 million in purchases of property, plant, and equipment, which included $24.7 million incurred in the United States, $1.9 million in France, and $11.6 million in China.

Additionally, net cash outflows from purchases and sales of investments during the period was $105.9 million.

Net cash used in investing activities was $32.8 million for the year ended December 31, 2022, primarily as a result of

$24.0 million in purchases of property, plant, and equipment, which included $15.4 million incurred in the United States, $1.4 million in France, and $7.2 million in China.

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

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

Financing Activities

Net cash provided by financing activities was $454.1 million for the year ended December 31, 2023, primarily as a result of proceeds of $500.0 million from the Credit Agreement with Wells Fargo and $345.0 million from the 2029 Convertible Notes, which were partially offset by $318.7 million in principal payments of our long-term debt and $25.1 million in debt issuance cost.

Additionally, we received $11.0 million in net proceeds from the settlement of share-based compensation awards under our equity plan, which was offset by the $58.1 million used to purchase treasury stock.

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

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

Net cash used in financing activities was $37.0 million for the year ended December 31, 2021, primarily as a result of $53.6 million in payments relating to the purchase of additional ANP ownership interest in connection with the ANP restructuring completed during the third quarter of 2021 (For more information, see Note 3 in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report on Form 10-K).

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

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

Debt and Borrowing Capacity

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Long-term debt

As of December 31, 2022, we had $84.6 million in unused borrowing capacity under revolving lines of credit with Capital One N.A.

and China Merchant Bank.

As of December 31, 2023, we had $204.1 million in unused borrowing capacity under revolving lines of credit with Wells Fargo Bank and China Merchant Bank.

The weighted average interest rates on lines of credit as of December 31, 2023 and 2022 were 7.0% and 5.2%, respectively.

For our loans with Capital One N.A.

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

For our loans with Wells Fargo Bank and East West Bank, we have entered into fixed interest rate swap contracts to exchange the variable interest rates for fixed interest rates.

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

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt.”

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 15.

Operating Lease Obligations

As discussed in Note 18 to the consolidated financial statements, as of December 31, 2022 we had a total of $32.4 million of minimum rental payments under operating leases.

As of December 31, 2023 we had a total of $41.5 million of minimum rental payments under operating leases.

Of that amount, $5.6 million is due within 12 months as of December 31, 2023.

For more information regarding our operating lease obligations see “Part II – Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – See Note.

19 – Commitments and Contingencies.”

Purchase obligations

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As of December 31, 2023, we had an aggregate amount of approximately $93.3 million.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States, or GAAP.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

Actual results could differ from those estimates.

In some cases, changes in the accounting estimates are reasonably likely to occur from period to period.

Accordingly, actual results could differ materially from our estimates.

To the extent that there are material differences between these estimates and actual results, our financial condition and results of operations will be affected.

We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

We refer to accounting estimates of this type as critical accounting policies, which we discuss further below.

While our significant accounting policies are more fully described in Note 2 to our audited consolidated financial statements, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our audited consolidated financial statements.

Revenue Recognition

Product revenues, net

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

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

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

Generally, we recognize revenues at the time

of product delivery to our customers in accordance with ASC, 606 Revenue from Contracts with Customers .

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

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

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

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

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

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

For the years ended December 31, 2023, 2022 and 2021, revenue from research and development services at ANP were $4.5 million, $4.3 million and $5.1 million, respectively.

Other revenues

Revenues related to sales of BAQSIMI ® , which was acquired on June 30, 2023 and was manufactured and sold by Lilly under the TSA during the year ended December 31, 2023, were recorded on a net basis, similar to a royalty arrangement.

Provision for Chargebacks and Rebates

The provision for chargebacks and rebates is a significant estimate used in the recognition of revenue.

Wholesaler chargebacks relate to sales terms under which we agree to reimburse wholesalers for differences between the gross sales prices at which we sell our products to wholesalers and the actual prices of such products that wholesalers resell them under our various contractual arrangements with third parties such as hospitals and group purchasing organizations in the United States.

under our various contractual arrangements with third parties such as hospitals and group purchasing organizations in the United States.

Rebates include primarily amounts paid to retailers, payers, and providers in the United States, including those paid to state Medicaid programs, and are based on contractual arrangements or statutory requirements.

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Ending balance

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

Changes in the rebate provision from period to period are primarily dependent on retailer’s and other indirect customers’ purchases.

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

Changes in the provision for rebates from period to period are primarily dependent on retailer’s and other indirect customers’ purchases.

