What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-09 compared with 2022-03-15 · 161 added, 198 removed, 405 unchanged (47% of the section changed)

9 unchanged sentences

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 team is focused on delivering sustainable growth by building a successful 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.

On June 2, 2022, we announced that we intend to cease operations at our Oakville, Ontario, Canada manufacturing plant by first quarter 2023.

This action is part of ongoing initiatives to capture operational synergies following our acquisition of Novitium Pharma LLC (“Novitium”) in November 2021.

We have transitioned the majority of products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites.

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

Our growth strategy is driven by the following key growth drivers:

Building a successful Rare Disease platform

We have spent significant time, effort and resources in establishing our Rare Disease platform.

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.

2 unchanged sentences

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

During 2021 and 2022, 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.

During 2021 and throughout 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 our foundational Rare Disease asset.

As a result of the build out of our Rare Disease team, our expenditures in support of these efforts were significantly higher in 2022 as compared to 2021.

We plan to continue to invest behind Cortrophin Gel and our Rare Disease platform in 2023 and beyond.

Strengthening our Generics, Established Brands, and Other segment through continued investment in our generic research and development capability and increased focus on niche opportunities

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 also successfully acquired numerous ANDAs through business and asset acquisitions.

Our most recent business acquisition was Novitium, including its portfolio of commercial and pipeline generic products, manufacturing and development facilities and expert workforce.

The Novitium acquisition significantly increased our generic pharmaceutical research and development and manufacturing capabilities.

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

On July 21, 2022, we completed an asset acquisition of four ANDAs from Oakrum Pharma, including two that were commercial at the time of acquisition.

We have grown our established brand product offerings through acquisition.

We have acquired the 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 go-to-market strategy through creative partnerships.

Our overall strategy is enabled by an empowered, collaborative, and purposeful team with a high performance-orientation.

Generic 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.

16 unchanged sentences

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.

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 2022 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.

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.

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.

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.

Restructuring Update

On June 2, 2022, we announced that we intend to cease operations at our Oakville, Ontario, Canada manufacturing plant by the first quarter of 2023.

This action is part of ongoing initiatives to capture operational synergies following our acquisition of Novitium in November 2021.

We have transitioned the majority of products manufactured or packaged in Oakville to one of our three U.S.-based manufacturing sites and are on track to cease operations by the end of the first quarter 2023.

We are seeking to find potential buyers for the Oakville site, though there can be no assurance as to when or if that will occur or the amount of any net proceeds that may be received.

Operating Segment Update

Prior to 2022, we had concluded that we had one operating segment.

Effective in the first quarter of 2022 and prospectively, in conjunction with the principal completion of our buildout of infrastructure in the areas of commercialization of rare disease therapies and the launch of Cortrophin Gel, we determined that we now have two operating segments as follows:

● Generics, Established Brands, and Other – Consists of operations related to the development, manufacturing, and marketing of generic and established brand pharmaceuticals, including those sold through traditional channels, contract manufactured products, product development services, royalties, and other.

● Rare Disease – Consists of operations related to the development, manufacturing and marketing of pharmaceuticals used in the treatment of patients with rare conditions.

The rare disease segment currently consists of operations related to Cortrophin Gel.

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.

On July 21, 2022, we acquired four ANDAs from Oakrum Pharma, LLC for a purchase price of $8.0 million plus an immaterial amount for the purchase of API and finished goods inventory.

The transaction was funded from cash on hand.

Product Launches

1 unchanged sentence

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.

1 unchanged sentence

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.

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.

While total market generic and brand prescriptions were depressed in earlier parts of 2021 as subsequent waves and variants of the virus impacted patient and customer behavior, prescriptions returned to pre-pandemic levels in late 2021 and into 2022.

We continued to see disruptions to our supply chain from the

COVID-19 pandemic during 2022, including significant lead times for purchases of materials.

The pandemic has not impacted our access to capital and has not significantly impacted our use of funds.

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.

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.

Impacts to our 2022 and 2021 results of operations, including to net revenues, operating expenses, interest and other expense, net, and income taxes are described below.

Our results of operations for the year ended December 31, 2022 were impacted by the November 19, 2021 acquisition of Novitium and related activity subsequent to that date.

The acquisition provides additional revenues and the incurrence of 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 year ended December 31, 2022, Novitium operations generated $90.3 million in net revenues.

