Amphastar Pharmaceuticals, Inc.
Amphastar Pharmaceuticals, Inc. (Form: 10-Q, Received: 08/09/2017 17:25:02)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from             to             

Commission file number 001-36509

 

 

AMPHASTAR PHARMACEUTICALS, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

 

33-0702205

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

11570 6 th Street

Rancho Cucamonga, CA 91730

(Address of principal executive offices, including zip code)

 

(909) 980-9484

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒     No  ◻     

Indicate by check mark whether the Registrant (1) has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  ☒     No  ◻

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

◻  (Do not check if a smaller reporting company)

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ◻    No  ☒

 

The number of shares outstanding of the Registrant’s only class of common stock as of August 2, 2017 was 46,195,942.

 

 


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

TABLE OF CONTENTS

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017

 

Special Note About Forward-Looking Statements  

 

 

 

Part I. FINANCIAL INFORMATION  

 

 

PAGE

Item 1. Financial Statements (unaudited)

 

 

Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016  

 

1

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and 2016  

 

2

Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2017 and 2016  

 

3

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016  

 

4

Notes to Condensed Consolidated Financial Statements  

 

5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  

 

36

Item 3. Quantitative and Qualitative Disclosure about Market Risk  

 

45

Item 4. Controls and Procedures  

 

46

Part II. OTHER INFORMATION  

Item 1. Legal Proceedings  

 

48

Item 1A. Risk Factors  

 

48

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  

 

49

Item 3. Defaults Upon Senior Securities  

 

49

Item 4. Mine Safety Disclosures  

 

49

Item 5. Other Information  

 

49

Item 6. Exhibits  

 

49

Signatures  

 

50

 

 

 


 

Table of Contents

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENT S

 

This Quarterly Report on Form 10-Q, or Quarterly Report, contains “forward-looking statements” that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the following words: “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these identifying words. Forward-looking statements relate to future events or future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by the forward-looking statements. These forward-looking statements include, but are not limited to, statements about:

 

·

our expectations regarding the sales and marketing of our products, including our enoxaparin product following termination of our profit sharing agreement with Actavis;

 

·

our expectations regarding our manufacturing and production and the integrity of our supply chain for our products, including the risks associated with our single source suppliers;

 

·

the timing and likelihood of FDA approvals and regulatory actions on our product candidates, manufacturing activities and product marketing activities;

 

·

our ability to advance product candidates in our platforms into successful and completed clinical trials and our subsequent ability to successfully commercialize our product candidates;

 

·

our ability to compete in the development and marketing of our products and product candidates;

 

·

the potential for adverse application of environmental, health and safety and other laws and regulations on our operations;

 

·

our expectations for market acceptance of our new products and proprietary drug delivery technologies, as well as those of our API customers;

 

·

the potential for our marketed products to be withdrawn due to patient adverse events or deaths, or if we fail to secure FDA approval for products subject to the Prescription Drug Wrap-Up program;

 

·

our expectations in obtaining insurance coverage and adequate reimbursement for our products from third-party payers;

 

·

the amount of price concessions or exclusion of suppliers adversely affecting our business;

 

·

our ability to establish and maintain intellectual property protection for our products and our ability to successfully defend our intellectual property in cases of alleged infringement;

 

·

the implementation of our business strategies, product development strategies and technology utilization;

 

·

the potential for exposure to product liability claims;

 

·

future acquisitions, divestitures or investments, including the anticipated benefits of such acquisitions, divestitures or investments;

 

·

our ability to expand internationally;

 

·

economic and industry trends and trend analysis;

 

·

our ability to remain in compliance with laws and regulations that currently apply or become applicable to our business both in the United States and internationally;

 

·

the timing for completion of construction at our IMS facility;

 

·

our remediation efforts for a material weakness in our internal control over financial reporting; and

 

·

our financial performance expectations, including our expectations regarding our backlog, revenue, cost of revenue, gross profit or gross margin, operating expenses, including changes in research and development, sales and marketing and general and administrative expenses, and our ability to achieve and maintain future profitability.

 

 

You should read this Quarterly Report and the documents that we reference elsewhere in this Quarterly Report completely and with the understanding that our actual results may differ materially from what we expect as expressed or implied by our forward-looking statements. In light of the significant risks and uncertainties to which our forward-looking statements are subject, you should not place undue reliance on or regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. We discuss many of these risks and uncertainties in greater detail in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2016, particularly in Item 1A. “Risk Factors.” These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report regardless of the time of delivery of this Quarterly Report, and such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report.

 

Unless expressly indicated or the context requires otherwise, references in this Quarterly Report to “Amphastar,” “the Company,” “we,” “our,” and “us” refer to Amphastar Pharmaceuticals, Inc. and our subsidiaries.

 

 


 

Table of Contents

PART I. – FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEET S

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

 

 

2017

 

2016

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

82,544

 

$

72,354

 

Short-term investments

 

 

727

 

 

527

 

Restricted short-term investments

 

 

4,155

 

 

1,390

 

Accounts receivable, net

 

 

24,123

 

 

26,777

 

Inventories

 

 

74,457

 

 

79,754

 

Income tax refunds and deposits

 

 

386

 

 

22

 

Prepaid expenses and other assets

 

 

7,187

 

 

3,272

 

Total current assets

 

 

193,579

 

 

184,096

 

Property, plant, and equipment, net

 

 

161,720

 

 

152,944

 

Goodwill and intangible assets, net

 

 

45,869

 

 

50,307

 

Other assets

 

 

10,955

 

 

9,390

 

Deferred tax assets

 

 

31,874

 

 

31,001

 

 

 

 

 

 

 

 

 

Total assets

 

$

443,997

 

$

427,738

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

14,910

 

$

16,196

 

Accrued liabilities

 

 

17,633

 

 

15,703

 

Income taxes payable

 

 

6,222

 

 

7,705

 

Accrued payroll and related benefits

 

 

15,776

 

 

13,847

 

Current portion of product return accrual

 

 

2,955

 

 

1,800

 

Current portion of long-term debt and capital leases

 

 

6,205

 

 

5,366

 

Total current liabilities

 

 

63,701

 

 

60,617

 

 

 

 

 

 

 

 

 

Long-term product return accrual

 

 

2,201

 

 

1,343

 

Long-term reserve for income tax liabilities

 

 

845

 

 

845

 

Long-term deferred revenue

 

 

423

 

 

97

 

Long-term debt and capital leases, net of current portion

 

 

40,107

 

 

32,356

 

Deferred tax liabilities

 

 

1,538

 

 

1,455

 

Other long-term liabilities

 

 

1,868

 

 

1,770

 

Total liabilities

 

 

110,683

 

 

98,483

 

Commitments and contingencies:

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock: par value $0.0001; 20,000,000 shares authorized; no shares issued and outstanding

 

 

 

 

 

Common stock: par value $0.0001; 300,000,000 shares authorized; 48,873,866 and 46,248,945 shares issued and outstanding as of June 30, 2017 and 47,765,149 and 46,248,622 shares issued and outstanding as of December 31, 2016, respectively

 

 

 5

 

 

 5

 

Additional paid-in capital

 

 

299,105

 

 

283,123

 

Retained earnings

 

 

74,592

 

 

70,855

 

Accumulated other comprehensive loss

 

 

(3,220)

 

 

(4,696)

 

Treasury stock

 

 

(37,168)

 

 

(20,032)

 

Total stockholders’ equity

 

 

333,314

 

 

329,255

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

443,997

 

$

427,738

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

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AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATION S

(Unaudited; in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

June 30, 

 

June 30, 

 

 

 

    

2017

    

2016

    

2017

    

2016

 

 

Net revenues

 

$

65,187

 

$

68,033

 

$

121,857

 

$

127,399

 

 

Cost of revenues

 

 

38,440

 

 

36,319

 

 

72,282

 

 

70,783

 

 

Gross profit

 

 

26,747

 

 

31,714

 

 

49,575

 

 

56,616

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (income) expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, distribution, and marketing

 

 

1,596

 

 

1,332

 

 

3,075

 

 

2,684

 

 

General and administrative

 

 

12,234

 

 

9,458

 

 

23,572

 

 

20,328

 

 

Research and development

 

 

10,732

 

 

10,594

 

 

21,982

 

 

19,199

 

 

Gain on sale of intangible assets

 

 

 —

 

 

 —

 

 

(2,643)

 

 

 —

 

 

Total operating expenses

 

 

24,562

 

 

21,384

 

 

45,986

 

 

42,211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

2,185

 

 

10,330

 

 

3,589

 

 

14,405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

87

 

 

50

 

 

178

 

 

124

 

 

Interest expense

 

 

(237)

 

 

(305)

 

 

(428)

 

 

(689)

 

 

Other income (expense), net

 

 

1,138

 

 

(323)

 

 

1,338

 

 

(272)

 

 

Total non-operating income (expense), net

 

 

988

 

 

(578)

 

 

1,088

 

 

(837)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

3,173

 

 

9,752

 

 

4,677

 

 

13,568

 

 

Income tax expense

 

 

1,201

 

 

2,857

 

 

1,812

 

 

4,184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,972

 

$

6,895

 

$

2,865

 

$

9,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.04

 

$

0.15

 

$

0.06

 

$

0.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

0.04

 

$

0.15

 

$

0.06

 

$

0.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares used to compute net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

46,025

 

 

44,957

 

 

46,047

 

 

44,999

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

47,866

 

 

45,968

 

 

47,962

 

 

45,712

 

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

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AMPHASTAR PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS )

(Unaudited; in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2017

    

2016

    

2017

    

2016

 

Net income

 

$

1,972

 

$

6,895

 

$

2,865

 

$

9,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

1,010

 

 

(651)

 

 

1,476

 

 

(215)

 

Total other comprehensive income (loss)

 

 

1,010

 

 

(651)

 

 

1,476

 

 

(215)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

$

2,982

 

$

6,244

 

$

4,341

 

$

9,169

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

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AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW S

(Unaudited; in thousands)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30, 

 

 

    

2017

    

2016

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

2,865

 

$

9,384

 

Reconciliation to net cash provided by operating activities:

 

 

 

 

 

 

 

Loss (gain) on disposal and impairment of long-lived assets

 

 

(2,561)

 

 

929

 

Depreciation of property, plant, and equipment

 

 

6,235

 

 

5,995

 

Amortization of product rights, trademarks, and patents

 

 

1,426

 

 

1,050

 

Imputed interest accretion

 

 

16

 

 

36

 

Share-based compensation

 

 

8,749

 

 

8,049

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

 

2,820

 

 

10,164

 

Inventories

 

 

6,965

 

 

(17,352)

 

Prepaid expenses and other assets

 

 

(1,106)

 

 

3,175

 

Income tax refund, deposits, and payable

 

 

(2,758)

 

 

3,759

 

Accounts payable and accrued liabilities

 

 

4,321

 

 

(1,933)

 

Net cash provided by operating activities

 

 

26,972

 

 

23,256

 

 

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

Business Acquisitions

 

 

 —

 

 

(4,761)

 

Purchases and construction of property, plant, and equipment

 

 

(13,568)

 

 

(9,344)

 

Sale of intangible assets

 

 

2,000

 

 

 

Purchase of short-term investments

 

 

(1,261)

 

 

 —

 

Maturity of short-term investments

 

 

1,061

 

 

 —

 

Changes in restricted short-term investments

 

 

(2,765)

 

 

(105)

 

Payment of deposits and other assets

 

 

(1,123)

 

 

(3,216)

 

Net cash used in investing activities

 

 

(15,656)

 

 

(17,426)

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

Proceeds from equity plans, net of withholding tax payments

 

 

7,278

 

 

2,926

 

Purchase of treasury stock

 

 

(17,181)

 

 

(8,190)

 

Proceeds from issuance of long-term debt

 

 

11,118

 

 

6,607

 

Principal payments on long-term debt

 

 

(2,618)

 

 

(6,414)

 

Net cash used in financing activities

 

 

(1,403)

 

 

(5,071)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

277

 

 

(173)

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

10,190

 

 

586

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

72,354

 

 

66,074

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

82,544

 

$

66,660

 

 

 

 

 

 

 

 

 

Noncash Investing and Financing Activities:

 

 

 

 

 

 

 

Equipment acquired under capital leases

 

$

 —

 

$

1,237

 

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

Interest paid, net of capitalized interest

 

$

792

 

$

947

 

Income taxes paid

 

$

4,569

 

$

553

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

 

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1.  Genera l

 

Amphastar Pharmaceuticals, Inc., a California corporation, was incorporated on February 29, 1996 and merged with and into Amphastar Pharmaceuticals, Inc., a Delaware corporation, in July 2004 (together with its subsidiaries, hereinafter referred to as “the Company”). The Company is a specialty pharmaceutical company that primarily develops, manufactures, markets, and sells generic and proprietary injectable, inhalation, and intranasal products, including products with high technical barriers to market entry. Additionally, the Company sells insulin active pharmaceutical ingredient, or API, products. Most of the Company’s products are used in hospital or urgent care clinical settings and are primarily contracted and distributed through group purchasing organizations and drug wholesalers. The Company’s insulin API products are sold to other pharmaceutical companies for use in their own products and are being used by the Company in the development of injectable finished pharmaceutical products. The Company’s inhalation products will be primarily distributed through drug retailers once they are brought to market.

 

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2016, and the notes thereto as filed with the Securities and Exchange Commission, or SEC, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles, or GAAP, have been condensed or omitted from the accompanying condensed consolidated financial statements. The accompanying year-end condensed consolidated balance sheet was derived from the audited financial statements. The accompanying interim financial statements are unaudited, but reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the Company’s consolidated financial position, results of operations, comprehensive income (loss) and cash flows for the periods presented. Unless otherwise noted, all such adjustments are of a normal, recurring nature. The Company’s results of operations, comprehensive income (loss) and cash flows for the interim periods are not necessarily indicative of the results of operations and cash flows that it may achieve in future periods.

