ANI PHARMACEUTICALS INC 10-K

Item 7. 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 on Form 10K. 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. This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 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, 2020, filed with the SEC on March 11, 2021 . Executive Overview ANI Pharmaceuticals, Inc. and its consolidated subsidiaries (together, “ANI,” the “Company,” “we,” “us,” or “our”) is a diversified bio-pharmaceutical company serving patients in need by developing, manufacturing, and marketing high quality branded and generic prescription pharmaceuticals, including for diseases with high unmet medical need. Our team is focused on delivering sustainable growth by building a successful Purified Cortrophin Gel franchise, strengthening our generics business with enhanced development capability, innovation in established brands and leveraging our North American manufacturing capabilities. Our four pharmaceutical manufacturing facilities, of which two are located in Baudette, Minnesota, one is located in East Windsor, New Jersey, 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. Strategy Our objective is to build a sustainable and growing biopharmaceutical company serving patients in need and creating long-term value for our investors. Our growth strategy is driven by the following key pillars: Building a successful Purified Cortrophin Gel franchise We acquired the NDAs for Cortrophin gel and Cortrophin-Zinc in January 2016 and executed long-term supply agreements with a supplier of our primary raw material for corticotrophin active pharmaceutical ingredient (“API”), a supplier of corticotrophin API with whom we have advanced the manufacture of commercial scale batches of API, and a Cortrophin gel fill/finish contract manufacturer. During the second quarter of 2021, we submitted a Supplemental New Drug Application (“sNDA”) to the FDA. On October 29, 2021, the FDA approved the Company’s sNDA for Purified Cortrophin™ Gel (Repository Corticotropin Injection USP) for the treatment of certain chronic autoimmune disorders, including acute exacerbations of multiple sclerosis (“MS”) and rheumatoid arthritis (“RA”), in addition to excess urinary protein due to nephrotic syndrome. Cortrophin Gel is an adrenocorticotropic hormone (“ACTH”), also known as purified corticotropin. ​ During 2021, we invested in leadership, expertise and infrastructure in the areas of commercialization of rare disease therapies and developed a launch strategy and commercial plan for this product. In the fourth quarter of 2021 and first quarter of 2022, we hired a significant number of new employees and assembled and trained our rare disease field force. On January 24, 2022, we announced the commercial launch of Cortrophin Gel in the U.S. As a result of the build out of our rare disease team, our expenditures in support of these efforts will materially increase in 2022 as compared to 2021. Strengthening our generics business with enhanced research and development capability and increased focus on niche opportunities ​ 43 Table of Contents We have grown our generics business through a combination of market share gains on existing products and new product launches. We have also successfully acquired numerous ANDAs through business and asset acquisitions, including, most recently, our acquisition of Novitium, including their portfolio of commercial and pipeline generic products, manufacturing and development facilities and expert workforce. We have begun to increase our focus on niche lower competition opportunities such as injectables, Paragraph IV, and Competitive Generic Therapy designation filings. Additionally, we will continue to seek opportunities to enhance our capabilities through strategic partnerships and acquisitions of assets and businesses. ​ Maximizing the value from our established brands through innovative “go-to-market” (“GTM”) strategies and continued programmatic acquisitions ​ We have acquired the New Drug Applications (“NDAs”) for and market Atacand, Atacand HCT, Arimidex, Casodex, Lithobid, Vancocin, Inderal LA, Inderal XL, InnoPran XL, Oxistat, Veregen, and Pandel. We are innovating in our GTM strategy through creative partnerships. In addition, we will continue to explore opportunities in acquiring new brands to grow our established brands portfolio. ​ Expansion of contract development and manufacturing organization (“CDMO”) business by leveraging our unique manufacturing capabilities We built a CDMO business through our sites in Baudette and grew it through the acquisitions of Novitium and WellSpring Pharma Services Inc. (“ANI Canada”). Our North America based manufacturing and unique capabilities in high-potency, hormonal, steroid, and oncolytic products can be leveraged to expand our CDMO business. The pillars of our strategy are enabled by an empowered, collaborative, and purposeful team with a high performance-orientation. Product Development Considerations We consider a variety of criteria in determining which products to develop, all of which influence the level of competition upon product launch. These criteria include: ● Formulation Complexity. Our development and manufacturing capabilities enable us to manufacture pharmaceuticals that are difficult to produce, including highly potent, extended release, combination, and low dosage products. This ability to manufacture a variety of complex products is a competitive strength that we intend to leverage in selecting products to develop or manufacture. ● Patent Status. We seek to develop products whose branded bioequivalents do not have long-term patent protection or existing patent challenges. ● Market Size. When determining whether to develop or acquire an individual product, we review the current and expected market size for that product at launch, as well as forecasted price erosion upon conversion from branded to generic pricing. We endeavor to manufacture products with sufficient market size to enable us to enter the market with a strong likelihood of being able to price our products both competitively and at a profit. ● Profit Potential. We research the availability and cost of active pharmaceutical ingredients in determining which products to develop or acquire. In determining the potential profit of a product, we forecast our anticipated market share, pricing, including the expected price erosion caused by competition from other generic manufacturers, and the estimated cost to manufacture the products. ● Manufacturing. We generally seek to develop and manufacture products at our own manufacturing plants in order to optimize the utilization of our facilities, ensure quality control in our products, and to more closely control the economic inputs and outputs of our products. 44 Table of Contents ● Competition. When determining whether to develop or acquire a product, we research existing and expected competition. We seek to develop products for which we can obtain sufficient market share and may decline to develop a product if we anticipate significant competition. Our specialized manufacturing facilities provide a means of entering niche markets, such as hormone therapies, in which fewer generic companies are able to compete. Fiscal 2021 Developments ​ Business Acquisition and Financing Activity ​ On November 19, 2021, we completed our previously announced acquisition of Novitium pursuant to the Merger Agreement for cash consideration of $89.5 million in cash (subject to various adjustments pursuant to the merger agreement), 2,466,654 restricted shares of ANI common stock, and up to $46.5 million in contingent future earn-out payments. The contingent consideration is based on the achievement of certain milestones, including milestones on gross profit of Novitium portfolio products over a 24-month period, regulatory filings completed during this 24-month period, and a percentage of net profits on certain products that are launched in the future. The cash consideration was financed via proceeds from the Credit Facility (as defined below) and proceeds from the PIPE Investment (as defined below). This acquisition is being accounted for as a business combination. ​ We acquired Novitium due to its proven track record of being a research and development growth engine capable of fueling sustainable growth, to expand our research and development pipeline via niche opportunities, to enhance our contract development and manufacturing organization (“CDMO”) business and U.S. based manufacturing capacity, and to diversify our revenue base. ​ In connection with our acquisition of Novitium, we entered into employment agreements with the two executives and founders of Novitium, Muthusamy Shanmugam and Chad Gassert. Both will serve as executive officers of the Company and Mr. Shanmugam was also appointed to the board of directors. Mr. Shanmugam holds interests in Scitus Pharma Services (“Scitus”), which provides clinical research services to Novitium, SS Pharma LLC (“SS Pharma”), which acquires and supplies API to Novitium, Esjay Pharma LLC (“Esjay”), which provides research and development and facilities consulting services, and Nuray Chemical Private Limited (“Nuray”), which manufactures and supplies API to Novitium. Mr. Gassert holds an interest in Scitus. See Note 14, Related Parties, in the notes to the consolidated financial statements in Part II, Item 8. of this Annual Report on Form 10-K for additional discussion. ​ Also on November 19, 2021, we, as borrower, entered into a credit agreement (the “Credit Agreement”) with Truist Bank, as Administrative Agent, and the other parties thereto, which provides for credit facilities consisting of (i) a senior secured term loan facility in an aggregate principal amount of $300.0 million (the “Term Facility”) and (ii) a senior secured revolving credit facility in an aggregate commitment amount of $40.0 million, which may be used for revolving credit loans, swingline loans and letters of credit (the “Revolving Facility,” and together with the Term Facility, the “Credit Facility”). The Term Facility proceeds were used to finance the cash portion of the consideration under the merger agreement between ANI and Novitium, fully repay and terminate our existing Amended and Restated Credit Agreement (“Prior Credit Facility”), and pay fees, costs and expenses incurred in connection with the merger. The Credit Facility is secured by substantially all of the personal property and certain material real property owned by us and our wholly-owned domestic subsidiaries, and obligations under the Credit Facility are guaranteed by certain of our wholly-owned domestic subsidiaries. Concurrently with the execution of the Merger Agreement on March 8, 2021, we entered into an Equity Commitment and Investment Agreement with Ampersand 2020 Limited Partnership, an affiliate of Ampersand Capital Partners (the “PIPE Investor”), pursuant to which, on November 19, 2021, we issued and sold to the PIPE Investor, and the PIPE Investor purchased, 25,000 PIPE Shares, for a purchase price of $1,000 per share and an aggregate purchase price of $25.0 million, in a private placement (the “PIPE Investment”) issued in reliance on the exemption from registration provided by Section (4(a)(2) of the Securities Act of 1933, as amended and/or Regulation D promulgated thereunder. Our Chairman of the Board of Directors is an operating partner of Ampersand Capital Partners, an affiliate of Ampersand 2020 Limited Partnership. 45 Table of Contents ​ As part of the Federal Trade Commission (“FTC”) conditions on the closing of the acquisition of Novitium, we agreed to divest a currently marketed product and rights to another product under development to an unrelated third party. The disposition of these products is immaterial to our results of operations. ​ For more information about the Novitium acquisition transaction, please see our Form 8-K filed with the SEC on November 26, 2021. ​ Asset Acquisitions On April 1, 2021, we acquired the NDAs for Oxistat ® , Veregen ® , and Pandel ® and the ANDA for Apexicon ® from Sandoz Inc. for total consideration of $20.7 million. The acquisition was funded through a $24.0 million borrowing under the revolving facility portion (the “Revolver”) of our Prior Credit Facility. Product Launches Refer to our website at www.anipharmaceuticals.com for information on the products, including indications/treatments. Purified Cortrophin Gel Approval and Launch ​ On October 29, 2021, the FDA approved the Company’s sNDA for Purified Cortrophin™ Gel (Repository Corticotropin Injection USP) for the treatment of certain chronic autoimmune disorders, including acute exacerbations of multiple sclerosis (“MS”) and rheumatoid arthritis (“RA”), in addition to excess urinary protein due to nephrotic syndrome. Cortrophin Gel is an adrenocorticotropic hormone (“ACTH”), also known as purified corticotropin. During 2021, we invested in leadership, expertise and infrastructure in the areas of commercialization of rare disease therapies and developed a launch strategy and commercial plan for this product. In the fourth quarter of 2021 and first quarter of 2022, we hired a significant number of new employees and assembled and trained our rare disease field force. As a result of the build out of our rare disease team, our expenditures in support of these efforts will materially increase in 2022 as compared to 2021. Purified Cortrophin Gel became available to our customers in late 2021, and we recognized an immaterial amount of revenues during the year ended December 31, 2021. On January 24, 2022, we announced the full-scale U.S. commercial availability and launch of Purified Cortrophin Gel. ​ Equity Financing ​ In November 2021, through a public offering, we completed the issuance and sale of 1,500,000 shares of ANI common stock, resulting in net proceeds after issuance costs of $69.7 million. The proceeds will be used to fund our Purified Cortrophin Gel commercialization efforts, including sales and marketing and consulting expenses related thereto, and for general corporate purposes. ​ COVID-19 Impact We continue to closely monitor the impact of the novel coronavirus (“COVID-19”) pandemic on our business and the geographic regions where we operate. Per IQVIA/IMS data, total market generic and brand prescriptions continued to be depressed during 2021. During this period, and most significantly in the first quarter of 2021, our revenues were negatively impacted by the pandemic, as subsequent waves and variants of the virus impacted patient and customer behavior. IQVIA/IMS data indicates that total market generic and brand prescriptions increased sequentially during each of the second, third, and fourth quarterly periods of 2021 and increased against the comparable 2020 quarterly periods, and prescription levels appear to be nearing or have returned to pre-pandemic levels by the end of 2021. We have not experienced a significant impact to our manufacturing operations; however, we continued to see disruptions to our supply chain from the COVID-19 pandemic during 2021, including significant lead times for purchases of materials. Our 46 Table of Contents manufacturing facilities have remained open throughout the pandemic and have operated in accordance with local, state and national safety guidelines. The pandemic has not impacted our access to capital and has not significantly impacted our use of funds, including but not limited to capital expenditures, spend on research and development activities and business development opportunities. ​ We are unable to predict the impact that the COVID-19 pandemic will continue to have on our future financial condition, results of operations and cash flows due to numerous uncertainties, including the continued duration of the pandemic, the appearance of additional variants of the virus, the level of success of continued actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. General Impacts to our 2021 results of operations, including to net revenues, operating expenses, interest and other expense, net, and income taxes are described below. Our 2021 results of operations were impacted by the November 19, 2021 acquisition of Novitium and related activity subsequent to that date. The acquisition will provide additional revenues and we will incur increased costs, including but not limited to the amortization of intangible assets acquired, other operating costs, and increased interest costs on borrowings used to finance the transaction. During the period between the acquisition date and December 31, 2021, Novitium operations generated $7.7 million in net revenues. ​ The following table summarizes our results of operations for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (in thousands) 2021 2020 Net revenues ​ $ 216,136 ​ $ 208,475 Operating expenses ​ ​ ​ Cost of sales (exclusive of depreciation and amortization) ​ 100,610 ​ 87,157 Research and development ​ 11,369 ​ 16,001 Selling, general, and administrative ​ 84,294 ​ 64,986 Depreciation and amortization ​ 47,252 ​ 44,638 Contingent consideration fair value adjustment ​ ​ 500 ​ ​ — Legal settlement expense ​ ​ 8,750 ​ ​ — Purified Cortrophin Gel pre-launch charges ​ 780 ​ 11,263 Intangible asset impairment charge ​ ​ 2,374 ​ ​ 446 Operating loss ​ (39,793) ​ (16,016) Interest expense, net ​ (11,922) ​ (9,452) Other expense, net ​ (4,343) ​ (494) Loss before benefit for income taxes ​ (56,058) ​ (25,962) Benefit for income taxes ​ 13,455 ​ 3,414 Net loss ​ $ (42,603) ​ $ (22,548) ​ 47 Table of Contents The following table sets forth, for the periods indicated, items in our consolidated statements of operations as a percentage of net revenues. ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2021 2020 Net revenues 100.0 % 100.0 % Operating expenses ​ Cost of sales (exclusive of depreciation and amortization) 46.5 % 41.8 % Research and development 5.3 % 7.7 % Selling, general, and administrative 39.0 % 31.2 % Depreciation and amortization 21.9 % 21.4 % Contingent consideration fair value adjustment ​ 0.2 % — % Legal settlement expense ​ 4.0 % — % Purified Cortrophin Gel pre-launch charges 0.4 % 5.4 % Intangible asset impairment charge 1.1 % 0.2 % Operating loss (18.4) % (7.7) % Interest expense, net (5.5) % (4.5) % Other expense, net (2.0) % (0.2) % Loss before benefit for income taxes (25.9) % (12.4) % Benefit for income taxes 6.2 % 1.6 % Net loss (19.7) % (10.8) % ​ Results of Operations for the Years Ended December 31, 2021 and 2020 Net Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ ​ (in thousands) 2021 2020 Change % Change Generic pharmaceutical products ​ $ 143,571 ​ $ 147,257 ​ $ (3,686) (2.5) % Branded pharmaceutical products ​ 47,561 ​ 47,960 ​ (399) (0.8) % Contract manufacturing ​ 10,042 ​ 9,221 ​ 821 8.9 % Royalty and other income ​ 14,962 ​ 4,037 ​ 10,925 270.6 % Total net revenues ​ $ 216,136 ​ $ 208,475 ​ $ 7,661 3.7 % ​ 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. Many of our branded products face competition from generic products and we expect them to continue to face competition from generic products in the future. Our generic products face competition from other generic products and we expect them to continue to face competition in the future. The primary means of competition among generic manufacturers are pricing, contract terms, service levels, and reliability. Increased competition generally results in decreased average selling prices of generic and brand products over time. In addition, due to strategic partnerships between wholesalers and pharmacy chains, we have experienced, and expect to continue to experience, increases in net sales to the wholesalers, with corresponding decreases in net sales to the pharmacy chains. Net revenues for the year ended December 31, 2021 were $216.1 million compared to $208.5 million for the same period in 2020, an increase of $7.7 million, or 3.7%, primarily as a result of the following factors: ● Net revenues for generic pharmaceutical products were $143.6 million during the year ended December 31, 2021, a decrease of 2.5% compared to $147.3 million for the same period in 2020. From a product perspective, the net decrease was driven by declines in sales of Vancomycin, Methazolamide, Ery thromycin Ethylsuccinate (“EES”) , Miglustat, Penicillamine, and Tolterodine, and tempered by increased revenues from sales of Flecainide, the second quarter 2021 launch of Nicardipine, and the third quarter 2021 launches of Nebivolol and Tranexamic Acid, and the sales of generic products acquired in the Novitium acquisition from November 19, 2021 through the year ended December 31, 2021 . The decrease in net generic revenues was principally due to 48 Table of Contents lower average selling prices among generic products, which was tempered by an increase in volumes of generic products other than those mentioned above. ​ During the year ended December 31, 2020, the overall market for and sales of our generic products were negatively impacted by the COVID-19 pandemic, as mitigation measures and other related actions suppressed prescription levels during the year. During the year ended December 31, 2021, generic prescription levels continued to be suppressed when compared to pre-pandemic levels, most significantly during the three months ended March 31, 2021, and the revenues for many of our generic pharmaceutical products continued to be negatively impacted . Per IQVIA/IMS data, total generic market prescriptions increased sequentially during the second, third, and fourth quarterly periods in 2021 and appear to be nearing pre-pandemic levels. ​ ● Net revenues for branded pharmaceutical products were $47.6 million during the year ended December 31, 2021, a decrease of 0.8% compared to $48.0 million for the same period in 2020. From a product perspective, the net decrease was driven by lower unit sales of Inderal XL and Arimidex and decreased units and revenues of Atacand. These decreases were tempered by the launch of the products acquired in the Sandoz, Inc. asset acquisition on April 1, 2021 and increased unit sales and revenues of Casodex. Net brand revenues in 2021 were negatively impacted by a shift in mix towards products with lower average selling prices, tempered by an increase in overall volumes. During the year ended December 31, 2020, the overall market for, and sales of our brand products were negatively impacted by the COVID-19 pandemic, as mitigation measures and other related actions suppressed prescription levels throughout the year. These actions resulted in suppressed brand prescriptions during the year ended December 31, 2020. As of the end of the 2021 fiscal year, brand prescription levels appeared to have returned to pre-pandemic levels. ● Contract manufacturing revenues were $10.0 million during the year ended December 31, 2021, an increase of 8.9% compared to $9.2 million for the same period in 2020, due to an increase in the volume of orders, including the impact of Novitium contract manufacturing orders during the period from November 19, 2021 and December 31, 2021. ​ ● Royalty and other were $15.0 million during the year ended December 31, 2021, an increase of $10.9 million from $4.0 million for the same period in 2020, primarily due to the recognition of the final royalty of $11.2 million under the Kite Pharma, Inc. license agreement (Yescarta®) pursuant to the Tripartite Agreement in the first quarter 2021. ​ Cost of Sales (Excluding Depreciation and Amortization) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ ​ (in thousands) 2021 2020 Change % Change Cost of sales (excl. depreciation and amortization) ​ $ 100,610 ​ $ 87,157 ​ $ 13,453 15.4 % ​ Cost 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 our consolidated statements of operations. For the year ended December 31, 2021, cost of sales