The following table summarizes our results of operations for the periods indicated:

8 unchanged sentences

Purified Cortrophin Gel pre-launch charges

Restructuring activities

Intangible asset impairment charge

1 unchanged sentence

Interest expense, net

Other expense, net

Other income/(expense), net

Loss before benefit for income taxes

9 unchanged sentences

Purified Cortrophin Gel pre-launch charges

Restructuring activities

Intangible asset impairment charge

1 unchanged sentence

Interest expense, net

Other expense, net

Other income/(expense), net

Loss before benefit for income taxes

3 unchanged sentences

(in thousands)

Generics, Established Brands, and Other Segment

Generic pharmaceutical products

Branded pharmaceutical products

Established brand pharmaceutical products

Contract manufacturing

Royalty and other income

Royalty and other

Generics, established brands, and other segment total net revenues

Rare Disease Segment

Rare disease pharmaceutical products

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.

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.

We derive substantially all of our revenues from sales of generic, established brand, and rare disease pharmaceutical products, contract manufacturing, royalties on net sales of certain products, and other services, including development services, and laboratory services.

Many of our established brand products as well as our generic products face competition from generic products and we expect them to continue to face competition from generic products in the future.

The primary means of competition among generic manufacturers are pricing, contract terms, service levels, and reliability.

2 unchanged sentences

Net revenues for the year ended December 31, 2022 were $316.4 million compared to $216.1 million for the same period in 2021, an increase of $100.2 million, or 46.4%, 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

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.

● Net revenues for generic pharmaceutical products were $210.1 million during the year ended December 31, 2022, an increase of 46.4% compared to $143.6 million for the same period in 2021.

From a product perspective, the increase was principally driven by revenues from products acquired in our acquisition of Novitium, which increased $70.1 million, including Prazosin, Famotidine, Oxybutynin Chloride, Dapsone, Prednisone Rifabutin, and various other products.

The increase was also due to increased revenues of Nebivolol, which ANI launched in September 2021.

Increases were tempered by a decrease in revenues of Penicillamine, EEMT, Propranolol Extended Release, and Bexarotene.

The increase in net generic revenues was principally due to the acquisition of Novitium, which drove an increase in volumes, and was tempered by a decrease in average selling prices.

During the year ended December 31, 2022, generic prescriptions have returned to essentially pre-pandemic levels.

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.

Per IQVIA/IMS data, total generic market prescriptions increased sequentially during periods in 2021 and approached pre-pandemic levels near the end of the year.

● Net revenues for branded pharmaceutical products were $39.5 million during the year ended December 31, 2022, a decrease of 17.0% compared to $47.6 million for the same period in 2021.

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.

From a product perspective, the net decrease was driven primarily by a decrease in sales of Casodex, InnoPran XL, Inderal XL and Veregen.

These decreases were tempered primarily by an increase in sales of Lipofen, Atacand, and Vancocin.

The decrease in branded pharmaceutical product revenues for the year ended December 31, 2022 was principally due to lower unit volume sales on key branded products in addition to higher levels of returns and rebates.

As of the end of the 2021 fiscal year, brand prescription levels returned to pre-pandemic levels.

● Contract manufacturing revenues were $16.1 million during the year ended December 31, 2022, an increase of 60.4% compared to $10.0 million for the same period in 2021, due to an increase in the volume of orders, primarily related to Novitium contract manufacturing revenues in 2022.

● Royalty and other were $9.0 million during the year ended December 31, 2022, a decrease of $6.0 million from $15.0 million for the same period in 2021, primarily due to the one-time recognition of the final royalty of $11.2 million under the Kite Pharma, Inc.

license agreement (Yescarta®) pursuant to the Tripartite Agreement in the year ended December 31, 2021.

Royalty revenue for the year ended December 31, 2022 includes $5.2 million related to Novitium arrangements.

● Net revenues of rare disease pharmaceutical products, which consists entirely of sales of Purified Cortrophin Gel, were $41.7 million during the year ended December 31, 2022, as the product was launched in late January 2022.

There were no sales of rare disease pharmaceutical products during 2021.

Cost of Sales (Excluding Depreciation and Amortization)

6 unchanged sentences

For the year ended December 31, 2022, cost of sales increased to $138.8 million from $100.6 million for the same period in 2021, an increase of $38.2 million or 37.9%.