 

Note 2.  Summary of Significant Accounting Policies

 

Basis of Presentation

 

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and are prepared in accordance with the requirements of the SEC for interim reporting. Certain amounts in the prior quarter’s condensed consolidated statements of operations have been reclassified to conform to the current quarter presentation. All significant intercompany activity has been eliminated in the preparation of the condensed consolidated financial statements. Effective January 1, 2017, the Company prospectively adopted certain requirements of Auditing Standards Update, or ASU, No. 2016-09 to classify cash flows related to excess tax benefits in operating activities without adjusting prior periods. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows of the Company.

 

The Company’s subsidiaries include: (1) International Medication Systems, Limited, or IMS, (2) Armstrong Pharmaceuticals, Inc., or Armstrong, (3) Amphastar Nanjing Pharmaceuticals Inc., or ANP, (4) Nanjing Letop Fine Chemistry Co., Ltd., or Letop, (5) Amphastar France Pharmaceuticals, S.A.S., or AFP, (6) Amphastar UK Ltd., or AUK, and (7) International Medication Systems (UK) Limited, or IMS UK.

 

Use of Estimates

 

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The principal accounting estimates include: determination of allowances for

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

doubtful accounts and discounts, provision for chargebacks, liabilities for product returns, adjustment to cost for excess or unsellable inventory, impairment of long-lived and intangible assets and goodwill, self-insured claims, workers’ compensation liabilities, litigation reserves, stock price volatilities for share-based compensation expense, valuation allowances for deferred tax assets, and liabilities for uncertain income tax positions.

 

Foreign Currency

 

The functional currency of the Company, its domestic subsidiaries, its Chinese subsidiary, ANP, and its U.K. subsidiary, AUK, is the U.S. dollar, or USD. ANP maintains its books of record in Chinese Yuan. These books are remeasured into the functional currency of USD using the current or historical exchange rates. The resulting currency remeasurement adjustments and other transactional foreign currency exchange gains and losses are reflected in the Company’s statements of operations. 

 

The Company’s French subsidiary, AFP, Chinese subsidiary, Letop, and U.K. subsidiary, IMS UK maintain their books of record in Euros, Chinese Yuan, and Great Britain Pounds, respectively, which are the local currencies and have been determined to be their respective functional currencies. These books are translated into USD using average exchange rates during the period. Assets and liabilities are translated at the rate of exchange prevailing on the balance sheet date.  Equity is translated at the prevailing rate of exchange at the date of the equity transactions. Translation adjustments are reflected in stockholders’ equity and are included as a component of other accumulated comprehensive income (loss). The unrealized gains or losses of intercompany foreign currency transactions that are of a long-term investment nature are reported in other accumulated comprehensive income (loss). The unrealized gains and losses of intercompany foreign currency transactions that are of a long-term investment nature for the three and six months ended June 30, 2017 were a $2.2 million gain and a $2.7 million gain, respectively, and for the three and six months ended June 30, 2016 were a $0.6 million loss and a $0.3 million gain, respectively.

 

Additionally, the Company does not undertake hedging transactions to cover its foreign currency exposure.

 

Comprehensive Income (loss)

 

For the three and six months ended June 30, 2017 and 2016, the Company included its foreign currency translation as part of its comprehensive income (loss).

 

Financial Instruments

 

The carrying amounts of cash and cash equivalents, short-term investments, restricted short-term investments, accounts receivable, accounts payable, accrued expenses, and short-term borrowings approximate fair value due to the short maturity of these items. A majority of the Company’s long-term obligations consist of variable rate debt, and their carrying value approximates fair value as the stated borrowing rates are comparable to rates currently offered to the Company for instruments with similar maturities. However, the Company has one fixed-rate, long-term mortgage for which the carrying value differs from the fair value and is not remeasured on a recurring basis (see Note 12). The Company at times enters into fixed interest rate swap contracts to exchange the variable interest rates for fixed interest rates without the exchange of the underlying notional debt amounts. Such interest rate swap contracts are recorded at their fair values.

 

Deferred Income Taxes

 

The Company utilizes the liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statements and the tax basis of assets and liabilities using enacted tax rates. A valuation allowance is recorded when it is more likely than not that the deferred tax assets will not be realized.

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Business Combinations

 

If an acquired set of activities and assets is capable of being operated as a business consisting of inputs and processes from the viewpoint of a market participant, the asset acquired and liabilities assumed are a business. Business combinations are accounted for using the acquisition method of accounting, which requires an acquirer to recognize the assets acquired and the liabilities assumed at the acquisition date measured at their fair values as of that date. Fair value determinations are based on discounted cash flow analyses or other valuation techniques. In determining the fair value of the assets acquired and liabilities assumed in a material acquisition, the Company may utilize appraisals from third party valuation firms to determine fair values of some or all of the assets acquired and liabilities assumed, or may complete some or all of the valuations internally. In either case, the Company takes full responsibility for the determination of the fair value of the assets acquired and liabilities assumed. The value of goodwill reflects the excess of the fair value of the consideration conveyed to the seller over the fair value of the net assets received.

 

Acquisition-related costs that the Company incurs to effect a business combination are expensed in the periods in which the costs are incurred. When the operations of the acquired businesses were not material to the Company’s condensed consolidated financial statements, no pro forma presentation is disclosed.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU, No. 2019-09 Revenue from Contracts with Customers , which creates a single source of revenue guidance for companies in all industries. Subsequently, the FASB issued multiple updates. The new standard provides guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers, unless the contracts are within the scope of other accounting standards. It also provides a model for the measurement and recognition of gains and losses on the sale of certain nonfinancial assets. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required regarding customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). Based on ASU No. 2015-14 Deferral of the Effective Date , issued in August 2015, this guidance will be effective for the Company beginning in the first quarter of 2018, including interim periods within the year. The Company is in the process of evaluating the effect of the adoption on its condensed consolidated financial statements and is currently assessing its contracts with customers and sale of nonfinancial assets. The Company anticipates it will expand its consolidated financial statement disclosures in order to comply with the new guidance. The Company expects to select the modified retrospective transition method upon adoption.

 

In February 2016, the FASB issued ASU No. 2016-02 Leases , that is aimed at making leasing activities more transparent and comparable, and which requires substantially all leases be recognized by lessees on their balance sheets as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. This guidance will become effective for the Company’s interim and annual reporting periods during the year ending December 31, 2019, and all annual and interim reporting periods thereafter. Early adoption is permitted. The Company is required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements for the reporting periods in which the guidance is adopted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued ASU No. 2016-09 Improvements to Employee Share-Based Payment Accounting , that is aimed at improving the employee share-based payment accounting. The standard update simplifies the accounting for employee share-based payments and involves several aspects of the accounting for share-based transactions, including the

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

potential timing of expenses, the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The Company adopted this guidance effective January 1, 2017.

 

In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments – Credit Losses , that is aimed at providing financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit. The standard update changes the impairment model for financial assets measured at amortized cost, requiring presentation at the net amount expected to be collected. The measurement of expected credit losses requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Available-for-sale debt securities with unrealized losses will be recorded through an allowance for credit losses. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. Early adoption is permitted for annual periods after 2019. The Company will be required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

 

In August 2016, the FASB issued ASU No. 2016-15 Classification of Certain Cash Receipts and Cash Payments , that is aimed at addressing certain issues regarding classifications of certain cash receipts and cash payments on the statement of cash flows where diversity in practice was identified. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2018. Early adoption is permitted. The Company will be required to apply the guidance retrospectively in the first interim and each annual period in which the guidance is adopted. The Company does not believe that the adoption of this accounting guidance will have a material impact on the Company’s consolidated financial statements and related disclosures.

 

In October 2016, the FASB issued ASU No. 2016-16 Intra-Entity Transfers of Assets Other Than Inventory , that requires an entity to recognize the income tax consequences of intra-entity transfer of an asset other than inventory when the transfer occurs. The guidance is effective for the Company's interim and annual reporting periods during the year ending December 31, 2018. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements, interim or annual, have not been issued. The amendments will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures. 

 

In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows: Restricted Cash , which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, the Company will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is effective for the Company's interim and annual reporting periods during the year ending December 31, 2018. Early adoption is permitted, including adoption in an interim period. The amendments will be applied using a retrospective transition method to each period presented. The Company will be required to apply the guidance retrospectively when adopted. The Company does not believe that the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

 

In January 2017, the FASB issued ASU No. 2017-01 Clarifying the Definition of a Business , which provides guidance to assist entities with evaluating when a set of transferred assets and activities is a business. Under the updated guidance, a set is not a business if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar assets. If the threshold is not met, the update requires that, to be a business, the set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The definition of outputs was also aligned with Accounting Standard Codification, or ASC, 606 by focusing on revenue-generating activities. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2018, and prospectively applicable to any transactions occurring within the period of

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

adoption. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

 

In January 2017, the FASB issued ASU No. 2017-04 Simplifying the Test for Goodwill Impairment , which eliminates the requirement to calculate the implied fair value of goodwill. An entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020, and applied on a prospective basis. Early adoption is permitted for interim and annual goodwill impairment testing dates after January 1, 2017. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

 

In May 2017, the FASB issued ASU No. 2017-09 Scope of Modification Accounting , that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2018, and applied prospectively to awards modified on or after the adoption date. Early adoption is permitted. The Company does not believe that the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

 

Note 3.  Business Acquisitions

 

Acquisition of International Medication Systems (UK) Limited from UCB PHARMA GmbH

 

In August 2016, the Company’s UK subsidiary, AUK, acquired IMS UK, a UK-based subsidiary of UCB PHARMA GmbH, including its trademarks, assets related to the products, as well as marketing authorizations for 33 products in the UK, Ireland, Australia, and New Zealand, representing 11 different injectable chemical entities. The Company paid $7.7 million in cash as consideration for the transaction. The Company plans to transfer the manufacturing of the purchased products to its facilities in California. The transfer will require approval of the UK Medicines and Healthcare products Regulatory Agency and other related regulatory agencies before the products can be sold by the Company. The transaction is accounted for as a business combination in accordance with ASC 805.

 

The fair values of the assets acquired and liabilities assumed include marketing authorizations of $9.2 million, manufacturing equipment of $0.1 million, and deferred tax liability of $1.6 million. The acquired marketing authorizations intangible assets are subject to a straight-line amortization over a useful life of approximately 10 years.

 

Acquisition of fourteen injectable products from Hikma Pharmaceuticals PLC

 

In March 2016, the Company acquired 14 abbreviated new drug application, or ANDAs, representing 11 different injectable chemical entities from Hikma Pharmaceuticals PLC, or Hikma, for $4.0 million. This transaction was accounted for as a business combination in accordance with ASC 805. The ANDAs had an estimated fair value of $4.0 million, and were subject to a straight-line amortization over a useful life of approximately 15 years.

 

In February 2017, the Company sold these products to an unrelated party (see Note 9). 

 

Acquisition of Nanjing Letop Medical Technology Co. Ltd.

 

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In January 2016, the Company’s Chinese subsidiary, ANP, acquired Nanjing Letop Medical Technology Co. Ltd. for $1.7 million consisting of $0.8 million in cash and a deposit of $0.9 million that ANP had previously paid to Letop and which was effectively eliminated upon the consummation of the transaction. The Company accounted for this transaction as a business combination in accordance with ASC 805. The Company recognized $1.4 million of acquired assets, $0.1 million of assumed liabilities, and $0.4 million of goodwill. Letop had previously supplied ANP with intermediates used in making various active pharmaceutical ingredients. In March 2016, the acquired subsidiary was renamed Nanjing Letop Fine Chemistry Co., Ltd.

 

Acquisition of Merck’s API Manufacturing Business

 

On April 30, 2014, the Company completed the acquisition of the Merck Sharpe & Dohme’s API manufacturing business in Éragny-sur-Epte, France, or the Merck API Transaction, which manufactures porcine insulin API and recombinant human insulin API, or RHI API. The purchase price of the transaction totaled €24.8 million, or $34.4 million on April 30, 2014, subject to certain customary post‑closing adjustments and currency exchange rate fluctuations. The terms of the purchase include multiple payments over four years as follows (see Note 12):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

 

Euros

 

Dollars

 

 

 

(in thousands)

 

At Closing, April 2014

    

13,252

    

$

18,352

 

December 2014

 

 

4,899

 

 

5,989

 

December 2015

 

 

3,186

 

 

3,483

 

December 2016

 

 

3,186

 

 

3,427

 

December 2017

 

 

500

 

 

571

 

 

 

25,023

 

$

31,822

 

 

In order to facilitate the acquisition, the Company established AFP in France. The Company is continuing the current site manufacturing activities, which consist of the manufacturing of porcine insulin API and RHI API. As part of the transaction, the Company has entered into various additional agreements, including various supply agreements, as well as the assignment and/or licensing of patents under which Merck was operating at this facility. In addition, certain existing customer agreements have been assigned to AFP. Currently, the Company is in the process of transferring the manufacturing of starting material for RHI API from Merck to AFP. This process will require capital expenditures at AFP and is expected to take two years to complete.

 

Note 4.  Revenue Recognition

 

Generally, revenue is recognized at the time of product delivery to the Company’s customers. In some cases, revenue is recognized at the time of shipment when stipulated by the terms of the sale agreements. Revenues derived from contract manufacturing services are recognized when third-party products are shipped to customers, after the customer has accepted test samples of the products to be shipped. On June 30, 2016, the Company and Actavis, Inc., or Actavis, amended the distribution agreement, which terminated the agreement in December 2016. Profit-sharing revenue under this agreement was recognized at the time Actavis sold the products to its customers.

 

The Company does not recognize product revenue unless the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) transfer of title has occurred, (iii) the price to the customer is fixed or determinable, and (iv) collection is reasonably assured. Furthermore, the Company does not recognize revenue until all customer acceptance requirements have been met. The Company estimates and records reductions to revenue for discounts, product returns, and pricing adjustments, such as wholesaler chargebacks, in the same period that the related revenue is recorded.

 

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

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Revenues are recognized for each unit of accounting based on revenue recognition criteria relevant to that unit. The Company does not have any revenue arrangements with multiple deliverables.