increased to $100.6 million from $87.2 million for the same period in 2020, an increase of $13.5 million or 15.4%. The increase is primarily due to increased volumes of generic products, including increases related to activity of Novitium subsequent to our acquisition, a $3.2 million increase in costs representing the excess of fair value over cost for inventory acquired in asset acquisitions and a business combination, $1.9 million in a non-recurring royalty settlement, and $1.5 million of increased freight charges during the year ended December 31, 2021. The increase was tempered by $3.5 million of lower costs related to a current period decrease in sales of products subject to profit sharing arrangements. During the year ended December 31, 2021, we 49 Table of Contents incurred $7.5 million in cost of sales representing the excess of fair value over cost for inventory acquired in the Sandoz, Inc. asset acquisition and Novitium business combination and subsequently sold during the period, compared to $4.3 million during the year ended December 31, 2020, related to the Amerigen asset acquisition . ​ Cost of sales as a percentage of net revenues, exclusive of the impacts related to excess of fair value over the cost of inventory sold during the period, increased to 43.1% during the year ended December 31, 2021, from 39.7% during the same period in 2020, primarily as a result of increased volumes in a period of declining average selling prices across generic products and a shift in mix towards brand products with lower average selling prices, as well as a $1.9 million non-recurring royalty settlement and a $1.5 million increase in freight expenses. The negative impacts were significantly tempered by $11.2 million of royalty revenue in the first quarter 2021 with no associated cost of sales. ​ During the year ended December 31, 2021, no single vendor represented at least 10% of inventory purchases. In the year ended December 31, 2020, we purchased 10% of our inventory from one supplier. Other Operating Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ ​ ​ (in thousands) 2021 2020 Change % Change Research and development ​ $ 11,369 ​ $ 16,001 ​ $ (4,632) (28.9) % Selling, general, and administrative ​ 84,294 ​ 64,986 ​ 19,308 29.7 % Depreciation and amortization ​ 47,252 ​ 44,638 ​ 2,614 5.9 % Contingent consideration fair value adjustment ​ ​ 500 ​ ​ — ​ ​ 500 ​ NM (1) ​ Legal settlement expense ​ ​ 8,750 ​ ​ — ​ ​ 8,750 ​ NM (1) ​ Purified Cortrophin Gel pre-launch charges ​ 780 ​ 11,263 ​ (10,483) (93.1) % Intangible asset impairment charge ​ ​ 2,374 ​ ​ 446 ​ ​ 1,928 ​ 432.3 % Total other operating expenses ​ $ 155,319 ​ $ 137,334 ​ $ 17,985 13.1 % (1) Not meaningful ​ ​ Other operating expenses consist of research and development costs, selling, general, and administrative expenses, depreciation and amortization, contingent consideration fair value adjustment, legal settlement expense, Purified Cortrophin Gel pre-launch charges, and intangible asset impairment charges. For the year ended December 31, 2021, other operating expenses increased to $155.3 million from $137.3 million for the same period in 2020, an increase of $18.0 million, or 13.1%, primarily as a result of the following factors: ● Research and development expenses decreased from $16.0 million to $11.4 million, a decrease of 28.9%, primarily due to the non-recurrence of the $3.8 million in-process research and development expense from the Amerigen Pharmaceuticals, Ltd. acquisition in the first quarter 2020. The decrease was tempered by increases related to the Novitium activities subsequent to our acquisition. ​ ● Selling, general, and administrative expenses increased from $65.0 million to $84.3 million, an increase of 29.7%, primarily due to the $9.4 million of transaction expenses related to the Novitium acquisition and $14.0 million in pre-launch sales and marketing expenses related to Cortrophin commercialization activities incurred in the year ended December 31, 2021. In 2020, there were no comparable costs. Increased costs were also incurred related to employee compensation, legal, insurance, and other professional fees, in part related to Novitium activities subsequent to the acquisition. These increases were offset by the non-recurrence of $6.5 million of termination benefit expenses related to the departure of our former President and CEO and non-recurrence of other recruitment and related legal charges associated with our CEO search in the second quarter of 2020. ● Depreciation and amortization expense was $47.3 million for the year ended December 31, 2021, compared to $44.6 million for the year ended December 31, 2020. The increase is primarily due to the amortization of intangible assets acquired in the Novitium acquisition. ​ 50 Table of Contents ● As described in Note 8, Fair Value Disclosures , in the notes to the consolidated financial statements included in Part II, Item 8. of this Annual Report on Form 10-K, we recognized a contingent consideration fair value adjustment of $0.5 million in the year ended December 31, 2021. No contingent consideration fair value adjustment was recognized in the year ended December 31, 2020. ● As described in Note 12, Commitments and Contingencies , in the notes to the consolidated financial statements included in Part II, Item 8. of this Annual Report on Form 10-K, we recognized legal settlement expense of $8.8 million in the year ended December 31, 2021, principally related to settlement of the Arbor matter. No legal settlement expenses were recognized in the year ended December 31, 2020. ● As described in Note 13, Purified Cortrophin Gel Pre-Launch Charges , in the notes to the consolidated financial statements in Part II, Item 8. of this Annual Report on Form 10-K, we recognized Cortrophin pre-launch charges related to purchases of materials of $0.8 million in the year ended December 31, 2021. We recognized Cortrophin pre-launch charges related to purchases of materials of $11.3 million in the year ended December 31, 2020. The decrease is due to sufficient levels of materials acquired in prior periods. ● We recognized an impairment of $2.4 million in the year ended December 31, 2021, in relation to an ANDA asset. We recognized an impairment charge of $0.4 million in relation to a marketing and distribution right intangible asset during the year ended December 31, 2020. Other Expense, net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ ​ ​ (in thousands) 2021 2020 Change % Change Interest expense, net ​ $ (11,922) ​ $ (9,452) ​ $ (2,470) 26.1 % Other expense, net ​ (4,343) ​ (494) ​ (3,849) 779.1 % Total other expense, net ​ $ (16,265) ​ $ (9,946) ​ $ (6,319) 63.5 % ​ For the year ended December 31, 2021, we recognized other expense, net of $16.3 million versus other expense, net of $9.9 million for the same period in 2020, an increase of $6.3 million. Interest expense, net for 2021 and 2020 consists primarily of interest expense on our Term Loan, DDTL, and Revolver under our Prior Credit Facility, and interest expense on our new Term Facility subsequent to the termination of our Prior Credit Facility and entry into new Credit Facility on November 19, 2021. The increase in interest expense in the year ended December 31, 2021 is due to $24.0 million of additional borrowings under our Revolver of the Prior Credit Facility in April 2021 and the increased borrowings and borrowing rate on our new $300.0 million Term Facility draw on November 19, 2021. For the year ended December 31, 2021, other expense, net primarily consisted of $4.2 million ticking fee expense related to our Credit Facility that was syndicated on May 24, 2021, a $1.5 million loss on the extinguishment of debt related to our Prior Credit Facility, and $1.8 million in net gains on the sale of ANDAs. None of these items occurred in the comparable period of 2020. For the year ended December 31, 2021 and 2020, there was $0.1 million of interest capitalized into construction in progress. Benefit for Income Taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ ​ ​ (in thousands) 2021 2020 Change % Change Benefit for income taxes ​ $ 13,455 ​ $ 3,414 ​ $ 10,041 294.1 % ​ 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 allowance. 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. See Note 11. 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. 51 Table of Contents For the year ended December 31, 2021, we recognized an income tax benefit of $13.5 million, an effective benefit rate of 24.0% of consolidated pre-tax losses reported in the period. Our effective tax rate for 2021 was impacted by changes in state tax rates due to our increased presence in certain states, certain non-deductible expenses, and the impact of current period stock-based compensation, among other items. For the year ended December 31, 2020, we recognized an income tax benefit of $3.4 million, an effective benefit rate of 13.1% of consolidated pre-tax losses reported in the period. Our effective tax rate for 2020 was impacted by changes in state tax rates due to our changing presence in certain states, certain non-deductible expenses, and the impact of current period stock-based compensation, among other items. Liquidity and Capital Resources The following table highlights selected liquidity and working capital information from our consolidated balance sheets. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, (in thousands) 2021 2020 Cash and cash equivalents ​ $ 100,300 ​ $ 7,864 Accounts receivable, net ​ 128,526 ​ 95,793 Inventories, net ​ 81,693 ​ 60,803 Prepaid income taxes ​ 3,667 ​ — Prepaid expenses and other current assets ​ 7,589 ​ 5,861 Total current assets ​ $ 321,775 ​ $ 170,321 ​ ​ ​ ​ ​ ​ ​ Current debt, net of deferred financing costs ​ $ 850 ​ $ 13,243 Accounts payable ​ 22,967 ​ 11,261 Accrued expenses and other ​ 7,563 ​ 2,456 Accrued royalties ​ 6,225 ​ 6,407 Accrued compensation and related expenses ​ 8,522 ​ 6,231 Current income taxes payable, net ​ — ​ 3,906 Accrued government rebates ​ 5,492 ​ 7,826 Returned goods reserve ​ 35,831 ​ 27,155 Deferred revenue ​ 87 ​ 80 Total current liabilities ​ $ 87,537 ​ $ 78,565 ​ On December 31, 2021, we had $100.3 million in unrestricted cash and cash equivalents. On December 31, 2020, we had $7.9 million in unrestricted cash and cash equivalents. During 2021, we began investing in leadership, expertise, and infrastructure in the areas of commercialization of rare disease therapies and have developed a commercial plan for our Cortrophin Gel product. We anticipate that our expenditures in support of these efforts will materially increase in 2022 as we increase headcount and incur other costs associated with the launch. We financed the acquisition of Novitium in part with borrowings under the Credit Facility described below under “Sources and Uses of Cash – Debt Financing,” and by a $25.0 million PIPE Investment by Ampersand 2020 Limited Partnership (“Ampersand”). In January 2020, we acquired the U.S. portfolio of 23 generic products and certain commercial and development inventory and materials from Amerigen Pharmaceuticals, Ltd., for which we have used $57.4 million in cash and could make future payments of up to $25.0 million in contingent profit share payments over the next two years. The contingent payments are earned if annual gross profit exceeds a minimum threshold and are earned on a subset of the acquired products. No payment was due to Amerigen for the fiscal years ended December 31, 2021 or 2020. The transaction was funded from cash on hand and $15.0 million of borrowings from our Revolver, of which $7.5 million was repaid in the second quarter 2020. In July 2020, we acquired an ANDA and certain inventories from a private company for total consideration of $4.3 million. The transaction was funded using cash on hand. During 2020, we incurred expenses of $11.3 million related to purchases of Cortrophin pre-launch inventory. 52 Table of Contents ​ 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 3.7 as of December 31, 2021. We believe that our financial resources, consisting of current working capital, anticipated future operating revenue and corresponding collections from customers, and our Credit Facility, under which $40.0 million remains available for borrowing as of December 31, 2021, 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 we are not profitable or do not 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 29%, 23%, and 16% of net revenues during the year ended December 31, 2021. As of December 31, 2021 accounts receivable from these three customers totaled approximately 92% 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 2021 or 2020. Sources and Uses of Cash Debt Financing On November 19, 2021, the Company, as borrower, entered into a credit agreement (the “Credit Agreement”) with Truist Bank and other lenders, which provides for credit facilities consisting of (i) a senior secured term loan facility in an aggregate principal amount of $300.0 million (the “Term Facility”) and (ii) a senior secured revolving credit facility in an aggregate commitment amount of $40.0 million, which may be used for revolving credit loans, swingline loans and letters of credit (the “Revolving Facility,” and together with the Term Facility, the “Credit Facility”). The Credit Facility is secured by substantially all our assets and the assets of our domestic subsidiaries. The Term Facility proceeds were used to finance the cash portion of the consideration under the merger agreement between ANI and Novitium, repay our existing credit facility, and pay fees, costs and expenses incurred in connection with the merger. Proceeds of the Revolving Facility are expected to be used, subject to certain limitations, for working capital and other general corporate purposes. ​ The Term Facility matures in November 2027 and the Revolving Facility in November 2026. Each permits both base rate borrowings (“ABR Loans”) and Eurodollar rate borrowings (“Eurodollar Loans”), plus a spread of (a) 5.00% above the base rate in the case of ABR Loans under the Term Facility and 6.00% above the LIBOR Rate (as defined in the Credit Agreement, which includes a floor of 0.75%) in the case of loans under the Term Facility and (b) 3.75% above the base rate in the case of ABR Loans under the Revolving Facility and 4.75% above the LIBOR Rate (as defined in the Credit Facility) in the case of loans under the Revolving Facility. The Credit Facility has a subjective acceleration clause in case of a material adverse effect. The Term Facility includes a repayment schedule, pursuant to which $750 thousand of the loan will be paid in quarterly installments during the 12 months ended December 31, 2022. As of December 31, 2021, $3.0 million of principal of the loan was recorded as current borrowings in the consolidated balance sheet. As of December 31, 2021, we had not drawn on the Revolving Facility and $40.0 million remained available for borrowing. ​ Equity Financing 53 Table of Contents Concurrently with the execution of the Merger Agreement, on March 8, 2021, we entered into the Investment Agreement pursuant to which, on November 19, 2021, we issued and sold to the PIPE Investor, and the PIPE Investor purchased, 25,000 shares of our Series A Convertible Preferred Stock (the “PIPE Shares”), for a purchase price of $1,000 per share and an aggregate purchase price of $25 million, in a private placement issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder. ​ In November 2021, through a public offering, we completed the issuance and sale of 1,500,000 shares of ANI common stock, resulting in net proceeds after issuance costs of $69.7 million. The proceeds will be used to fund our Purified Cortrophin Gel commercialization efforts, including sales and marketing and consulting expenses related thereto, and for general corporate purposes. ​ Customer Payments In addition to the financings in prior years, payments from customers are a significant source of cash in 2021, 2020, and 2019 and were our primary source of cash in 2021 and 2020. Uses of Cash Our primary cash requirements are to fund operations, including Purified Cortrophin Gel commercialization efforts, 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; and ● business and product acquisitions. On November 19, 2021, we completed our previously announced acquisition of Novitium pursuant to the terms of the Merger Agreement, using $84.5 million in cash, net of $12.1 million cash acquired, 2,466,654 restricted shares of ANI common stock, and up to $46.5 million in additional contingent consideration. The contingent consideration is based on the achievement of certain milestones, including milestones on gross profit of Novitium portfolio products over a 24-month period, regulatory filings completed during this 24-month period, and a percentage of net profits on certain products that are launched in the future. As of the acquisition date, the contingent consideration had a fair value of $31.0 million. ​ In connection with entry into the Credit Facility, on November 19, 2021, we terminated our existing Amended and Restated Credit Agreement, dated as of December 27, 2018 (the “Prior Credit Agreement”), among the Company, as borrower, and Citizens Bank with other lenders. In connection with the termination of the Prior Credit Agreement, on November 19, 2021, we used borrowings under the Credit Facility to prepay the full amount of indebtedness under the Prior Credit Agreement, and to pay related accrued and unpaid interest, legal fees, and expenses. We made a reacquisition payment of $200.1 million, representing the remaining principal balance on the debt of $200.1 million plus certain legal fees. ​ In the second quarter 2021, we drew $24.0 million under the Revolver of our Prior Credit Agreement, of which $20.7 million was used to fund the acquisition of three NDAs and an ANDA and certain related inventories from Sandoz Inc. In the third quarter 2021, we utilized $8.4 million of cash on hand to settle litigation with Arbor. ​ 54 Table of Contents In the first quarter of 2020, we acquired the U.S. portfolio of 23 generic products and certain commercial and development inventory and materials from Amerigen Pharmaceuticals, Ltd., for which we have used $57.4 million in cash and could make future payments of up to $25.0 million in contingent profit share payments over the next two years. The contingent payments are earned if annual gross profit exceeds a minimum threshold and are earned on a subset of the acquired products. No payment was due to Amerigen for the fiscal year ended December 31, 2020. At the time of the acquisition, the acquired portfolio included ten commercial products, three approved products with launches pending, four filed products, and four in-development products as well as a license to commercialize two approved products. The transaction was funded using cash on hand and $15.0 million of borrowings from our Revolver, of which $7.5 million was repaid in the second quarter of 2020. In the third quarter of 2020, we acquired an ANDA and certain inventories from a private company for total consideration of $4.4 million. The transaction was funded using cash on hand. In 2020, we had $6.1 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 indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) 2021 2020 Operating Activities ​ $ 3,322 ​ $ 15,267 Investing Activities ​ $ (105,483) ​ $ (68,322) Financing Activities ​ $ 194,595 ​ $ (1,439) ​ Net Cash Provided by Operating Activities Net cash provided by operating activities was $3.3 million for the year ended December 31, 2021, compared to $15.3 million provided by operating activities during the same period in 2020, a decrease of $11.9 million. The decrease was due to net changes in working capital and the net loss, including the incurrence of significant cash outflows related to $9.4 million of transaction expenses from the Novitium acquisition, cash outflows of $10.5 million associated with sales and marketing expenses related to Purified Cortrophin Gel launch preparation, payment for litigation settlement of $8.4 million, and payments of income taxes of $10.4 million during the year ended December 31, 2021, as compared to payments of income taxes of $5.0 million during the year ended December 31, 2020. Net Cash Used in Investing Activities Net cash used in investing activities for the year ended December 31, 2021 was $105.5 million, principally due to the acquisition of Novitium for $84.5 million in cash consideration, net of $12.1 million in cash acquired, the acquisition of three NDAs and an ANDA from Sandoz, Inc. for $20.7 million in consideration, and $2.6 million of capital expenditures during the period. Net Cash Provided by / (Used In) Financing Activities Net cash provided by financing activities was $194.6 million for the year ended December 31, 2021 compared to $1.4 million in cash used in financing activities for the year ended December 31, 2021, principally due to net proceeds of $286.5 million related to borrowings under our Credit Facility, $69.7 million related to the issuance of common shares via a public offering, $24.9 million related to the issuance of PIPE Shares, and $24.0 million in borrowings under the Revolver of our Prior Credit Agreement. These increases were tempered by the $200.1 million repayment related to all outstanding borrowings under our Prior Credit Agreement. Contractual Obligations We believe our available cash and cash equivalents along with our ability to generate operating cash flow and continued access to debt markets are sufficient to fund existing and planned cash requirements. Our contractual 55 Table of Contents obligations and commitments as of December 31, 2021 are comprised of principal payments on debt, interest payments on debt, operating leases, purchase obligations, dividends, and contingent consideration. ​ Our largest contractual obligation relates to our principal payments on our interest payments on our debt. As of December 31, 2021, the principal amount of our Term Facility was $300.0 million. The interest rate on our Term Facility is currently 1-month LIBOR plus 6.00%, subject to a 0.75% floor. The interest rate under the Term Facility as of December 31, 2021 is 6.75%. See Note 3, Indebtedness, in the notes to the consolidated financial statements in Part II, Item 8. of this Annual Report on Form 10-K for additional information and timing on our principal payments on debt. We also have an interest rate swap used to manage changes in LIBOR-based interest rates underlying a portion of the borrowing under the Term Facility. Under the swap agreement, ANI pays the counterparty a fixed rate of 2.26% and receives variable 1-month LIBOR, subject to a 0.75% floor, on the outstanding notional value. As of December 31, 2021, the notional value of the interest rate swap was $168.6 million. See Note 4, Derivative Financial Instruments and Hedging Activity, in the notes to the consolidated financial statements in Part II, Item 8. of this Annual Report on Form 10-K for additional information. ​ Our operating leases are for facilities and office equipment. As leases expire, we do not anticipate difficulty in negotiating renewals or finding other satisfactory space if the premise becomes unavailable. See Note 12, Commitments and Contingencies, in the notes to the consolidated financial statements in Part II, Item 8. of this Annual Report on Form 10-K for additional discussion and timing of payments related to these operating lease obligations. ​ Purchase obligations primarily includes contractual obligation for inventory/material purchase minimums and service agreements. We have supply agreements with three vendors that include purchase minimums. Pursuant to these agreements, we will be required to purchase