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

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.

The increase is primarily due to increased volumes of generic products, including $34.7 million of costs related to activities of Novitium during the year ended December 31, 2022, compared to $4.0 million in the prior year period, and $5.3 million in costs representing the excess of fair value over cost for inventory acquired in an asset acquisition and a business combination, of which $3.2 million relates to inventory acquired from Novitium.

Charges for the excess of fair value over cost for inventory acquired in an asset acquisition were $5.4 million for the comparable period in 2021.

Sales of products subject to profit sharing arrangements also accounted for a $3.0 million increase in the current year period.

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 42.2% during the year ended December 31, 2022, from 43.1% during the same period in 2021, primarily as a result of increased volumes in a period of declining average selling prices across generic and brand products, $11.2 million in royalty revenue during the comparable 2021 period with no associated cost of goods sold, and higher costs related to sales of products subject to profit sharing arrangements.

During the year ended December 31, 2022, we purchased 19% of our inventory from one supplier.

As of December 31, 2022, the amount payable to this supplier was $10.9 million.

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

7 unchanged sentences

Purified Cortrophin Gel pre-launch charges

Restructuring activities

Intangible asset impairment charge

1 unchanged sentence

(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, 2022, other operating expenses increased to $212.9 million from $155.3 million for the same period in 2021, an increase of $57.6 million, or 37.1%, 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.

● Research and development expenses increased from $11.4 million to $22.3 million, an increase of 96.3%, primarily due to expenses related to Novitium activities during the year ended December 31, 2022, in-process research and development charges of $1.2 million recognized in the current year, tempered by a $1.5 million decrease in expense associated with our Cortrophin development efforts due to approval of the launch of the product.

● Selling, general, and administrative expenses increased from $84.3 million to $124.0 million, an increase of 47.2%, primarily due to a $37.6 million increase in sales and marketing expenses related to our launch of Purified Cortrophin Gel, increases related to the addition of Novitium headcount and activities during the year ended December 31, 2022, tempered by a $8.1 million decrease in transaction expenses related to the Novitium acquisition.

● Depreciation and amortization expense was $57.0 million for the year ended December 31, 2022, compared to $47.3 million for the year ended December 31, 2021.

1 unchanged sentence

● As described in Note 9, 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.

of this Annual Report on Form 10-K, we recognized a contingent consideration fair value

adjustment related to the Novitium acquisition of $3.8 million and $0.5 million in the year ended December 31, 2022 and 2021, respectively.

The expense is principally due to the passage of time (i.e.

moving closer to the ultimate payment date of the consideration, rather than the change in any other variables).

● As described in Note 13, Commitments and Contingencies , in the notes to the consolidated financial statements included in Part II, Item 8.

3 unchanged sentences

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.

No Cortrophin pre-launch charges related to purchases of materials were recognized in the year ended December 31, 2022.

● We recognized restructuring activities of $5.7 million of expense in the year ended December 31, 2022, in relation to the anticipated closure of our Oakville, Ontario, Canada facility.

Costs included $2.1 million in termination benefits, $3.1 million in fixed asset impairments and accelerated depreciation, and $0.4 million of other costs.

No restructuring activities were recognized in the year ended December 31, 2021.

● We recognized an impairment of $0.1 million in the year ended December 31, 2022, 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.

We recognized an impairment of $2.4 million in the year ended December 31, 2021, in relation to an ANDA asset.

Other Expense, net

2 unchanged sentences

Interest expense, net

Other expense, net

Other income/(expense), net

Total other expense, net

For the year ended December 31, 2022, we recognized other expense, net of $27.4 million versus other expense, net of $16.3 million for the same period in 2021, an increase of $11.1 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.

Interest expense, net for 2022 consisted primarily of interest expense on our Term Facility.

Interest expense, net for 2021 consisted 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 is due to an increase in the debt outstanding during the year ended December 31, 2022, coupled with an increased borrowing rate on the $300.0 million Term Facility, as compared to the borrowing rate on the Prior Credit Agreement borrowings and an increase in amortization of finance fees.

The $5.0 million change in other income/(expense), net is primarily related to the $0.8 million gain on the sale of an ANDA in the year ended December 31, 2022 and the non-recurrence 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 in the year ended December 31, 2021.

