What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-03-11 compared with 2020-02-27 · 23 added, 1156 removed, 23 unchanged (98% of the section changed)

Market for Registrant’s Common Equity, Related

Stockholder Matters and Issuer Purchases of Equity Securities

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock trades on the NASDAQ Global

Market under the symbol “ANIP.”

Our common stock trades on the Nasdaq Global Market under the symbol “ANIP.”

Stockholder Information

As of February 20, 2020, there

were approximately 110 shareholders of record of our common stock, which does not include stockholders that beneficially own

shares held in a “nominee”

or in “street”

name, and six holders of record of Class C stock.

Recent Sales of Unregistered Securities and Use of Proceeds

from Registered Securities

As of March 4, 2021, there were approximately 123 shareholders of record of our common stock, which does not include stockholders that beneficially own shares held in a “nominee” or in “street” name, and six holders of record of Class C stock.

We have never declared or paid cash dividends on our common stock.

We do not anticipate paying any cash dividends on our capital stock in the foreseeable future.

We currently intend to retain all available funds and any future earnings to fund the development and growth of our business.

Recent Sales of Unregistered Securities

Issuer Purchases of Equity Securities

Performance Graph

The graph below compares the five-year

cumulative total stockholder return on our common stock, the NASDAQ Stock Market (US) Index, and the NASDAQ Pharmaceuticals Index,

assuming the investment of $100.00 on December 31, 2014, with dividends being reinvested.

The stock price performance in the

graph below is not necessarily indicative of future price performance.

Selected Consolidated Financial Data

The following table sets forth selected

financial data as of and for the five years ended December 31, 2019.

The information has been derived from our audited consolidated

financial statements for each of the years ended December 31, 2019, 2018, 2017, 2016, and 2015.

The data presented below

should be read in conjunction with our consolidated financial statements, the notes to our consolidated financial statements, and

“Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The graph below compares the five-year cumulative total stockholder return on our common stock, the Nasdaq Stock Market (US) Index, and the Nasdaq Pharmaceuticals Index, assuming the investment of $100.00 on December 31, 2015, with dividends being reinvested.

The stock price performance in the graph below is not necessarily indicative of future price performance.

Selected Financial Data

The following table sets forth selected financial data as of and for the five years ended December 31, 2020.

The information has been derived from our audited consolidated financial statements for each of the years ended December 31, 2020, 2019, 2018, 2017, and 2016.

The data presented below should be read in conjunction with our consolidated financial statements, the notes to our consolidated financial statements, and “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Years Ended December 31,

2 unchanged sentences

Total operating expenses

Operating income from continuing operations

Operating (loss)/income from continuing operations

Benefit/(provision) for income taxes

Net income/(loss) from continuing operations

Basic and diluted income/(loss) from continuing operations per share:

Basic income/(loss) per share from continuing operations

Diluted income/(loss) per share from continuing operations

Net (loss)/income from continuing operations

Basic and diluted (loss)/income from continuing operations per share:

Basic (loss)/income per share from continuing operations

Diluted (loss)/income per share from continuing operations

Balance Sheet Data:

Total Convertible Notes, net of deferred financing costs

Non-current Term Loan and Delayed Draw Term Loan, net of deferred financing costs and current component

Non-current debt, net of deferred financing costs and current component

Total stockholder's equity

(1) On August 6, 2018, our subsidiary, ANI Pharmaceuticals Canada Inc.

(“ANI Canada”), acquired all the issued and outstanding equity interests of WellSpring Pharma Services Inc.

(“WellSpring”), a Canadian company that performs contract development and manufacturing of pharmaceutical products for a purchase price of $18.0 million, subject to certain customary adjustments.

(“ANI Canada”), acquired all the issued and outstanding equity interests of WellSpring Pharma Services Inc.

(“WellSpring”), a Canadian company that performs contract development and manufacturing of pharmaceutical products for a purchase price of $18.0 million, subject to certain customary adjustments.

Pursuant to these customary adjustments, the total purchase consideration was $16.7 million.

7 unchanged sentences

corporate income tax rate, resulting in a $13.4 million increase in income tax expense for the year ended December 31, 2017.

Income Taxes, in the notes to the consolidated financial statements in Part II.

of this Annual Report on Form 10-K for further information.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Please read the following discussion

in conjunction with Item 1A.

(“Risk Factors”) and our audited consolidated financial statements included elsewhere

in this annual report.

Some of the statements in the following discussion are forward-looking statements.

See the discussion about

forward-looking statements on page 1 of this Annual Report on Form 10-K.

section of this Form 10-K generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018.

Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included

in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of

Operations”

in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,

2018, filed with the SEC on February 27, 2019.

Executive Overview

ANI Pharmaceuticals, Inc.

consolidated subsidiaries, ANIP Acquisition Company and ANI Pharmaceuticals Canada Inc.

(together, “ANI,”

the “Company,”

“we,”

“us,”

or “our”) is an integrated specialty pharmaceutical company focused on delivering

value to our customers by developing, manufacturing, and marketing high quality branded and generic prescription pharmaceuticals.

We focus on niche and high barrier to entry opportunities including controlled substances, anti-cancer (oncolytics), hormones and

steroids, and complex formulations.

Our three pharmaceutical manufacturing facilities, of which two are located in Baudette, Minnesota

and one is located in Oakville, Ontario, are together capable of producing oral solid dose products, as well as semi-solids, liquids

and topicals, controlled substances, and potent products that must be manufactured in a fully-contained environment.

Our strategy is to use our assets to develop,

acquire, manufacture, and market branded and generic specialty prescription pharmaceuticals.

By executing this strategy, we believe

we will be able to continue to grow our business, expand and diversify our product portfolio, and create long-term value for our

On June 19, 2013, BioSante Pharmaceuticals, Inc.

(“BioSante”) acquired ANIP Acquisition Company (“ANIP”) in an all-stock, tax-free reorganization (the “Merger”),

in which ANIP became a wholly-owned subsidiary of BioSante.

BioSante was subsequently renamed ANI Pharmaceuticals, Inc.

Merger was accounted for as a reverse acquisition pursuant to which ANIP was considered the acquiring entity for accounting purposes.

In 2014, we acquired Abbreviated Drug Applications

(“ANDAs”) for 31 generic products, the New Drug Application (“NDA”) for Lithobid, and the NDA for Vancocin,

along with two related ANDAs.

We also launched our Methazolamide product.

In addition, we completed a follow-on public offering

of common stock, yielding net proceeds of $46.7 million, and closed a public offering of $143.8 million of 3.0% Convertible Senior

Notes due in 2019 (the “Notes”), with simultaneous bond hedge and warrant transactions.

In 2015, we acquired ANDAs for 23 generic

products and entered into a distribution agreement with IDT Australia Limited (“IDT”) to market several generic products

We also launched six products during the year.

In 2016, we acquired the NDAs and product

rights for Cortrophin gel, Cortrophin-Zinc, and Inderal LA, and acquired the rights to market and distribute our Fenofibrate and

Hydrocortisone rectal cream products.

We also entered into a three-year senior secured asset-based revolving credit facility for

up to $30.0 million.

During the 2016 year, we launched 11 products.

In 2017, we acquired the right, title,

and interest in the NDAs and the U.S.

rights to market Atacand, Atacand HCT, Arimidex, and Casodex.

In addition, we acquired the

NDA, trademarks, and certain finished goods inventory for Inderal XL and InnoPran XL.

We also entered into a $125.0 million five-year

senior secured credit facility (the “Credit Agreement”) comprised of a $75.0 million five-year term loan (the “Term

Loan”) and a $50.0 million senior secured revolving credit facility (the “Revolving Credit Facility”).

the 2017 year, we launched six products.

In 2018, our subsidiary, ANI Pharmaceuticals

(“ANI Canada”), acquired all the issued and outstanding equity interests of WellSpring Pharma Services

(“WellSpring”), a Canadian company that performs contract development and manufacturing of pharmaceutical products.

In conjunction with the transaction, we acquired WellSpring’s pharmaceutical manufacturing facility, laboratory, and offices,

its current book of commercial business, as well as an organized workforce.

Following the consummation of the transaction, WellSpring

was merged into ANI Canada with the resulting entity’s name being ANI Pharmaceuticals Canada Inc.

In addition, we acquired

the ANDAs for three previously-commercialized generic products, the approved ANDAs for two generic products that have yet to be

commercialized, the development package for one generic product, a license, supply, and distribution agreement for a generic product

with an ANDA that is pending approval, and certain manufacturing equipment required to manufacture one of the products.

acquired the ANDAs for 23 previously-marketed generic products and API for four of the acquired products.

During the 2018 year,

we launched 11 products.

In addition, in December 2018, we

refinanced our $125.0 million Credit Agreement by entering into an amended and restated Senior Secured Credit Facility (the “Credit

Facility”) for up to $265.2 million.

The principal new feature of the Credit Facility was a $118.0 million Delayed Draw Term

Loan (the “DDTL”), which could only be drawn on in order to pay down the Company’s remaining 3.0% Convertible

Senior Notes, which matured in December 2019.

The Credit Facility also extended the maturity of the $72.2 million secured

Term Loan to December 2023.

In addition, the Credit Facility increased the previous $50.0 million line of credit (the “Revolver”)

to $75.0 million.

In 2019, we entered into an agreement

with Teva Pharmaceutical Industries Ltd.

to purchase a basket of ANDAs for 35 previously-marketed generic drug products.

also acquired from Coeptis Pharmaceuticals, Inc.

seven development stage generic products.

During the 2019 year, we

launched six products.

Additionally, on November 29, 2019,

we exercised our option to borrow $118.0 million pursuant to the DDTL feature under the existing Credit Facility and the proceeds

were used to repay the outstanding 3% Convertible Senior Notes, which matured on December 1, 2019.

Fiscal 2019 Developments

Asset Acquisitions

In March 2019, we entered into an

agreement with Teva Pharmaceutical Industries Ltd.

to purchase a basket of ANDAs for 35 previously-marketed generic drug products

for $2.5 million in cash.

The transaction closed in March 2019 and we made the $2.5 million payment using cash on hand.

In June 2019, we acquired from Coeptis

Pharmaceuticals, Inc.

seven development stage generic products, as well as active pharmaceutical ingredient (“API”)

and reference-listed drug inventory related to certain of the products for a payment of $2.3 million.

The entire payment,

and $24 thousand of transaction costs directly related to the acquisition, was recorded as research and development expense because

the potential generic products have significant remaining work required in order to commercialize the products and do not have

an alternative future use.

In addition, we could make up to $12.0 million in payments for certain development and commercial milestones.

Amendment to Teva Pharmaceuticals Asset Purchase Agreement

In January 2019, we entered into an

amendment to three asset purchase agreements (the “Asset Purchase Agreement Amendment”) with Teva Pharmaceuticals USA, Inc.

(“Teva”).

Under the terms of the Asset Purchase Agreement Amendment, all royalty obligations of the Company owed to

Teva with respect to products associated with ten ANDAs under the original asset purchase agreements ceased being effective as

of December 31, 2018.

As consideration for the termination of such future royalty obligations, we paid Teva a sum of $16.0

Product Launches

March 2019, we launched two additional presentations of Erythromycin Ethylsuccinate for Oral Suspension.

Erythromycin Ethylsuccinate is indicated in the treatment of infections caused by susceptible strains of selected

In September 2019, we launched Vancomycin

Hydrochloride for Oral Solution, which is a prescription medication administered orally for

treatment of enterocolitis caused by staphylococcus aureus, including methicillin-resistant strains, and antibiotic-associated

pseudomembranous colitis caused by clostridium difficile.

October 2019, we launched Aspirin and Extended Release Dipyridamole capsules, which are indicated to reduce the risk of stroke

in patients who have had transient ischemia of the brain or completed ischemic stroke due to thrombosis.

December 2019, we launched Bretylium Tosylate Injection USP 50mg/ml.

Tosylate Injection USP is indicated in the prophylaxis and therapy of ventricular fibrillation.

also indicated in the treatment of life-threatening ventricular arrhythmias, such as ventricular tachycardia that have failed to

respond to adequate doses of a first-line antiarrhythmic agent, such as lidocaine.

Cortrophin Gel Re-commercialization Update

We continue to successfully progress our

Cortrophin re-commercialization program.

Significant accomplishments since the September 30, 2019 quarterly report on Form 10-Q

filed on November 6, 2019 include:

We successfully completed API process validation by completing

the fourth commercial scale batch of Corticotropin API.

We also completed manufacturing for a fifth commercial scale batch of

Corticotropin API.

All five commercial scale batches were analytically consistent with each other and met all API release

specifications.

We expect to have six months stability on all API registration batches prior to the supplementary NDA filing

and by the end of first quarter 2020.

successfully completed drug product process validation in the fourth quarter of 2019.

We also completed manufacturing of a fourth

commercial scale batch of Cortrophin Gel.

This batch was analytically consistent with previously manufactured batches and met

all drug product release specifications.

We have already completed manufacturing for three commercial scale registration stability

batches of Cortrophin Gel and expect to have six months stability on each prior to the supplementary NDA filing and by the end

of first quarter 2020.

remain on track to file a supplemental NDA as planned by the end of the first quarter 2020.

The following table summarizes our results

of operations for the years ended December 31, 2019 and 2018.

Years Ended December 31,

(in thousands)

Operating expenses

Cost of sales (excluding depreciation and amortization)

Research and development

Selling, general, and administrative

Depreciation and amortization

Cortrophin pre-launch charges

Intangible asset impairment charge

Operating income

Interest expense, net

Other expense, net

Income before benefit/(provision) for income taxes

Benefit/(provision) for income taxes

The following table sets forth, for the

periods indicated, items in our consolidated statements of operations as a percentage of net revenues.

Years Ended December 31,

Operating expenses

Cost of sales (excluding depreciation and amortization)

Research and development

Selling, general, and administrative

Depreciation and amortization

Cortrophin pre-launch charges

Intangible asset impairment charge

Operating income

Interest expense, net

Other expense, net

Income before benefit/(provision) for income taxes

Benefit/(provision) for income taxes

Results of Operations for the Years Ended December 31,

2019 and 2018

Years Ended December 31,

(in thousands)

Generic pharmaceutical products

Branded pharmaceutical products

Contract manufacturing

Royalty and other income

Total net revenues

We derive substantially all of our revenues

from sales of generic and branded pharmaceutical products, contract manufacturing, and contract services, which include product

development services, laboratory services, and royalties on net sales of certain products.

Net revenues for the year ended December 31, 2019 were

$206.5 million compared to $201.6 million for the same period in 2018, an increase of $5.0 million, or 2.5%, primarily as a result

of the following factors:

Net revenues for generic pharmaceutical products were $128.7 million during the year ended December 31, 2019,

an increase of 9.6% compared to $117.5 million for the same period in 2018.

The primary reasons for the increase are the

September 2019 launch of Vancomycin Oral Solution, annualization of the 2018 launches of Ezetimibe-Simvastatin and

Candesartan, other products launched in 2019, as well as increased unit sales of Vancomycin tablets.

These increases were

tempered by decreases in sales of Esterified Estrogen with Methyltestosterone (“EEMT”), Diphenoxylate

Hydrochloride and Atropine Sulfate, and Fenofibrate.

As described in Item 1.

Business –

Government Regulations –

Unapproved Products, we market EEMT and Opium Tincture without Food and Drug Administration (“FDA”) approved NDAs.

The FDA's policy with respect to the continued marketing of unapproved products appears in the FDA's September 2011 Compliance Policy Guide Sec.

440.100 titled "Marketed New Drugs without Approved NDAs or ANDAs."

Under this policy, the FDA has stated that it will follow a risk-based approach with regard to enforcement against marketing of unapproved products.

The FDA evaluates whether to initiate enforcement action on a case-by-case basis, but gives higher priority to enforcement action against products in certain categories, such as those with potential safety risks or that lack evidence of effectiveness.

While we believe that, so long as we comply with applicable manufacturing standards, the FDA will not take action against us under the current enforcement policy, we can offer no assurances that the FDA will continue this policy or not take a contrary position with any individual product or group of products.

Our combined net revenues for these products for the years ended December 31, 2019 and 2018 were $20.7 million and $24.9 million, respectively.

Net revenues for branded pharmaceutical products were $63.8 million during the year ended December 31, 2019, an increase of 5.3% compared to $60.6 million for the same period in 2018.

The primary reasons for the increase were a full year of sales on our Arimidex and Casodex products, which were launched under our label in July 2018, and Atacand, which was launched under our label in October 2018, all of which were previously included in Royalty and other, as well as increased sales of Inderal XL.

These increases were tempered by lower unit sales of InnoPran XL, Lithobid, and Inderal LA.

manufacturing revenues were $11.1 million during the year ended December 31, 2019, an increase of 22.2% compared to

$9.1 million for the same period in 2018, due primarily to a full year of contract manufacturing revenue in our ANI Canada subsidiary .

As described in Item 1.

Business –

Government Regulations –

Unapproved Products, we contract manufacture a group of

products on behalf of a customer that are marketed by that customer without an FDA-approved NDA.

If the FDA took enforcement action

against such customer, the customer may be required to seek FDA approval for the group of products or withdraw them from the market.

Our contract manufacturing revenues for the group of unapproved products for the years ended December 31, 2019 and 2018

were $3.1 million and $2.0 million, respectively.

and other were $2.9 million during the year ended December 31, 2019, a decrease of $11.5 million from $14.5 million for

the same period in 2018, due primarily to the launch of Atacand, Atacand HCT, Arimidex, and Casodex under our own label in

2018, all of which were included in Branded pharmaceutical product sales in 2019.

During the year ended December 31,

2019, we recognized $0.5 million of royalty revenue related to a true-up from our former partner for sales of the authorized

generic for Vancocin.

Royalty and other also includes the impact of product development and laboratory services revenue from

our ANI Canada subsidiary.

Cost of Sales (Excluding Depreciation and Amortization)

Years Ended December 31,

(in thousands)

Cost of sales (excl.

depreciation and amortization)

of sales consists of direct labor, including manufacturing and packaging, active and inactive pharmaceutical ingredients, freight

costs, packaging components, and royalties related to profit-sharing arrangements.

Cost of sales does not include depreciation

and amortization expense, which is reported as a separate component of operating expenses on o ur consolidated statements

of operations.

For the year ended December 31,

2019, cost of sales decreased to $63.2 million from $73.0 million for the same period in 2018, a decrease of $9.9

million or 13.5%.

The year ended December 31, 2018 included $5.6 million of costs of sales related to the excess of fair

value over cost on Inderal XL and InnoPran XL inventory and write-off of remaining inventory acquired as part of the

acquisition when we re-launched the products under our own label.

In addition, cost of sales for the year ended

December 31, 2019 included lower sales of products subject to profit-sharing arrangements, as well as the impact of the

January 2019 royalty buy out from the Asset Purchase Agreement Amendment with Teva.

Decreases were tempered by the

fourth quarter 2019 $4.6 million inventory reserve charge, primarily related to the exit from the market for Methylphenidate

Extended Release.

Cost of sales as a percentage of net revenues decreased to 30.6% during the year ended

December 31, 2019, from 36.2% during same period in 2018, primarily due to the non-recurrence of $5.6 million net impact

on cost of sales (2.8% as a percent of net revenues) of the excess of fair value over cost for Inderal XL and InnoPran XL

inventory sold and written off during the period, as well as lower royalty expense recognized in the period, offset by the

inventory reserve charges recognized in the fourth quarter 2019.

We source the raw materials for our

products from both domestic and international suppliers, which we carefully select.

Generally, we qualify only a single

source of API for use in each product due to the cost and time required to validate and qualify a second source of supply.

Any change in one of our API suppliers must usually be approved through a PAS by the FDA.

The process of obtaining an

approval of such a PAS can require between four and 18 months.

While we also generally qualify a single source for non-API

raw materials, the process required to qualify an alternative source of a non-API raw material is typically much less

If we were to change the supplier of a raw material for a product, the cost for the material could be greater than

the amount we paid with the previous supplier.

Changes in suppliers are rare, but could occur as a result of a

supplier’s business failing, an issue arising from an FDA inspection, or failure to maintain our required standards of

As a result, we select suppliers with great care, based on various factors including quality, reliability of supply,

and long-term financial stability.

Certain of the APIs for our drug products, including those that are marketed without

approved NDAs or ANDAs, such as EEMT, are sourced from international suppliers.

From time to time, we have experienced

temporary disruptions in the supply of certain of such imported API due to FDA inspections.

During the year ended

December 31, 2019, we purchased 13% of our inventory from one supplier.

As of December 31, 2019, amounts payable to

this supplier were $0.7 million.

In the year ended December 31, 2018, we purchased 13% of our inventory from one

In order to manufacture certain of our

products deemed controlled substances, we must submit a request to the Drug Enforcement Administration (“DEA”) for

a quota to purchase the amount of API needed for manufacture.

Without approved quotas from the DEA, we would not be able to purchase

these ingredients from our suppliers.

As a result, we are dependent upon the DEA to annually approve a sufficient quota of API

to support the continued manufacture of our controlled substances at commercial level.

Other Operating Expenses

Years Ended December 31,

(in thousands)

Research and development

Selling, general, and administrative

Depreciation and amortization

Cortrophin pre-launch charges

Intangible asset impairment charge

Total other operating expenses

(1) Not Meaningful

Other operating expenses consist of research

and development costs, selling, general, and administrative expenses, depreciation and amortization, impairment charges, and Cortrophin

pre-launch charges.

For the year ended December 31, 2019,

other operating expenses increased to $127.0 million from $93.2 million for the same period in 2018, an increase of $33.8

million, or 36.3%, primarily as a result of the following factors:

Research and development expenses increased from $15.4

million to $19.8 million, an increase of 28.7%, due to $2.3 million of expense related to in-process research and development

acquired in the acquisition from Coeptis, as well as work on development projects, primarily the Cortrophin gel

re-commercialization project and work on the ANDAs acquired in the asset purchase agreement with Impax

Laboratories, Inc.

(now Amneal), and $1.2 million in expense for development milestone payments earned under certain

collaborative agreements.

These increases were partially offset by the non-recurrence of $1.3 million of expense related to

in-process research and development acquired in the asset purchase with Impax Laboratories, Inc.

in the second quarter

We anticipate that research and development costs will be lower in 2020 as compared to 2019, as we anticipate the

completion of our Cortrophin re-development efforts.

Selling, general, and administrative expenses increased from $44.1 million to $55.8 million, an increase of 26.7%, driven

by a full year of costs related to our ANI Canada subsidiary, increased U.S.

based headcount and increased pharmacovigilance

compliance costs in continued support of the expansion of our commercial portfolio, increased stock compensation expense,

higher Generic Drug User Fee Amendments (“GDUFA”) and Prescription Drug User Fee Act (“PDUFA”) user

fees paid to the U.S.

FDA, higher legal fees, and increased sales and marketing related costs.

We anticipate that selling,

general, and administrative expenses will continue to be greater in 2020 than in 2019 as we support anticipated revenue

growth and increased scope of our business.

Depreciation and amortization increased from $33.7 million to $44.6 million, an increase of 32.2%, primarily due to the $6.8

million cumulative amortization expense recorded in relation to the January 2019 royalty buy out as well as the amortization

of the ANDAs acquired in April 2018, May 2018, and March 2019.

We anticipate that depreciation and amortization

expense will continue to be greater in 2020 than in 2019.

As discussed in Note 13.

Cortrophin Pre-Launch Charges, in

the notes to the consolidated financial statements in Part II.

of this Annual Report on Form 10-K, we recognized Cortrophin

pre-launch charges of $6.7 million in the year ended December 31, 2019.

No Cortrophin pre-launch charges were recognized in the

year ended December 31, 2018.

We recognized an impairment charge of $75 thousand in relation to our Ranitidine product right asset during the year ended

December 31, 2019.

No impairment charge was recognized during the year ended December 31, 2018.

Other Expense, net

Years Ended December 31,

(in thousands)

Interest expense, net

Other expense, net

Total other expense, net

Not Meaningful

For the year ended December 31,

2019, we recognized other expense of $13.2 million versus other expense of $15.3 million for the same period in 2018, a

decrease of $2.1 million.

Interest expense, net for 2019 and 2018 consists primarily of interest expense on our convertible

debt and interest expense on borrowings under our Term Loan and DDTL.

The decrease is primarily due to the December 2018

$25.0 million paydown and December 2019 maturity of the convertible debt, partially offset by interest expense on the

DDTL, which was drawn upon on November 29, 2019.

For the year ended December 31, 2019 and 2018, there was $0.2

million and $0.7 million of interest capitalized into construction in progress, respectively.

Benefit/(Provision) for Income Taxes

Years Ended December 31,

(in thousands)

Benefit/(provision) for income taxes

Our provision for income taxes consists

of current and deferred components, which include changes in our deferred tax assets, our deferred tax liabilities, and our valuation

We measure our deferred tax assets and liabilities using the tax rates that we believe will apply in the years in which

the temporary differences are expected to be recovered or paid.

Income Taxes, in the notes to the consolidated financial

statements in Part II.

Income Taxes, in the notes to the consolidated financial statements in Part II, Item 8.

of this Annual Report on Form 10-K for further information.

For the year ended December 31, 2019,

we recognized an income tax benefit of $2.9 million, an effective benefit rate of 93.0% of consolidated pre-tax income reported

in the period.

Our effective tax rate for 2019 was impacted by the use of the research and

experimental tax credit in the U.S., changes in state tax rates due to our changing presence in certain states, the release of

ANI Canada’s net valuation allowance, application of our newly adopted transfer pricing policy to 2019 and to 2018,

and the impact of current period awards of stock-based compensation, stock option exercises, disqualifying dispositions of incentive

stock options, among other items.

The effective tax rate for the year ended

December 31, 2018 was 22.7% of pre-tax income reported in the period.

Our effective tax rate for the year ended December 31,

2018 was impacted primarily by the Tax Cuts and Jobs Act of 2017, which was enacted on December 22, 2017 and lowered the U.S.

corporate tax rate from 35% to 21%, which began in 2018.

Our effective tax rate was also impacted by the discrete impact of current

period awards of stock-based compensation, stock option exercises, and disqualifying dispositions of incentive stock options, all

of which impact the consolidated effective rate in the period in which they occur.

Liquidity and Capital Resources

The following table highlights selected

liquidity and working capital information from our consolidated balance sheets.

(in thousands)

Cash and cash equivalents

Accounts receivable, net

Inventories, net

Prepaid income taxes, net

Prepaid expenses and other current assets

Total current assets

Current component of Term Loan and Delayed Draw Term Loan, net of deferred financing costs

Convertible Notes, net of discount and deferred financing costs

Accounts payable

Accrued expenses and other

Accrued royalties

Accrued compensation and related expenses

Current income taxes payable, net

Accrued government rebates

Returned goods reserve

Deferred revenue

Total current liabilities

At December 31, 2019, we had

$62.3 million in unrestricted cash and cash equivalents.

At December 31, 2018, we had $43.0 million in unrestricted cash

and cash equivalents.

We generated $45.6 million of cash from operations in the year ended December 31, 2019.

June 2019, we acquired from Coeptis Pharmaceuticals, Inc.

seven development stage generic products, as well as

active pharmaceutical ingredient API and reference-listed drug inventory related to certain of the products for a payment of

$2.3 million using cash on hand.

In addition, we could make up to $12.0 million in payments for certain development and commercial milestones.

In March 2019, we purchased from Teva Pharmaceutical Industries Ltd.

a basket of ANDAs for 35 previously-marketed

generic drug products for $2.5 million using cash on hand.

In January 2019, we

entered into the Asset Purchase Agreement Amendment, under which all royalty obligations the Company owed to Teva with

respect to products associated with ten ANDAs under the original asset purchase agreements ceased being effective as of

December 31, 2018.

As consideration for the termination of such future royalty obligations, we paid Teva $16.0 million

using cash on hand.

In December 2018, we refinanced our

$125.0 million Credit Agreement by entering into an amended and restated Senior Secured Credit Facility (the “Credit Facility”)

for up to $265.2 million.

The principal new feature of the Credit Facility was a $118.0 million Delayed Draw Term Loan (the “DDTL”),

which could only be drawn on in order to pay down the Company’s remaining 3.0% Convertible Senior Notes, which matured in

December 2019.

The Credit Facility also extended the maturity of the $72.2 million secured term loan (the “Term Loan”)

balance to December 2023.

In addition, the Credit Facility increased the previous $50.0 million line of credit (the “Revolver”)

to $75.0 million.

In December 2018, we entered into separate, privately negotiated agreements

with certain holders of our Notes and repurchased $25.0 million aggregate principal amount of Notes for a total of $26.1

million in cash, including accrued but unpaid interest up to but excluding the closing date for the transactions.

At the same time,

we unwound a corresponding portion of the bond hedge and warrant, which are described in further detail below under “

Sources and Uses of Cash –

Debt Financing ”.

As a result of unwinding this portion of the bond hedge and warrant,

we received a net amount of $0.4 million.

On November 29, 2019, we exercised

our option to borrow $118.0 million pursuant to the DDTL feature under the existing Credit Facility and the proceeds were used

to repay the outstanding 3% Convertible Senior Notes, which matured on December 1, 2019.

We are focused on expanding our business

and product pipeline through collaborations, and also through acquisitions of products and companies.

We are continually evaluating

potential asset acquisitions and business combinations.

To finance such acquisitions, we might raise additional equity capital,

incur additional debt, or both.

Our working capital ratio, defined as total

current assets divided by total current liabilities, is 3.0 as of December 31, 2019.

We believe that our financial resources,

consisting of current working capital and anticipated future operating revenue, will be sufficient to enable us to meet our working

capital requirements and debt obligations for at least the next 12 months.

If our assumptions underlying estimated revenue and

expenses are wrong, or if our cash requirements change materially as a result of shifts in our business or strategy, we could require

additional financing.

If in the future we do not remain profitable or generate cash from operations as anticipated and additional

capital is needed to support operations, we may be unable to obtain such financing, or obtain it on favorable terms, in which case

we may be required to curtail development of new products, limit expansion of operations, or accept financing terms that are not

as attractive as desired.

Consolidation among wholesale distributors,

chain drug stores, and group purchasing organizations has resulted in a smaller number of companies each controlling a larger share

of pharmaceutical distribution channels.

Our net revenues were concentrated among three customers representing 32%, 25%, and 23%

of net revenues during the year ended December 31, 2019.

As of December 31, 2019 accounts receivable from these three

customers totaled approximately 88% of accounts receivable, net.

As a result, negotiated payment terms with these customers have

a material impact on our liquidity and working capital.

None of our products accounted for 10%

or more of our net revenues in 2019.

One of our pharmaceutical products, EEMT, accounted for approximately 11% of our net revenues

As a result, market pricing for these products, combined with the costs of raw materials and payment terms with suppliers,

have a material impact on our liquidity and working capital.

Increases and decreases in revenue related to these products have

had a significant impact on our financial results and if revenues from any of these products were to decrease substantially or

entirely, it would have a material, negative impact on our cash flows and liquidity.

Our consolidated financial statements have

been prepared on a basis that assumes that we will continue as a going concern and which contemplates the realization of assets

and the satisfaction of liabilities and commitments in the normal course of business.

These statements do not include any adjustments

that might result if the carrying amount of recorded assets and liabilities are not realized.

Sources and Uses of Cash

Debt Financing

December 2018, we refinanced our $125.0 million Credit Agreement by entering into an amended and restated Senior Secured Credit

Facility for up to $265.2 million.

The principal new feature of the Credit Facility was a $118.0 million DDTL, which could only

be drawn on in order to pay down the Company’s remaining 3.0% Convertible Senior Notes, which matured in December 2019.

The DDTL was accounted for as new debt.

The Credit Facility also extended the maturity of the $72.2 million secured Term Loan to

December 2023.

In addition, the Credit Facility increased the previous $50.0 million line of credit to $75.0 million.

Term Loan and Revolver were accounted for as a modification of our existing term loan and line of credit, respectively.

On November 29,

2019, we exercised our option to borrow $118.0 million pursuant to the DDTL feature under the existing Credit Facility and the

proceeds were used to repay the outstanding 3% Convertible Senior Notes, which matured on December 1, 2019.

As of December 31,

2019, we had a $187.5 million outstanding balance on the Credit Facility.

As of December 31, 2019, we had not drawn on the

We may at any time repay borrowings under

the term loans, including the initial Term Loan and DDTL, and the Revolver without any premium or penalty, and we must repay all

borrowings thereunder by December 27, 2023.

We may use the proceeds of the Revolver for working capital and other general

corporate purposes.

drawn under the Term Loan and DDTL bear an interest rate equal to, at our option, either a LIBOR rate plus 1.50% to 2.75% per annum,

depending on our total leverage ratio or an alternative base rate plus an applicable base rate margin, which varies within a range

of 0.50% to 1.75%, depending our total leverage ratio.

On the Revolver, we incur a commitment fee at a rate per annum that varies

within a range of 0.25% to 0.50%, depending on our leverage ratio.

We must comply with various customary financial and non-financial

covenants under the Credit Facility.

The primary financial covenants under the Credit Facility consist of a maximum total leverage

ratio, which initially shall be no greater than 3.75 to 1.00 and a minimum fixed charge coverage ratio which shall be greater than

or equal to 1.25 to 1.00.

The primary non-financial covenants under the Credit Agreement limit, subject to various exceptions,

the Company’s ability to incur future indebtedness, to place liens on assets, to pay dividends or make other distributions

on the Company’s capital stock, to repurchase the Company’s capital stock, to conduct acquisitions, to alter its capital

structure and to dispose of assets.

In December 2017, we entered into

a $125.0 million Credit Agreement with Citizens Bank, N.A, which was replaced by the $265.2 million Credit Facility described above.

The Credit Agreement was comprised of a $75.0 million five-year term loan and a $50.0 million senior secured revolving credit facility

and was secured by the assets of the Company.

The funds from the Term Loan were used to pay down the $25.0 million balance on our

existing Line of Credit, as well as to purchase the right, title, and interest in the NDAs and the U.S.

rights to market Atacand,

Atacand HCT, Arimidex, and Casodex, for $46.5 million in cash, as noted above.

In December 2014, we issued $143.8

million of 3.0% Convertible Senior Notes in a registered public offering (the “December 2014 Offering”), which

includes the $18.8 million of Notes issued pursuant to the full exercise of the over-allotment option granted to the underwriters

in the December 2014 Offering.

After deducting the underwriting discounts and commissions and other expenses (including the

net cost of the bond hedge and warrant, discussed below), the net proceeds from the offering were approximately $122.6 million.

In December 2018, we repurchased $25.0 million of our outstanding Notes.

At the same time, we unwound a corresponding portion

of the bond hedge and warrant, which are described in further detail below.

As a result of unwinding this portion of the bond hedge

and warrant, we received a net amount of $0.4 million.

The remaining Notes were convertible into 1,709,002 shares of common stock,

based on an initial conversion price of $69.48 per share.

A portion of the offering proceeds

was used to simultaneously enter into “bond hedge”

(or purchased call) and “warrant”

call) transactions with an affiliate of one of the offering underwriters (collectively, the “Call Option

Overlay”).

We entered into the Call Option Overlay to synthetically raise the initial conversion price of the Notes to

$96.21 per share and reduce the potential common stock dilution that may arise from the conversion of the Notes.

price of the bond hedge was $69.48 per share, with an underlying 1,709,002 common shares;

the exercise price of the warrant

is $96.21 per share, also with an underlying 1,709,002 common shares remaining as of December 31, 2019.

Customer Payments

In addition to the financings in prior

years, payments from customers are a significant source of cash in 2019, 2018, and 2017 and were our primary source of cash in

2019 and 2018.

Our primary cash requirements are to fund

operations, including research and development programs and collaborations, to support general and administrative activities, to

purchase equipment and machinery to expand our manufacturing capabilities as our product lines grow, and to expand our business

and product pipeline through acquisitions of products and companies.

We are continually evaluating potential asset acquisitions

and business combinations.

Our future capital requirements will depend on many factors, including, but not limited to:

product mix and pricing for product sales and contract manufacturing;

pricing and payment terms with customers;

costs of raw materials and payment terms with suppliers;

capital expenditures and equipment purchases to support product launches;

business and product acquisitions.

In the first quarter of 2019, we

entered into the Asset Purchase Agreement Amendment, under which all royalty obligations the Company owed to Teva with

respect to products associated with ten ANDAs under the original asset purchase agreements ceased being effective as of

December 31, 2018.

As consideration for the termination of such future royalty obligations, we paid Teva $16.0 million

using cash on hand.

Also in the first quarter of 2019, we purchased from Teva Pharmaceutical Industries Ltd.

ANDAs for 35 previously-marketed generic drug products for $2.5 million in cash using cash on hand.

In the second quarter or

2019, we acquired from Coeptis Pharmaceuticals, Inc.

seven development stage generic products, as well as active

pharmaceutical ingredient API and reference-listed drug inventory related to certain of the products for a payment of $2.3

million using cash on hand.

In addition, we could pay up to $12.0 million in payments for certain development and commercial

In 2019, we had $6.6 million of capital expenditures.

In the second quarter of 2018, we purchased

from IDT Australia, Limited the ANDAs for 23 previously-marketed generic drug products and API for four of the acquired products

for $2.7 million in cash.

In the second quarter 2018, we also purchased from Impax Laboratories, Inc.

(now Amneal) the approved

ANDAs for three previously-commercialized generic drug products, the approved ANDAs for two generic drug products that have not

yet been commercialized, the development package for one generic drug product, a license, supply, and distribution agreement for

a generic drug product with an ANDA that is pending approval, and certain manufacturing equipment required to manufacture one of

the products, for $2.3 million in cash.

In the third quarter of 2018, we acquired WellSpring, a Canadian company that performs

contract development and manufacturing of pharmaceutical products for a purchase price of $18.0 million, subject to certain customary

Pursuant to these customary adjustments, the total purchase consideration was $16.7 million.

The consideration was

paid entirely from cash on hand.

In December 2018, we entered into separate, privately

negotiated agreements with certain holders of our Notes and repurchased $25.0 million of our outstanding Notes.

time, we unwound a corresponding portion of the bond hedge and warrant.

As a result of unwinding this portion of the bond hedge

and warrant, we received a net amount of $0.4 million.

In 2018, we had $5.7 million of capital expenditures.

Discussion of Cash Flows

The following table summarizes the net

cash and cash equivalents provided by/(used in) operating activities, investing activities and financing activities for the periods

Years Ended December 31,

(in thousands)

Operating Activities

Investing Activities

Financing Activities

Net Cash Provided by Operating Activities

Net cash provided by operating activities

was $45.6 million for the year ended December 31, 2019, compared to $67.1 million during the same period in 2018, a decrease

of $21.4 million.

This decrease was principally due to changes in working capital tempered by an increase in net sales.

Net Cash Used in Investing Activities

Net cash used in investing activities for

the year ended December 31, 2019 was $27.5 million, principally due to the January 2019 Asset Purchase Agreement Amendment

for $16.0 million, the March 2019 asset acquisition of ANDAs for $2.5 million, the June 2019 acquisition of in-process

research and development related to seven development-stage products for $2.3 million, and $6.6 million of capital expenditures

during the period.

Net Cash Provided by/(Used In) Financing Activities

Net cash provided by financing activities

was $1.3 million for the year ended December 31, 2019, principally due to $5.7 million of proceeds from stock option exercises,

partially offset by $2.7 million of payments on the Term Loan and $1.0 million of treasury stock purchased in relation to restricted

stock vestings.

Proceeds of $118.0 million from the borrowing on the DDTL were used to repay the outstanding $118.8 million 3%

Convertible Senior Notes, which matured on December 1, 2019.

Contractual Obligations

The following table summarizes our long-term

contractual obligations and commitments as of December 31, 2019.

Payments Due by Period

(in thousands)

Long-term debt obligations (1)

Interest on long-term debt obligations (2)

Operating lease obligations

Purchase obligations (3)

(1) Represents our $69.5 million Term Loan due December 27, 2023 and our $118.0 million Delayed Draw Term Loan due December 2023.

(Note 3, Indebtedness, in the notes to the consolidated financial statements in Part II.

of this Annual Report on Form 10-K.)

(2) Represents

interest due on our Term Loan and our Delayed Draw Term Loan.

Interest for the Term Loan is calculated based on our payment

schedule as proscribed in the Senior Secured Credit Facility and using an estimated interest rate of 4.10%, which is the

estimated interest rate on the Term Loan as fixed by our interest rate swap.

Interest for the Delayed Draw Term Loan is

calculated based on our payment schedule as proscribed in the Senior Secured Credit Facility and using an estimated interest

rate of 3.97%, which is the estimated interest rate on the Delayed Draw Term Loan as fixed by our interest rate

(3) Purchase obligations primarily includes contractual obligations for inventory/material purchase minimums and service agreements.

Critical Accounting Estimates

This Management's Discussion and Analysis

of Financial Condition and Results of Operations is based on our financial statements, which have been prepared in accordance with

accounting principles generally accepted in the United States of America (“U.S.

GAAP”).

The preparation of financial

statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts

of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported

amount of revenues and expenses during the reporting period.

In our consolidated financial statements, estimates are used for,

but not limited to, stock-based compensation, allowance for doubtful accounts, accruals for chargebacks, government rebates, returns,

and other allowances, allowance for inventory obsolescence, valuation of financial instruments and intangible assets, accruals

for contingent liabilities, fair value of long-lived assets, deferred taxes and valuation allowance, and the depreciable lives

of long-lived assets.

significant accounting policies are discussed in Note 1.

Description of Business and Summary of Significant Accounting Policies,

in the notes to the consolidated financial statements in Part II.

of this Annual Report on Form 10-K.

an ongoing basis, we evaluate these estimates and assumptions, including those described below.

We base our estimates on historical

experience and on various other assumptions that we believe to be reasonable under the circumstances.

These estimates and assumptions

form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other

Actual results could differ from those estimates.

Due to the estimation processes involved, the following summarized accounting

policies and their application are considered to be critical to understanding our business operations, financial condition, and

operating results.

Revenue Recognition

We recognize revenue using the following

Identification of the contract, or contracts, with a customer;

Identification of the performance obligations in the contract;

Determination of the transaction price, including the identification

and estimation of variable consideration;

Allocation of the transaction price to the performance obligations

in the contract;

Recognition of revenue when we satisfy a performance obligation.

We derive our revenues primarily from sales

of generic and branded pharmaceutical products.

Revenue is recognized when our obligations under the terms of our contracts with

customers are satisfied, which generally occurs when control of the products we sell is transferred to the customer.

variable consideration after considering applicable information that is reasonably available.

We generally do not have incremental

costs to obtain contracts that would otherwise not have been incurred.

We do not adjust revenue for the promised amount of consideration

for the effects of a significant financing component because our customers generally pay us within 100 days.

Our revenue recognition accounting methodologies

contain uncertainties because they require management to make assumptions and to apply judgment to estimate the amount of discounts,

rebates, promotional adjustments, price adjustments, returns, chargebacks, and other potential adjustments, which are accounted

for as reductions to revenue.

We make these estimates based on historical experience.

In addition, for our product development

services revenue, we recognize revenue on a percentage of completion basis, which requires judgments related to how much work has

been completed on various components our projects.

Revenue from Sales of Generic and Branded Pharmaceutical

sales consist of sales of our generic and brand pharmaceutical products.

Our sole performance obligation in our contracts is to

provide pharmaceutical products to customers.

Our products are sold at pre-determined standalone selling prices and our performance

obligation is considered to be satisfied when control of the product is transferred to the customer.

Control is transferred to

the customer upon delivery of the product to the customer, as our pharmaceutical products are sold on an FOB destination basis

and because inventory risk and risk of ownership passes to the customer upon delivery.

Payment terms for these sales are generally

less than 100 days.

We recognized $192.5 million and $178.0 million of revenue related to sales of generic and branded pharmaceutical

products in 2019 and 2018, respectively.

Revenue from Distribution Agreements

time to time, we enter into marketing and distribution agreements with third parties in which we sell products under ANDAs or NDAs

owned or licensed by these third parties.

These products are sold under our own label.

We have assessed and determined that we

control the products sold under these marketing and distribution agreements and therefore are the principal for sales under each

of these marketing and distribution agreements.

As a result, we recognize revenue on a gross basis when control has passed to the

customer and we have satisfied our performance obligation.

Under these agreements, we pay these third parties a specified percentage

of the gross profit earned on sales of the products.

These profit-sharing percentages are recognized in cost of sales in our consolidated

statements of operations and are accrued in accrued royalties in our consolidated balance sheets until payment has occurred.

As discussed in Note 1.

Description of Business and Summary

of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II.

of this Annual Report

on Form 10-K, we estimate the amount of chargebacks based our actual historical experience.

A number of factors influence

current period chargebacks by impacting the average selling price (“ASP”) of products, including customer mix, negotiated

terms, volume of off-contract purchases, and wholesale acquisition cost (“WAC”).

If actual results were not consistent with

our estimates, we could be exposed to losses or gains that could be material, as changes to chargeback estimates could cause an

increase or decrease in revenue recognized during the year and increase or decrease accounts receivable.

If there were a 10% change

in the chargeback estimates throughout the year, our net revenues would be affected by $26.1 million for the year ended December 31,

Government Rebates

As discussed in Note 1.

Description of Business and Summary

of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II.

of this Annual Report

on Form 10-K, our estimates for government rebates are based upon several factors.

Our estimates for Medicaid rebates are

based upon our average manufacturer price, best price, product mix, levels of inventory in the distribution channel that we expect

to be subject to Medicaid rebates, and historical experience, which are invoiced in arrears by state Medicaid programs.

Our estimates

for Medicare rebates are based on historical experience.

While such experience has allowed for reasonable estimation in the past,

history may not always be an accurate indicator of future rebate experience, and trends in Medicaid and Medicare enrollment and

which products are covered by Medicaid and Medicare could change.

We anticipate that we will have further

increases in our quarterly Medicaid rebate amounts related to sales of our recently acquired branded and authorized generic products

and increases in our quarterly Medicare rebates related to sales of our Fenofibrate, Inderal LA, InnoPran XL, and Vancomycin

If actual results were not consistent with our estimates, we could be exposed to losses or gains that could be material,

as changes to government rebate estimates could cause an increase or decrease in revenue recognized during the year and decrease

or increase the government rebate reserve.

If there were a 10% change in the government rebate estimates throughout the year, our

net revenues would be affected by $1.8 million for the year ended December 31, 2019.

As discussed in Note 1.

Description of Business and Summary

of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II.

of this Annual Report

on Form 10-K, our estimate for returns is based upon our historical experience with actual returns.

While such experience

has allowed for reasonable estimation in the past, history may not always be an accurate indicator of future returns.

If actual results were not consistent with

our estimates, we could be exposed to losses or gains that could be material, as changes to returns estimates could cause an increase

or decrease in revenue recognized during the year and decrease or increase the returned goods reserve.

If there were a 10% change

in the returns estimates throughout the year, our net revenues would be affected by $1.9 million for the year ended December 31,

Administrative Fees and Other Rebates

As discussed in Note 1.

Description of Business and Summary

of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II.

of this Annual Report

on Form 10-K, we accrue for fees and rebates by product by wholesaler, at the time of sale based on contracted rates, ASPs,

and on-hand inventory counts obtained from wholesalers.

If actual results were not consistent with

our estimates, we could be exposed to losses or gains that could be material, as changes to these estimates could cause an increase

or decrease in revenue recognized during the year and increase or decrease accounts receivable.

If there were a 10% change in the

administrative fees estimates throughout the year, our net revenues would be affected by $3.7 million for the year ended December 31,

Prompt Payment Discounts

As discussed in Note 1.

Description of Business and Summary

of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II.

of this Annual Report

on Form 10-K, we reserve for sales discounts based on invoices outstanding, assuming, based on past experience, that 100%

of available discounts will be taken.

If customers do not take 100% of available

discounts as we estimate, we could need to re-adjust our methodology for calculating the prompt payment discount reserve.

were a 10% decrease in the prompt payment discounts estimates throughout the year, our net revenues would increase by $1.1 million

for the year ended December 31, 2019.

Contract Manufacturing Product Sales Revenue

manufacturing arrangements consist of agreements in which we manufacture a pharmaceutical product on behalf of third party.

performance obligation is to manufacture and provide pharmaceutical products to customers, typically pharmaceutical companies.

The contract manufactured products are sold at pre-determined standalone selling prices and our performance obligations are considered

to be satisfied when control of the product is transferred to the customer.

Control is transferred to the customer when the product

leaves our dock to be shipped to the customer, as our pharmaceutical products are sold on an FOB shipping point basis and the inventory

risk and risk of ownership passes to the customer at that time.

Payment terms for these sales are generally less than two months.

We estimate returns based on historical experience.

Historically, we have not had material returns for contract manufactured products.

We recognized $11.1 million and $9.1 million of revenue related to sales of contract manufactured products in 2019 and 2018, respectively.

Royalties from Licensing Agreements

time to time, we enter into transition agreements with the sellers of products we acquire, under which we license to the seller

the right to sell the acquired products.

Therefore, we recognize the revenue associated with sales of the underlying products as

Because these royalties are sales-based, we recognize the revenue when the underlying sales occur, based on sales and

gross profit information received from the sellers.

In addition, we receive royalties from a license for patent rights initially

owned by Cell Genesys, Inc., which merged with BioSante in 2009.

The royalties are the results of sales and milestones related

to the Yescarta®

We recognize revenue for sales-based royalties when the underlying sales occur.

We estimate variable

consideration related to milestones, which requires significant judgment.

We recognized $0.8 million and $12.5 million of revenue

related to royalties from licensing agreements in 2019 and 2018, respectively.

Product Development Services Revenue

provide product development services to customers, which are performed over time.

These services primarily relate to the technical

transfer of products to our facility in Oakville, Ontario.

Technology transfer refers to the process required to move the

manufacture of a product to a new manufacturing site and may include performance obligations such as formulation development, production

of small-scale batches, process development, and analytical method development and validation.

The duration of these technical

transfer projects is generally 18 months to three years.

Deposits received from these customers are recorded as deferred revenue

until revenue is earned and recognized.

For contracts with no deposits and for the remainder of contracts with deposits, we invoice

customers as our performance obligations are satisfied.

We recognize revenue on a proportional basis, which results in contract

assets on our balance sheet.

We recognized $1.1 and $1.0 million of revenue related to product development services in 2019 and

2018, respectively.

Intangible Assets

As discussed in Note 1.

Description of Business and Summary

of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II.

of this Annual Report

on Form 10-K, our definite-lived intangible assets have a carrying value of $180.4 million as of December 31, 2019.

These assets include ANDAs, NDAs and product rights, marketing and distribution rights, and a non-compete agreement.

These intangible

assets were originally recorded at fair value for business combinations and at relative fair value based on the purchase price

for asset acquisitions and are stated net of accumulated amortization.

The ANDAs, NDAs and product rights, marketing

and distribution rights, and non-compete agreement are amortized over their remaining estimated useful lives, ranging from four

to 10 years, based on the straight-line method.

The estimated useful lives directly impact the amount of amortization expense

recorded for these assets on a quarterly and annual basis.

In addition, we test for impairment of

definite-lived intangible assets when events or circumstances indicate that the carrying value of the assets may not be recoverable.

Judgment is used in determining when these events and circumstances arise.

If we determine that the carrying value of the assets

may not be recoverable, judgment and estimates are used to assess the fair value of the assets and to determine the amount of any

impairment loss.

If the fair value of an intangible asset is determined to be lower than its carrying value, we could be exposed

to an impairment charge that could be material.

In March 2018, we entered into

an agreement with Appco Pharma, LLC (“Appco”), in which a potential generic product, Ranitidine, was to be

developed and marketed.

Per the agreement, we paid Appco a series of licensing fees in conjunction with certain development

Ranitidine was launched in the third quarter of 2019, resulting in the final milestone payment of $80 thousand.

The $80 thousand milestone payment was capitalized as an intangible asset and determined to have an estimated useful life of

In September 2019, the FDA issued a public statement that some ranitidine medicines contain a nitrosamine

impurity called N-nitrosdimethylamine (“NDMA”) at low levels.

NDMA is classified as a probable human carcinogen

(a substance that could cause cancer) based on results from laboratory tests and the cause of the presence of this impurity

in the ranitidine products is not yet fully understood at this time.

During the fourth quarter 2019, testing of the API used

in our ranitidine drug product, as well as testing of the drug product itself, indicated a level of NDMA above acceptable

thresholds and Appco initiated a voluntary recall.

The Company has elected to exit the market for Ranitidine and determined

that the carrying value of the asset has been impaired.

During the fourth quarter 2019, the Company recognized a full

impairment of the remaining $75 thousand carrying value of the asset.

No events or circumstances arose in 2019

that indicated that the carrying value of any of our other definite-lived intangible assets may not be recoverable.

value of an intangible asset is determined to be lower than its carrying value, we could be exposed to an impairment charge that

could be material.

As discussed in Note 1.

Description of Business and Summary

of Significant Accounting Policies, in the notes to the consolidated financial statements in Part II.

of this Annual Report

on Form 10-K, our goodwill balance relates to the Merger and the acquisition of WellSpring and represents the excess of

the total purchase consideration over the fair value of acquired assets and assumed liabilities, using the purchase method of accounting.

Goodwill is not amortized, but is subject to periodic review for impairment.

As a result, the amount of goodwill is directly impacted

by the estimates of the fair values of the assets acquired and liabilities assumed.

In addition, goodwill is reviewed annually,

as of October 31, and whenever events or changes in circumstances indicate that the carrying amount of the goodwill might

not be recoverable.

Judgment is used in determining when these events and circumstances arise.

We perform our review of goodwill

on our one reporting unit.

If we determine that the carrying value of the assets may not be recoverable, judgment and estimates

are used to assess the fair value of the assets and to determine the amount of any impairment loss.

The carrying value of goodwill at December 31,

2019 was $3.6 million.

We believe it is unlikely that there will be a material change in the future estimates or assumptions used

to test for impairment losses on goodwill.

However, if actual results were not consistent with our estimates or assumptions, we

could be exposed to an impairment charge that could be material.

Stock-Based Compensation

Our Amended and Restated 2008 Stock Incentive

Plan (the “2008 Plan”) includes stock options and restricted stock, which are awarded in exchange for employee and

non-employee director services.

In July 2016, we commenced administration of our Employee Stock Purchase Plan (“ESPP”).

We recognize the estimated fair value of stock-based awards and classify the expense where the underlying salaries are classified.

The following table summarizes stock-based

compensation expense incurred under the 2008 Plan and 2016 Employee Stock Purchase Plan and included in our consolidated statements

of operations:

Years Ended December 31,

(in thousands)

Cost of sales

Research and development

Selling, general, and administrative

Stock-based compensation cost for stock

options is determined at the grant date using an option pricing model and stock-based compensation cost for restricted stock is

based on the closing market price of the stock at the grant date.

The value of the award is recognized as expense on a straight-line

basis over the employee’s requisite service period.

Valuation of stock awards requires us to

make assumptions and to apply judgment to determine the fair value of the awards.

These assumptions and judgments include estimating

the future volatility of our stock price and dividend yields.

Changes in these assumptions can affect the fair value estimate.

Through December 31, 2016, we estimated

the awards that would ultimately vest, using judgment for the amounts that would be forfeited due to failure to fulfill service

To the extent actual results or updated estimates differed from current estimates, such amounts were recorded as a

cumulative adjustment in the period estimates were revised.

As of January 1, 2017, in accordance with new guidance from the

FASB, we no longer estimate forfeitures, and they are accounted for as they occur.

Changes in estimates could affect compensation

expense within individual periods.

If there were to be a 10% change in our stock-based compensation expense for the year, our

Income before Benefit/(Provision) for Income Taxes would be affected by $0.9 million for the year ended December 31, 2019.

We use the asset and liability method of

accounting for income taxes.

Deferred tax assets and liabilities are determined based on differences between the financial reporting

and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect

when the differences are expected to reverse.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized

in the period that such tax rate changes are enacted.

We use a recognition threshold and a measurement

attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

We have not identified any uncertain income tax positions that could have a material impact to the consolidated financial statements.

We are subject to taxation in various U.S.

jurisdictions and Canada and remain subject to examination by taxing jurisdictions for

the years 1998 and all subsequent periods due to the availability of net operating loss carryforwards.

To the extent we prevail

in matters for which a liability has been established, or are required to pay amounts in excess of our established liability, our

effective income tax rate in a given financial statement period could be materially affected.

An unfavorable tax settlement generally

would require use of our cash and may result in an increase in our effective income tax rate in the period of resolution.

tax settlement may reduce our effective income tax rate and would be recognized in the period of resolution.

We consider potential tax effects resulting

from discontinued operations and gains and losses included in other comprehensive income and record intra-period tax allocations,

when those effects are deemed material.

Our effective income tax rate is also affected by changes in tax law, our level of earnings,

and the results of tax audits.

Although we believe that the judgments

and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could

be material .

Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

November 2019, the Financial Accounting Standards Board (“FASB”) issued guidance simplifying the accounting

for income taxes by removing the following exceptions:

1) exception to the incremental approach for intraperiod tax

allocation when there is a loss from continuing operations and income or a gain from other items, 2) exception requirement to

recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes and equity method

investment, 3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign

equity method investment becomes a subsidiary, and 4) exception to the general methodology for calculating income taxes in an

interim period when a year-to-date loss exceeds the anticipated loss the year.

The amendments also simplify accounting for

income taxes by doing the following:

1) r equiring that an entity recognize a franchise tax or similar tax that is

partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax,

2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business

combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, 3)

specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal

entity that is not subject to tax in its separate financial statements, 4) requiring that an entity reflect the effect of an

enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the

enactment date, and 5) making minor Codification improvements for income taxes related to employee stock ownership plans and

investments in qualified affordable housing projects accounted for using the equity method.

The guidance is effective for

reporting periods beginning after December 15, 2020, including interim periods within that fiscal year.

Early adoption

is permitted, including adoption in an interim period.

We are currently evaluating the impact, if any, that the adoption of

this guidance will have on our consolidated financial statements.

November 2018, the FASB issued guidance clarifying that certain transactions between collaborative arrangement participants

should be accounted for as revenue under Accounting Standards Codification Topic 606 when the collaborative arrangement participant

is a customer in the context of a unit of account.

The guidance is effective for reporting periods beginning after December 15,

2019, including interim periods within that fiscal year.

Early adoption is permitted, including adoption in an interim period.

We will adopt this guidance as of January 1, 2020.

The adoption of this guidance is not expected to have a material impact

on our consolidated financial statements.

August 2018, the FASB issued guidance amending the disclosure requirements on fair value measurements.

The amendments add,

modify, and eliminate certain disclosure requirements on fair value measurements.

The guidance is effective for reporting

periods beginning after December 15, 2019, including interim periods within that fiscal year.

Early adoption is permitted,

including adoption in an interim period.

We will adopt this guidance as of January 1, 2020.

adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

June 2016, the FASB issued guidance with respect to measuring credit losses on financial instruments, including trade receivables.

The guidance eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss

on financial instruments.

The credit loss estimate can now reflect an entity's current estimate of all future expected credit losses.

Under the previous guidance, an entity only considered past events and current conditions.

In April 2019, the FASB

further clarified the scope of the credit losses standard and addressed issues related to accrued interest receivable balances,

recoveries, variable interest rates, and prepayment.

In May 2019, the FASB issued further guidance to provide entities with

an option to irrevocably elect the fair value option applied on an instrument-by-instrument basis for eligible financial instruments.

In November 2019, the FASB issued further guidance on expected recoveries for purchased financial assets with credit deterioration,

and transition refiled for troubled debt restructurings, disclosures related to accrued interest receivables, financial assets

secured by collateral maintenance provisions.

The guidance is effective for fiscal years beginning after December 15, 2019,

including interim periods within those fiscal years.

Early adoption is permitted for fiscal years beginning after December 15,

2018, including interim periods within those fiscal years.

The adoption of certain amendments of this guidance must be applied

on a modified retrospective basis and the adoption of the remaining amendments must be applied on a prospective basis.

expect that the adoption of this guidance may change the way we assess the collectability of our receivables and recoverability

of other financial instruments.

We will adopt this guidance as of January 1, 2020.

The adoption of this guidance is not expected

to have a material impact on our consolidated financial statements.

We have evaluated all other issued and

unadopted Accounting Standards Updates and believe the adoption of these standards will not have a material impact on our consolidated

statements of operations, comprehensive income, balance sheets, or cash flows.

Recently Adopted Accounting Pronouncements

October 2018, the FASB issued guidance for accounting for derivatives and hedging.

The guidance provides for the inclusion

of the Secured Overnight Financing Rate (“SOFR”) Overnight Index swap rate as a benchmark interest rate for hedge accounting

In July 2017, the Financial Conduct Authority in the United Kingdom announced that it would phase out London Interbank

Offered Rate (“LIBOR”) as a benchmark by the end of 2021.

As a result, the U.S.

Federal Reserve identified the SOFR

as its preferred alternative reference rate, calculated with a broad set of short-term repurchase agreements backed by treasury

Amounts drawn under our five-year senior secured credit facility bear interest rates in relation to LIBOR, and our

interest rate swaps are designated in LIBOR.

The guidance was effective for reporting periods beginning after December 15,

We adopted this guidance as of January 1, 2019 on a prospective basis.

The adoption of this guidance did not have a

material impact on our consolidated financial statements.

August 2018, the Securities and Exchange Commission (“SEC”) adopted the final rule amending certain disclosure

requirements that have become redundant, duplicative, overlapping, outdated, or superseded.

In addition, the amendments

expand the disclosure requirements on the analysis of stockholders' equity for interim financial statements.

Under the amendments,

an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate

The rule was effective on November 5, 2018 and was effective for the quarter that began after the effective

The adoption of this guidance resulted in the inclusion of the statement of changes stockholder’s equity in our interim

financial statement filings.

In June 2018, the FASB issued guidance

simplifying the accounting for nonemployee stock-based compensation awards.

The guidance aligns the measurement and classification

for employee stock-based compensation awards to nonemployee stock-based compensation awards.

Under the guidance, nonemployee awards

are measured at their grant date fair value.

Upon transition, the existing nonemployee awards are measured at fair value as of

the adoption date.

The guidance was effective for reporting periods beginning after December 15, 2018, including interim periods

within that fiscal year.

We adopted this guidance as of January 1, 2019.

The adoption of this guidance did not have a material

impact on our consolidated financial statements.

February 2016, the FASB issued guidance for accounting for leases.

The guidance requires lessees to recognize assets and liabilities

related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements.

In July 2018,

the FASB issued additional guidance, which offers a transition option to entities adopting the new lease standards.

the transition option, entities can elect to apply the new guidance using a modified retrospective approach at the beginning of

the year in which the new lease standard is adopted, rather than to the earliest comparative period presented in their financial

The guidance was effective for reporting periods beginning after December 15, 2018.

We adopted this

guidance on a modified retrospective basis effective January 1, 2019, using the following allowable practical expedients:

did not reassess if any expired or existing contracts are or contain leases;

did not reassess the classification of any expired or existing leases.

Additionally,

we made ongoing accounting policy elections whereby we (i) do not recognize right-of-use assets or lease liabilities for short-term

leases (those with original terms of 12-months or less) and (ii) combine lease and non-lease elements of our operating leases.

Upon adoption

of the new guidance on January 1, 2019, we recognized a right-of-use asset of approximately $0.5 million, which was reduced

by approximately $10 thousand of net prepaid rents at the date of adoption, along with a lease liability of approximately $0.5

We also recognized total deferred tax assets of approximately $0.1 million and deferred tax liabilities of approximately

$0.1 million related to book-tax basis differences.

The net effect of the adoption resulted in a cumulative effect adjustment

to retained earnings on January 1, 2019 of approximately $2 thousand.

Off-Balance Sheet Arrangements

As of December 31, 2019, we did not

have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.

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 5. Market for Registrant’s Common Equity