a total of $12.6 million of API from these three vendors during the year ended December 31, 2022. Most of our other purchase obligations are related to purchases of information technology services, marketing arrangements or other service contracts. ​ Our convertible preferred stock (PIPE Shares) also accrue dividends at 6.50% per year on a cumulative basis, payable in cash or in-kind. Dividends are payable until the preferred stock is converted, either at the option of the PIPE investor, at any time, or the option of ANI, beginning two years after the November 19, 2021 issuance provided ANI’s stock price reaches a certain level. See Note 9, Mezzanine and Stockholders’ Equity, in the notes to the consolidated financial statements in Part II, Item 8. of this Annual Report on Form 10-K for additional discussion of dividends. ​ Consideration of the Novitium acquisition includes $46.5 million in contingent future earn-out payments. The contingent consideration is based on the achievement of certain milestones, including milestones on gross profit of Novitium portfolio products over a 24-month period, regulatory filings completed during this 24-month period, and a percentage of net profits on certain products that are launched in the future. Payments of $25.0 million would be due if gross profit and regulatory milestones are achieved by November 30, 2023, and up to $21.5 million of payments may be made for up to ten years based on a percentage of net profits on products launched in the future. See Note 2, Business Combination, in the notes to the consolidated financial statements in Part II, Item 8. of this Annual Report on Form 10-K for additional information on our contingent consideration. ​ We expect to continue to incur significant expenditures in support of our commercial launch of Cortrophin, including costs related to service contracts and increased headcount. ​ Critical Accounting Estimates This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated 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. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the 56 Table of Contents need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. Our 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, Item 8. of this Annual Report on Form 10-K. On 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 sources. 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 steps: ● 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; and ● 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. We estimate 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 Products Product sales consists 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 generally transferred to the customer upon delivery of the product to the customer, as our pharmaceutical products are generally 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 fewer than 100 days. We recognized $191.1 million and $195.2 million of revenue related to sales of generic and branded pharmaceutical products in 2021 and 2020, respectively. Revenue from Distribution Agreements From 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 57 Table of Contents 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. Chargebacks 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, Item 8. 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 $49.2 million for the year ended December 31, 2021. 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, Item 8. 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. 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 $1.5 million for the year ended December 31, 2021. Returns 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, Item 8. 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 $2.4 million for the year ended December 31, 2021. 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, Item 8. 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. 58 Table of Contents 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 $3.5 million for the year ended December 31, 2021. 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, Item 8. 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. If there were a 10% decrease in the prompt payment discounts estimates throughout the year, our net revenues would increase by $1.6 million for the year ended December 31, 2021. Contract Manufacturing Product Sales Revenue Contract manufacturing arrangements consist of agreements in which we manufacture a pharmaceutical product on behalf of third party. Our 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 fewer than two months. We estimate returns based on historical experience. Historically, we have not had material returns for contract manufactured products. We recognized $10.0 million and $9.2 million of revenue related to sales of contract manufactured products in 2021 and 2020, respectively. Royalties from Licensing Agreements From 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 royalties. 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. Upon full transition of the products and upon launching the products under our own labels, we recognize revenue for the products as sales of generic or branded pharmaceutical products, as described above. From time to time, we enter into supply and distribution agreements with contract manufacturing customers, under which we license to the contract manufacturing customer the right to sell our products, and we are entitled to a royalty on sales made by the contract manufacturing customer under these arrangements. Therefore, we recognize the revenue associated with sales of the underlying products as royalties. 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 contract manufacturing customers. Pursuant to a 2012 Tripartite Agreement (the “Tripartite Agreement”) between the Company, The Regents of the University of California (“The Regents”), and Cabaret Biotech Ltd., an Israeli corporation (“Cabaret”) (as assignee of Dr. Zelig Eshhar’s rights under the Tripartite Agreement), and subsequent amendments thereto and assignments thereof, we were entitled to receive a percentage of the milestone and sales royalty payments paid to Cabaret by Kite Pharma, Inc. (“Kite”), a subsidiary of Gilead Sciences, Inc., under a license agreement. Under such license agreement, Kite licensed from Dr. Eshhar and Cabaret the patent rights covered by the Tripartite Agreement and agreed to make certain payments to Cabaret based on, among other things, Kite’s sales of Yescarta®. Under the Tripartite Agreement, portions of these payments were to be distributed to The Regents and to us. ​ Historically, we recorded royalty income related to Yescarta® on an accrual basis utilizing our best estimate of royalties earned based upon information available in the public domain, our understanding of the various agreements governing the royalty, and other information received from time to time from the relevant parties. Generally, cash was 59 Table of Contents received directly from Cabaret once a year. The agreements governing this royalty were subject to multiple actions in multiple jurisdictions, including litigation between Cabaret and Kite, and separately, ANI and Cabaret. In the first quarter of 2021, we became aware that the litigation between Cabaret and Kite was dismissed. In April 2021, Cabaret and the Company settled all amounts due for amounts actually received by Cabaret or Eshhar for the licensing or use of the patent rights governed by the Kite license agreement. As a result, we recognized $11.2 million as royalties from licensing agreements in our net revenues during the three month period ended March 31, 2021. In addition, we agreed to reimburse Cabaret $0.4 million, which has been recorded as other expense, net in our consolidated statement of operations, related to certain legal expenditures incurred. We received final payment from Cabaret in May 2021. Based upon the events that led to the dismissal of the litigation between Cabaret and Kite, the Company does not expect to receive any future royalty income related to the Kite license agreement. In conjunction with payment of amounts due to us, all outstanding litigation between the Company and Cabaret were dismissed. ​ Product Development Services Revenue We provide product development services to customers, which are performed over time. These services primarily relate to the technical transfer of product development to our facility in Oakville, Ontario. The duration of these technical transfer projects can be up to three years. Deposits received from these customers are recorded as deferred revenue until revenue is 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 percentage of completion basis, which results in contract assets on our balance sheet. We recognize revenue on a proportional basis, which results in contract assets on our balance sheet. We recognized $1.3 million and $1.9 million of revenue related to product development services in 2021 and 2020, 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, Item 8. of this Annual Report on Form 10-K, our definite-lived intangible assets have a carrying value of $247.2 million as of December 31, 2021. These assets include ANDAs, NDAs and product rights, marketing and distribution rights, customer relationships, 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. As part of the Novitium acquisition on November 19, 2021, we acquired definite-lived intangible assets with a fair value of $92.3 million. The ANDAs, NDAs and product rights, marketing and distribution rights, customer relationships, and non-compete agreement are amortized over their remaining estimated useful lives, ranging from seven to 10 years, generally based on the straight-line method unless a pattern reflecting consumption of their economic benefits is readily available. The estimated useful lives directly impact the amount of amortization expense recorded for these assets on a quarterly and annual basis. 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. Our indefinite-lived intangible assets other than goodwill have a carrying value of $46.9 million as of December 31, 2021. These assets include in-process research and development projects (“IPR&D”) acquired in the Novitium acquisition. When an IPR&D project is completed (generally upon receipt of regulatory approval), the asset is then accounted for as a definite-lived intangible asset. We test for impairment of indefinite-lived intangible assets at least annually, as of October 31, and whenever events or changes in circumstances indicate that the carrying amount of the asset might 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 60 Table of Contents 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. During the fourth quarter, 2021, we recognized a full impairment of a definite-lived ANDA asset with a remaining carrying value of $2.4 million. During the fourth quarter 2020, we recognized a full impairment of the remaining $0.4 million carrying value of a definite-lived marketing and distribution right asset. Goodwill 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, Item 8. of this Annual Report on Form 10-K, our goodwill balance relates to our 2013 merger with BioSante Pharmaceuticals, Inc., the acquisition of WellSpring, and the acquisition of Novitium 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. Goodwill is tested for impairment 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, 2021 was $27.9 million. As part of the Novitium acquisition on November 19, 2021, we acquired goodwill of $24.3 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 are not consistent with our estimates or assumptions, we could be exposed to an impairment charge that could be material. Contingent Consideration The fair value of our contingent consideration was $31.0 million at December 31, 2021. The fair value of contingent consideration is remeasured to the estimated fair value each reporting period with the change recognized as an operating expense in our consolidated statements of operations. Changes in fair value can result from changes in assumptions such as discount rates, probabilities or estimates of revenue and profits, and probability of achieving regulatory milestones, as well as the passage of time. These changes resulted in a charge of $0.5 million during the year ended December 31, 2021. 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. From time to time, we may grant stock options to employees through an inducement grant outside of our 2008 Plan to induce prospective employees to accept employment with us (the “Inducement Grants”). The options are granted at an exercise price equal to the fair market value of a share of our common stock on the respective grant date and are generally exercisable in four equal annual installments beginning on the first anniversary of the respective grant date. The grants are made pursuant to inducement grants outside of our stockholder approved equity plan as permitted under the Nasdaq Stock Market listing rules. ​ 61 Table of Contents The following table summarizes stock-based compensation expense incurred under the 2008 Plan, Inducement Grant, and 2016 Employee Stock Purchase Plan and included in our consolidated statements of operations: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, (in thousands) 2021 2020 2019 Cost of sales ​ $ 20 ​ $ 137 ​ $ 119 Research and development ​ 564 ​ 597 ​ 785 Selling, general, and administrative ​ 9,905 ​ 12,202 ​ 8,313 ​ ​ $ 10,489 ​ $ 12,936 ​ $ 9,217 ​ 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. 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 Loss before Benefit for Income Taxes would be affected by $1.0 million for the year ended December 31, 2021. Income Taxes 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, Canada, and India 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. A favorable 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 . 62 Table of Contents Recent Accounting Pronouncements Recent Accounting Pronouncements Not Yet Adopted 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 In August 2020, the Financial Accounting Standards Board (“FASB”) issued guidance simplifying the accounting for certain financial instruments with characteristics of liabilities and equity, including certain convertible instruments and contracts on an entity’s own equity. The new standard removes the separation models required for convertible debt with cash conversion features and convertible instruments with beneficial conversion features. It also removes certain settlement conditions that are currently required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation for convertible instruments. We early adopted this guidance as of January 1, 2021. The adoption of this guidance removed the requirement for an evaluation of a beneficial conversion feature related to our issuance of convertible preferred stock in November 2021 (Note 2) and will impact the calculation of diluted earnings per share in periods of net earnings. ​ In November 2019, the 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 an 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 for the year. The amendments also simplify accounting for income taxes by doing the following: 1) requiring 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. Most of the provisions of this guidance were to be adopted on a prospective basis. Items 2) and 3) of the “removal” provisions were to be adopted on either a full or modified retrospective basis and item 4) of the “simplifying” provisions was to be adopted on a full retrospective basis. The guidance was effective for reporting periods beginning after December 15, 2020, including interim periods within that fiscal year. We adopted this guidance as of January 1, 2021. The adoption of this guidance did not have a material impact on our consolidated financial statements. ​ ​