 

Provision for Wholesaler Chargebacks

 

The provision for chargebacks is a significant estimate used in the recognition of revenue. As part of its sales terms with wholesale customers, the Company agrees to reimburse wholesalers for differences between the gross sales prices at which the Company sells its products to wholesalers, or list prices, and the actual prices of such products at the time wholesalers resell them under the Company’s various contractual arrangements with third parties such as hospitals and group purchasing organizations. The Company estimates chargebacks at the time of sale to wholesalers based on wholesaler inventory stocking levels, historic chargeback rates, and current contract pricing. The settlement of chargebacks generally occurs within 30 days after the sale to wholesalers.

 

The provision for chargebacks is reflected in net revenues. Accounts receivable and/or accrued liabilities are also reduced and/or increased by the chargebacks amount depending on whether the Company has the right of offset with the customer. The following table is an analysis of the chargeback provision:

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30, 

 

 

 

2017

 

2016

 

 

 

(in thousands)

 

Beginning balance

    

$

37,820

    

$

15,217

 

Provision related to sales made in the current period

 

 

84,085

 

 

69,549

 

Credits issued to third parties

 

 

(114,124)

 

 

(72,965)

 

Ending balance

 

$

7,781

 

$

11,801

 

 

Changes in chargeback provision from period to period are primarily dependent on the Company’s sales to its wholesalers, the level of inventory held by the wholesalers, and on the wholesaler’s customer mix. The approach that the Company uses to estimate chargebacks has been consistently applied for all periods presented. Variations in estimates have been historically small. The chargeback provision has decreased in the six months ended June 30, 2017, primarily due to a decrease in the list price of enoxaparin in the first quarter of 2017. The Company continually monitors the provision for chargebacks and makes adjustments when it believes that the actual chargebacks may differ from the estimates. Chargeback provisions as of June 30, 2017 and 2016 are included in account receivables.

 

Accrual for Product Returns

 

The Company offers most customers the right to return qualified excess or expired inventory for partial credit; however, products sold to Actavis and API product sales are non-returnable. The Company’s product returns primarily consist of the returns of expired products from sales made in prior periods. Returned products cannot be resold. At the time product revenue is recognized, the Company records an accrual for estimated returns. The accrual is based, in part, upon the historical relationship of product returns to sales and customer contract terms. The Company also assesses other factors that could affect product returns including market conditions, product obsolescence, and the introduction of new competition. Although these factors do not normally give the Company’s customers the right to return products outside of the regular return policy, the Company realizes that such factors could ultimately lead to increased returns. The Company analyzes these situations on a case-by-case basis and makes adjustments to the product return reserve as appropriate.   If the available information is not sufficient to estimate a reasonable product return accrual, revenues from the sales of the new product would not be recognized until the product is consumed by the end customer or rights of return granted under the return policy have expired. As of June 30, 2017 and December 31, 2016, cumulative sales of approximately $0.9 million and $0.5 million, respectively, for one of the Company’s products were not recognized in revenues, due to insufficient information available to estimate a reasonable product return accrual.

 

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The provision for product returns is reflected in net revenues. The following table is an analysis of product return liability:

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30, 

 

 

 

2017

 

2016

 

 

 

(in thousands)

 

Beginning balance

    

$

3,143

    

$

2,621

 

Provision for product returns

 

 

2,979

 

 

637

 

Credits issued to third parties

 

 

(966)

 

 

(715)

 

Ending balance

 

$

5,156

 

$

2,543

 

 

For the six months ended June 30, 2017 and 2016 ,   the Company’s aggregate product return rate was 1.2% and 1.1%   of qualified sales, respectively.

 

Note 5.  Income per Share

 

Basic income per share is calculated based upon the weighted-average number of shares outstanding during the period. Diluted income per share gives effect to all potential dilutive shares outstanding during the period, such as stock options, nonvested deferred stock units and restricted stock units (collectively referred to herein as “RSUs”), and shares issuable under the Company’s Employee Stock Purchase Plan, or the ESPP.

 

For the three and six months ended June 30, 2017, options to purchase 3,170,200 shares of stock with a weighted-average exercise price of $20.52 per share, were excluded in the computation of diluted net income per share because the effect from the assumed exercise of these options would be anti-dilutive.

 

For the three and six months ended June 30, 2016, options to purchase 6,827,011 shares of stock with a weighted-average exercise price of $18.16 per share, were excluded in the computation of diluted net income per share because the effect from the assumed exercise of these options would be anti-dilutive.

 

The following table provides the calculation of basic and diluted net income per share for each of the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

(in thousands, except per share data)

 

Basic and dilutive numerator:

    

 

    

    

 

    

    

 

    

    

 

    

 

Net income

 

$

1,972

 

$

6,895

 

$

2,865

 

$

9,384

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding — basic

 

 

46,025

 

 

44,957

 

 

46,047

 

 

44,999

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Incremental shares from equity awards

 

 

1,841

 

 

1,011

 

 

1,915

 

 

713

 

Weighted-average shares outstanding — diluted

 

 

47,866

 

 

45,968

 

 

47,962

 

 

45,712

 

Net income per share — basic

 

$

0.04

 

$

0.15

 

$

0.06

 

$

0.21

 

Net income per share — diluted

 

$

0.04

 

$

0.15

 

$

0.06

 

$

0.21

 

 

 

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 6.  Segment Reporting

 

The Company has established two reporting segments that each report to the Chief Operating Decision Maker, or CODM, as defined in ASC 280, Segment Reporting. The Company’s performance is assessed and resources are allocated by the CODM based on the following two reportable segments:

 

·

Finished pharmaceutical products

·

Active pharmaceutical ingredients, or API

 

The finished pharmaceutical products segment manufactures markets and distributes enoxaparin, naloxone, lidocaine, as well as various other critical and non-critical care drugs. The API segment manufactures and distributes recombinant human insulin API and porcine insulin API for external customers and internal product development.

Selected financial information by reporting segment is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

(in thousands)

 

Net revenues:

    

 

    

    

 

    

    

 

    

    

 

    

 

Finished pharmaceutical products

 

$

63,765

 

$

63,756

 

$

119,699

 

$

122,310

 

API

 

 

1,422

 

 

4,277

 

 

2,158

 

 

5,089

 

Total net revenues

 

 

65,187

 

 

68,033

 

 

121,857

 

 

127,399

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

Finished pharmaceutical products

 

 

28,866

 

 

30,598

 

 

53,176

 

 

56,422

 

API

 

 

(2,119)

 

 

1,116

 

 

(3,601)

 

 

194

 

Total gross profit

 

 

26,747

 

 

31,714

 

 

49,575

 

 

56,616

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

24,562

 

 

21,384

 

 

45,986

 

 

42,211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

2,185

 

 

10,330

 

 

3,589

 

 

14,405

 

Non-operating income (expenses)

 

 

988

 

 

(578)

 

 

1,088

 

 

(837)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

$

3,173

 

$

9,752

 

$

4,677

 

$

13,568

 

 

The Company manages its business segments to the gross profit level and manages its operating and other costs on a company-wide basis. The Company does not identify total assets by segment for internal purposes, as the Company’s CODM does not assess performance, make strategic decisions, or allocate resources based on assets.

 

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The amount of net revenues in the finished pharmaceutical product segment is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

(in thousands)

 

Finished pharmaceutical products net revenues:

    

 

    

    

 

    

    

 

    

    

 

    

 

Enoxaparin

 

$

8,288

 

$

17,328

 

$

18,698

 

$

35,686

 

Naloxone

 

 

10,261

 

 

15,561

 

 

21,200

 

 

25,815

 

Epinephrine

 

 

10,648

 

 

5,226

 

 

20,222

 

 

9,618

 

Lidocaine

 

 

9,334

 

 

8,191

 

 

17,622

 

 

18,099

 

Phytonadione

 

 

10,003

 

 

8,761

 

 

17,890

 

 

14,887

 

Other finished pharmaceutical products

 

 

15,231

 

 

8,689

 

 

24,067

 

 

18,205

 

Total finished pharmaceutical products net revenues

 

$

63,765

 

$

63,756

 

$

119,699

 

$

122,310

 

 

Discontinuation of epinephrine injection, USP vial product

 

In March 2017, the U.S. Food and Drug Administration, or FDA, requested the Company to discontinue the manufacturing and distribution of its epinephrine injection, USP vial product, which has been marketed under the “grandfather” exception to the FDA’s “Prescription Drug Wrap-Up” program. The Company discontinued selling this product in the second quarter of 2017. For the year ended December 31, 2016, the Company recognized $18.6 million in net revenues for the sale of this product. A charge of $3.3 million was included in the cost of revenues in its consolidated statements of operations for the year ended December 31, 2016 to adjust the related inventory items and firm purchase commitments to their net realizable value due to the anticipated discontinuation of the product.

 

Net revenues and carrying values of long-lived assets of enterprises by geographic regions are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenue

 

Long-Lived Assets

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30, 

 

June 30, 

 

June 30, 

 

December 31, 

 

 

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

 

 

(in thousands)

 

United States

    

$

63,799

    

$

67,550

    

$

119,729

    

$

126,089

    

$

105,881

    

$

104,110

 

China

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

36,651

 

 

35,085

 

France

 

 

1,388

 

 

483

 

 

2,128

 

 

1,310

 

 

19,097

 

 

13,659

 

United Kingdom

 

 

 —

 

 

 —