For the year ended December 31, 2022 and 2021, there was $0.1 million of interest capitalized into construction in progress.

3 unchanged sentences

Benefit 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 allowance.

Our benefit 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.

1 unchanged sentence

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

For the year ended December 31, 2022, we recognized an income tax benefit of $14.8 million, an effective benefit rate of 23.6% of consolidated pre-tax losses reported in the period, as well as the net effects of certain discrete items occurring in 2022 which impact our income tax provision in the period in which they occur.

There were no material discrete items occurring during the year ended December 31, 2022.

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

2 unchanged sentences

Cash and cash equivalents

Current restricted cash

Accounts receivable, net

1 unchanged sentence

Prepaid income taxes

Assets held for sale

Prepaid expenses and other current assets

5 unchanged sentences

Accrued compensation and related expenses

Current income taxes payable, net

Accrued government rebates

4 unchanged sentences

On December 31, 2021, we had $100.3 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.

In 2022 and 2021, we invested in leadership, expertise, and infrastructure in the areas of commercialization of rare disease therapies and in 2022 commercialized our Cortrophin Gel product.

In 2021, 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”).

We are focused on expanding our business and product pipeline through collaborations, and also through acquisitions of products and companies.

2 unchanged sentences

Our working capital ratio, defined as total current assets divided by total current liabilities, is 3.5 as of December 31, 2022.

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.

Despite a use of cash of $31.2 million by operating activities, we believe that our financial resources, consisting of net current working capital of approximately $244.8 million, 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, 2022, 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.

3 unchanged sentences

As of December 31, 2022 accounts receivable from these three customers totaled approximately 82% of accounts receivable, net.

Our net revenues were concentrated among three customers representing 29%, 23%, and 16% of net revenues during the year ended December 31, 2021.

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.

Our Cortrophin Gel product accounted for approximately 13% of our net revenues in 2022.

None of our products accounted for 10% or more of our net revenues in 2021.

Sources and Uses of Cash

2 unchanged sentences

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 proceeds were used to finance the cash portion of the consideration for the Novitium acquisition, repay borrowings under our Prior Credit Agreement, and pay fees, costs and expenses incurred in connection with the acquisition of Novitium.

Proceeds from 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.

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 (or alternate benchmark 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 Agreement) 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.

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 ending December 31, 2023.

As of December 31, 2022, $3.0 million of principal of the loan was recorded as current borrowings, net of deferred financing costs, in the consolidated balance sheet.

As of December 31, 2022, we had not drawn on the Revolving Facility and $40.0 million remained available for borrowing subject to certain conditions.

Equity Financing

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.

Concurrently with the execution of the merger agreement related to the Novitium acquisition, on March 8, 2021, we entered into that certain Equity Commitment and Investment Agreement with Ampersand 2020 Limited Partnership (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 shares of our Series A Convertible Preferred Stock, for a purchase price of $1,000 per share and an aggregate purchase price of $25.0 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.

The proceeds are being 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

8 unchanged sentences

● 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.

On November 19, 2021, we completed our previously announced acquisition of all of the interests of Novitium pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”), dated as of March 8, 2021, for cash consideration, 2,466,654 restricted shares of our common stock valued at $91.2 million based on our closing stock price of $43.54 on the date of closing and discounted for lack of marketability due to restrictions on shares, and up to $46.5 million in additional contingent consideration.

Additionally, we agreed to pay certain debts of Novitium in the amount of $8.5 million, which we deemed to be paid in consummation of the transaction closing, and not assumed liabilities, and thus were included as additional cash consideration.

This acquisition was accounted for as a business combination.

As of the acquisition date, the contingent consideration had a fair value of $31.0 million.

As of the closing of the acquisition, the contingent consideration had a fair value of $30.8 million.

Refer to Note 9 for changes in contingent consideration and changes in fair value.

Total consideration including cash, restricted shares and contingent consideration was valued at $206.5 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.

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.

1 unchanged sentence

In the third quarter 2021, we utilized $8.4 million of cash on hand to settle litigation with Arbor.

In the first quarter of 2020, we acquired the U.S.

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

5 unchanged sentences

Financing Activities

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) / Provided by Operating Activities

Net cash used in operating activities was $31.2 million for the year ended December 31, 2022, compared to $3.3 million provided by operating activities during the same period in 2021, a change of $34.5 million.