The approach that we use to estimate chargebacks and rebates has been consistently applied for all periods presented.

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The settlement of chargebacks and rebates generally occurs within 20 days to 60 days after the sale to wholesalers.

Accounts receivable and/or accounts payable and accrued liabilities are reduced and/or increased by the chargebacks and rebate amounts depending on whether we have the right to offset with the customer.

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

consolidated balance sheets, respectively.

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

The provision for chargebacks and rebates is included in the following balance sheet accounts:

(in thousands)

Reduction to accounts receivable, net

Accounts payable and accrued liabilities

Accrual for Product Returns

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Ending balance

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 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.

The provision for product returns is included in the following balance sheet accounts:

(in thousands)

Accounts payable and accrued liabilities

Other long-term liabilities

For the years ended December 31, 2023 and 2022, our aggregate product return rate was 1.1% and 1.4% of qualified sales, respectively.

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

Such events and

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

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

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

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If we determine it is more likely than not that the Primatene ® trademark is impaired or the fair value of a reporting unit is less than its carrying amount, further quantitative impairment process is then performed;

otherwise, no further testing is required.

otherwise, no further testing is

If the life is no longer indefinite, the asset is tested for impairment, and the carrying value, after recognition of any impairment loss, is amortized over its remaining useful life.

No impairment of indefinite-lived intangible asset and goodwill was recorded during the years ended December 31, 2022, 2021, or 2020, respectively.

We acquired the BAQSIMI ® product rights in June 2023.

BAQSIMI ® is an emergency nasal spray used to treat severe hypoglycemia.

The BAQSIMI ® product rights intangible asset is amortized over its estimated useful life of 24 years.

In determining the BAQSIMI ® product rights’ useful life, we considered the following:

the expected use of the intangible asset;

the longevity of the brand;

the legal, regulatory and contractual provisions that affect their maximum useful life;

our ability to renew or extend the asset’s legal or contractual life without substantial costs;

effects of the regulatory environment;

expected changes in distribution channels;

maintenance expenditures required to obtain the expected future cash flows from the asset;

and considerations for obsolescence, demand, competition and other economic factors.

For the year ended December 31, 2023, we recorded an impairment charge of $2.7 million related to our IMS (UK) international product rights, as we decided to delay the launch of the IMS UK products indefinitely.

We recorded the impairment in the cost of revenue line in our consolidated statement of operations.

No impairment of indefinite-lived intangible asset and goodwill was recorded during the years ended December 31, 2022 and 2021.

Deferred Income Taxes

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The change of any of these inputs could significantly impact the determination of the fair value of our options as well as significantly impact our results of operations.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States, or GAAP.

Actual results could differ from those estimates.

In some cases, changes in the accounting estimates are reasonably likely to occur from period to period.

Accordingly, actual results could differ materially from our estimates.

To the extent that there are material differences between these estimates and actual results, our financial condition and results of operations will be affected.

We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

We refer to accounting estimates of this type as critical accounting policies, which we discuss further below.

While our significant accounting policies are more fully described in Part II – Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2.

– Summary of Significant Accounting Policies”, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our audited consolidated financial statements.

Recent Accounting Pronouncements

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

Off Balance Sheet Arrangements

We do not have any relationships or financial partnerships with unconsolidated entities, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off balance sheet arrangements or other contractually narrow or limited purposes.

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

In November 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures which is intended to improve reportable segment disclosure requirements, primarily through additional disclosures about significant segment expenses.

The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The amendments should be applied retrospectively to all prior periods presented in the financial statements.

We are currently evaluating the disclosure requirements related to the new standard.

In December 2023, the FASB issued Accounting Standard Update 2023-09, Income taxes (Topic 740):

Improvements to Income Tax Disclosures which requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction.

The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively.

The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the disclosure requirements related to the new standard.

Government Regulation

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

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

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

The inspection resulted in one observation on Form 483.

We responded to that observation.

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

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

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

Each inspection resulted in no Form 483 findings.

No further actions will be necessary.

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

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

The inspection resulted in no findings.

No further actions will be necessary.

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

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

The inspection resulted in no Form 483 findings.

No further actions will be necessary.

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

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

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

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

From February 6 through February 16, 2023, our IMS facility in South El Monte, California was subject to pre-approval inspection by the FDA.

The inspection included a review of compliance with FDA regulations to support one of our pending applications.

The inspection resulted in two observations on Form 483.

We responded to those observations.

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

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What changed 10-K

Item 7. Management’s Discussion and Analysis