The use of cash was driven by our net loss and changes in working capital, including increases to accounts receivable and inventory of $31.4 million and $26.9 million, respectively, since December 31, 2021, due in part to a number of new product launches during the year ended December 31, 2022.

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.

Net cash used in investing activities for the year ended December 31, 2022 was $15.7 million, principally due to the acquisition of four ANDAs from Oakrum Pharma LLC for $8.0 million consisting of $7.2 million of cash and $0.8 million of other consideration, and $8.9 million of capital expenditures partially offset by $0.8 million proceeds from sale of long-lived assets during the period.

Net Cash (Used in) / Provided by Financing Activities

Net cash used in financing activities was $5.1 million for the year ended December 31, 2022 compared to $194.6 million in cash provided by financing activities for the year ended December 31, 2021, principally due to the $3.0 million maturity payments on the Term Facility, $2.0 million of treasury stock purchased in relation to restricted stock vests, and $1.6 million convertible stock dividends paid.

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

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 contractual obligations and commitments as of December 31, 2022 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.

4 unchanged sentences

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.

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.

7 unchanged sentences

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.

We have a supply agreement with one vendor that includes purchase minimums.

Pursuant to this agreement, we will be required to purchase a total of $0.1 million of API from this vendor during the year ended December 31, 2023.

Most of our other purchase obligations are related to purchases of information technology services, marketing arrangements, or other service contracts.

13 unchanged sentences

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

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.

5 unchanged sentences

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.

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.

26 unchanged sentences

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.

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.

2 unchanged sentences

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.

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”).

32 unchanged sentences

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.

Control is transferred to the customer when the product leaves our dock to be shipped to the customer, as our contract manufacturing 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.

17 unchanged sentences

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

received directly from Cabaret once a year.

Generally, cash was 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.

1 unchanged sentence

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.

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, during the three month period ended March 31, 2021, we agreed to reimburse Cabaret $0.4 million, which has been recorded as other expense, net in the accompanying unaudited interim condensed 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.

Based upon the events that led to the dismissal of the litigation between Cabaret and Kite, we do 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 was 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.

These are services primarily performed at our facility in East Windsor, New Jersey.

As we intend to cease operations at the Oakville, Ontario facility by the first quarter of 2023, we have transitioned the product development services at the facility to one of our three U.S.-based manufacturing sites.

The duration of these technical transfer projects can be up to three years.

10 unchanged sentences

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.

During the third quarter of 2022, we added $7.2 million in ANDA intangible assets related to the July 21, 2022 transaction with Oakrum Pharma, LLC.

These assets will be amortized over a seven-year useful life.

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.

7 unchanged sentences

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.

During the year ended December 31, 2022, $20.3 million was reclassified from IPR&D to ANDA intangible assets upon completion of projects and launch of related products.

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.

3 unchanged sentences

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.

During the year ended December 31, 2022, we recognized a full impairment of a definite-lived ANDA asset with a remaining carrying value of $0.1 million.

During the year ended December 31, 2021, we recognized a full impairment of a definite-lived ANDA asset with a remaining carrying value of $2.4 million.

As discussed in Note 1.

12 unchanged sentences

Contingent Consideration

The fair value of our contingent consideration was $31.0 million at December 31, 2021.

The fair value of our contingent consideration was $35.1 million and $31.0 million at December 31, 2022 and 2021, respectively.

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.

These changes resulted in charges of $3.8 million and $0.5 million during the years ended December 31, 2022 and 2021, respectively.

Stock-Based Compensation

5 unchanged sentences

The grants are made pursuant to inducement grants outside of our stockholder approved equity plan as permitted under the Nasdaq Stock Market listing rules.

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:

The following table summarizes stock-based compensation expense incurred under the Stock Incentive Plan, Inducement Grant, and 2016 Employee Stock Purchase Plan and included in our consolidated statements of operations:

Years Ended December 31,

26 unchanged sentences

Recent Accounting Pronouncements Not Yet Adopted

In December 2022, the Financial Accounting Standards Board issued ASU 2022-06, which extended the sunset date of the reference rate reform in ASU 848 from December 31, 2022, to December 31, 2024.

We have not adopted the guidance and are currently evaluating the impact, if any, that the adoption of this guidance will have 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

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis