Amphastar Pharmaceuticals, Inc.
Amphastar Pharmaceuticals, Inc. (Form: 10-Q, Received: 05/10/2016 06:34:14)

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 MARCH 31, 2016

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 or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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

 

 

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 May 3, 2016 was 44,845,680.

 

 


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

TABLE OF CONTENTS

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016

 

Special Note About Forward-Looking Statements  

 

 

 

Part I. FINANCIAL INFORMATION  

 

 

PAGE

Item 1. Financial Statements (unaudited):  

 

 

Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015  

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015  

 

Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2016 and 2015  

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015  

 

Notes to Condensed Consolidated Financial Statements  

 

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

 

35 

Item 3. Quantitative and Qualitative Disclosure about Market Risk  

 

43 

Item 4. Controls and Procedures  

 

44 

Part II. OTHER INFORMATION  

Item 1. Legal Proceedings  

 

46 

Item 1A. Risk Factors  

 

46 

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

 

46 

Item 3. Defaults Upon Senior Securities  

 

47 

Item 4. Mine Safety Disclosures  

 

47 

Item 5. Other Information  

 

47 

Item 6. Exhibits  

 

47 

Signatures  

 

48 

 

 

 


 

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,” “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 words. These statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these 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 and our profit sharing agreement with Allergan;

 

·

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 from 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 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;

 

·

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

 

·

our financial performance expectations , including our expectations regarding our 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, 2015, 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. 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, unless the context indicates otherwise.

 

 

 


 

Table of Contents

PART I – FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEET S

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

 

2016

 

2015

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

63,332

 

$

66,074

 

Restricted cash and restricted short-term investments

 

 

1,285

 

 

1,285

 

Accounts receivable, net

 

 

23,081

 

 

33,233

 

Inventories, net

 

 

82,242

 

 

70,665

 

Income tax refund and deposits

 

 

410

 

 

238

 

Prepaid expenses and other assets

 

 

3,092

 

 

4,439

 

Total current assets

 

 

173,442

 

 

175,934

 

Property, plant, and equipment, net

 

 

144,684

 

 

142,161

 

Goodwill and intangible assets, net

 

 

44,024

 

 

39,901

 

Other assets

 

 

5,412

 

 

4,696

 

Deferred tax assets

 

 

27,444

 

 

27,444

 

 

 

 

 

 

 

 

 

Total assets

 

$

395,006

 

$

390,136

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

18,619

 

$

13,872

 

Accrued liabilities

 

 

13,522

 

 

16,732

 

Income taxes payable

 

 

4,257

 

 

3,076

 

Accrued payroll and related benefits

 

 

15,428

 

 

12,840

 

Current portion of product return accrual

 

 

1,275

 

 

1,858

 

Current portion of deferred revenue

 

 

643

 

 

643

 

Current portion of long-term debt and capital leases

 

 

11,177

 

 

10,934

 

Total current liabilities

 

 

64,921

 

 

59,955

 

 

 

 

 

 

 

 

 

Long-term product return accrual

 

 

598

 

 

763

 

Long-term reserve for income tax liabilities

 

 

497

 

 

497

 

Long-term deferred revenue

 

 

1,179

 

 

1,339

 

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

 

 

29,092

 

 

30,165

 

Other long-term liabilities

 

 

2,134

 

 

1,907

 

Total liabilities

 

 

98,421

 

 

94,626

 

Commitments and Contingencies:

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock: par value $.0001; authorized shares—20,000,000; no shares issued and outstanding

 

 

 

 

 

Common stock: par value $.0001; authorized shares—300,000,000; issued and outstanding shares— 46,100,797 and 44,942,101 at March 31, 2016 and 45,960,206 and 45,198,491 at December 31, 2015, respectively

 

 

5

 

 

5

 

Additional paid-in capital

 

 

250,683

 

 

247,829

 

Retained earnings

 

 

62,812

 

 

60,323

 

Accumulated other comprehensive loss

 

 

(2,039)

 

 

(2,475)

 

Treasury stock

 

 

(14,876)

 

 

(10,172)

 

Total stockholders’ equity

 

 

296,585

 

 

295,510

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

395,006

 

$

390,136

 

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

- 1 -


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATION S

(Unaudited; in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2016

    

2015

 

Net revenues

 

$

59,366

 

$

56,886

 

Cost of revenues

 

 

34,464

 

 

43,606

 

Gross profit

 

 

24,902

 

 

13,280

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling, distribution, and marketing

 

 

1,352

 

 

1,522

 

General and administrative

 

 

10,870

 

 

12,451

 

Research and development

 

 

8,388

 

 

6,568

 

Impairment of long-lived assets

 

 

217

 

 

 —

 

Total operating expenses

 

 

20,827

 

 

20,541

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

4,075

 

 

(7,261)

 

 

 

 

 

 

 

 

 

Non-operating income (expense):

 

 

 

 

 

 

 

Interest income

 

 

74

 

 

92

 

Interest expense

 

 

(384)

 

 

(341)

 

Other income, net

 

 

51

 

 

1,313

 

Total non-operating income (expense), net

 

 

(259)

 

 

1,064

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

3,816

 

 

(6,197)

 

Income tax expense (benefit)

 

 

1,327

 

 

(5,532)

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

2,489

 

$

(665)

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

Basic

 

$

0.06

 

$

(0.01)

 

 

 

 

 

 

 

 

 

Diluted

 

$

0.05

 

$

(0.01)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Basic

 

 

45,041

 

 

44,601

 

 

 

 

 

 

 

 

 

Diluted

 

 

46,810

 

 

44,601

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

- 2 -


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS )

(Unaudited; in thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2016

    

2015

 

Net income (loss)

 

$

2,489

 

$

(665)

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss)

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

436

 

 

(2,993)

 

Total accumulated other comprehensive income (loss)

 

 

436

 

 

(2,993)

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

$

2,925

 

$

(3,658)

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

- 3 -


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW S

(Unaudited; in thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2016

    

2015

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

Net income (loss)

 

$

2,489

 

$

(665)

 

Reconciliation to net cash provided by operating activities:

 

 

 

 

 

 

 

Impairment of long-lived assets

 

 

217

 

 

 —

 

Loss on disposal of property, plant, and equipment

 

 

19

 

 

4

 

Depreciation of property, plant, and equipment

 

 

2,947

 

 

2,771

 

Amortization of product rights, trademarks, and patents

 

 

481

 

 

481

 

Imputed interest accretion

 

 

18

 

 

28

 

Employee share-based compensation expense

 

 

3,398

 

 

2,224

 

Non-employee share-based compensation expense

 

 

453

 

 

6

 

Reserve for income tax liabilities

 

 

 —

 

 

547

 

Changes in deferred taxes

 

 

 —

 

 

(4,111)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

 

10,198

 

 

621

 

Inventories, net

 

 

(10,774)

 

 

(4,486)

 

Income tax refund and deposits

 

 

(169)

 

 

 —

 

Prepaid expenses and other assets

 

 

1,392

 

 

(2,311)

 

Income taxes payable

 

 

1,180

 

 

(131)

 

Accounts payable and accrued liabilities

 

 

2,081

 

 

6,360

 

Net cash provided by operating activities

 

 

13,930

 

 

1,338

 

 

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

Acquisition of business

 

 

(4,761)

 

 

 —

 

Purchases of property, plant, and equipment

 

 

(3,528)

 

 

(3,780)

 

Capitalized labor, overhead, and interest on self-constructed assets

 

 

(418)

 

 

(395)

 

Deposits and other assets, net

 

 

(713)

 

 

(870)

 

Net cash used in investing activities

 

 

(9,420)

 

 

(5,045)

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

Repurchase of common stock

 

 

(1,083)

 

 

(572)

 

Net proceeds from equity plans

 

 

104

 

 

910

 

Purchase of treasury stock

 

 

(4,722)

 

 

(1,489)

 

Proceeds from issuance of long-term debt

 

 

3,725

 

 

6,789

 

Principal payments on long-term debt

 

 

(5,057)

 

 

(1,193)

 

Net cash provided by (used in) financing activities

 

 

(7,033)

 

 

4,445

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(219)

 

 

22

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(2,742)

 

 

760

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

66,074

 

 

67,828

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

63,332

 

$

68,588

 

 

 

 

 

 

 

 

 

Noncash Investing and Financing Activities:

 

 

 

 

 

 

 

Equipment acquired under capital leases

 

$

301

 

$

9

 

 

 

 

 

 

 

 

 

- 4 -


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2016

    

2015

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

Interest paid

 

$

517

 

$

469

 

Income taxes paid

 

$

367

 

$

 —

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

 

- 5 -


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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, 201 5 and the notes thereto as filed with the Securities and Exchange Commission in the Company’s A nnual Report on Form 10-K for the year ended December 31, 2015. 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 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 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.

 

2.  Summary of Significant Accounting Policies

 

Basis of Presentation

 

All significant intercompany activity has been eliminated in the preparation of the condensed consolidated financial statements. The unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Some information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles, or GAAP, have been condensed or omitted pursuant to those rules and regulations. 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 accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: International Medication Systems, Limited, or IMS; Armstrong Pharmaceuticals, Inc., or Armstrong; Amphastar Nanjing Pharmaceuticals Co., Ltd., or ANP; and Amphastar France Pharmaceuticals, S.A.S., or AFP.

 

Use of Estimates

 

The preparation of consolidated financial statements in accordance with U.S. 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 doubtful accounts and discounts, provision for chargebacks, liabilities for product returns, reserves for excess or unsellable inventory, impairment of long-lived and intangible assets and goodwill, self-insured claims,

- 6 -


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

workers’ compensation liabilities, litigation reserves, stock price volatilities for share-based compensation expense, fair market values of the Company’s common stock, valuation allowances for deferred tax assets, and liabilities for uncertain income tax positions.

 

Foreign Currency

 

The functional currency of the Company and its domestic and Chinese subsidiary, ANP 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 exchange gains and losses are reflected in the Company’s statement of operations. 

 

The Company’s French subsidiary, AFP, maintains its books of record in Euros, which is the local currency in France and has been determined to be its functional currency. 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 comprehensive income (loss). 

 

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

 

Comprehensive Income (Loss)

 

For the three months ended March 31 , 201 6 and 2015 , 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, 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 1 2 ).

 

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. The Company has adopted the with-and-without methodology for determining when excess tax benefits from the exercise of share ‑based awards are realized. Under the with-and-without methodology, current year operating loss deductions and prior-year operating loss carryforwards are deemed to be utilized prior to the utilization of current-year excess tax benefits from share ‑based awards.

 

Business Combinations

 

Business combinations are accounted for in accordance with Accounting Standards Codification, or ASC 805, Business Combinations, 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

- 7 -


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 are costs the Company incurs to effect a business combination. The Company accounts for acquisition-related costs as expenses in the periods in which the costs are incurred.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board, or FASB issued an accounting standards update that creates a single source of revenue guidance for companies in all industries. 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. This guidance must be adopted using either a full retrospective approach for all periods presented or a modified retrospective approach and will be effective for fiscal years beginning after December 15, 2017, which will be the Company's fiscal 2018. The Company has not yet evaluated the potential impact of adopting the guidance on the Company's consolidated financial statements.

 

In June 2014, the FASB issued an accounting standards update that requires a performance target that affects vesting of a share-based payment award and that could be achieved after the requisite service period to be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized over the required service period, if it is probable that the performance target will be achieved. This guidance will be effective for fiscal years beginning after December 15, 2015, which will be the Company's fiscal 2016, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

 

In August 2014, the FASB issued an accounting standards update that will require management to evaluate if there is substantial doubt about the Company’s ability to continue as a going concern and, if so, to disclose this in both interim and annual reporting periods.  This guidance will become effective for the Company’s annual filing for the period ending December 31, 2016 and interim periods thereafter, and allows for early adoption.  The Company does not expect the adoption of the guidance will have a material impact on the Company’s consolidated financial statements.

 

In July 2015, the FASB issued an accounting standards update which requires entities to measure most inventories at the lower of cost and net realizable value, or NRV, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. Under the new guidance, inventory is measured at the lower of cost and net realizable value, which eliminates the need to determine replacement cost and evaluate whether it is above the ceiling (NRV) or below the floor (NRV less a normal profit margin). The guidance defines NRV as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods therein. The standard will be effective for the Company for the first quarter of the Company’s fiscal 2016.  Early application is permitted. The new guidance must be applied prospectively.  The Company does not believe the adoption of this accounting guidance will have a material impact on the Company’s consolidated financial statements and related disclosures.

 

In November 2015, the FASB issued an accounting standards update to the balance sheet classification of deferred taxes.  Under existing standards, deferred taxes for each tax-paying jurisdiction are presented as a net current asset or liability and net long-term asset or liability. To simplify presentation, the new guidance will require that all deferred tax assets and liabilities, along with related valuation allowances, be classified as long-term on the balance sheet. As a result, each tax-paying jurisdiction will now only have one net long-term deferred tax asset or liability. The new guidance does not

- 8 -


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

change the existing requirement that prohibits offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods therein. Early adoption is permitted. The new guidance may be applied prospectively or retrospectively. The Company has elected to adopt the guidance early and apply the guidance prospectively, therefore, prior periods were not retrospectively adjusted. The reclassification of the Company’s deferred tax assets and liabilities does not have any impact to the Company’s net income or cash flow, thus the adoption of the guidance does not have a material impact on the Company’s consolidated financial statements.

 

In February 2016, the FASB issued an accounting standards update that is aimed at making leasing activities more transparent and comparable, and requires substantially all leases be recognized by lessees on their balance sheet 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 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 an accounting standards update that is aimed to improve 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 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 guidance is effective for annual periods beginning after December 15, 2016, and interim periods therein. 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.

 

3.  Business and Product Acquisitions

 

Acquisition of fourteen injectable products from Hikma Pharmaceuticals PLC

 

In March 2016, the Company acquired fourteen ANDAs, representing eleven different injectable chemical entities from Hikma Pharmaceuticals PLC for $4.0 million.  The Company plans to transfer the manufacturing of these products to its facilities in California, which will require FDA approval before the products can be launched. The Company has concluded that this transaction will be accounted for as a business combination in accordance with ASC 805.

 

The Company’s accounting for this acquisition is preliminary.  The fair value estimates for the $4.0 million assets acquired, which the Company allocated as intangible assets were based upon preliminary calculations and valuations, and the Company’s estimates and assumptions are subject to change as the Company obtains additional information for its estimates during the measurement period (up to one year from the acquisition date). 

 

Acquisition of Nanjing Letop Medical Technology Co. Ltd.

 

In January 2016, the Company’s subsidiary, ANP, acquired Nanjing Letop Medical Technology Co. Ltd., or Letop, for $0.8 million. The Company recognized $0.5 million of goodwill, which represents the difference between the purchase price and the fair value of Letop’s net assets at acquisition. Letop had previously supplied ANP with intermediates used in making various active pharmaceutical ingredients. In March 2016, this subsidiary was renamed Nanjing Letop Fine Chemistry Co., Ltd. The Company has concluded that this transaction will be accounted for as a business combination in accordance with ASC 805.

 

The Company’s accounting for this acquisition is preliminary.  The fair value estimates for the $1.3 million assets acquired, which excludes the $0.5 million of goodwill, and $1.0 million liabilities assumed were based upon preliminary

- 9 -


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

calculations and valuations, and the Company’s estimates and assumptions are subject to change as the Company obtains additional information for its estimates during the measurement period (up to one year from the acquisition date). 

 

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 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

 

 

3,618

 

December 2017

 

 

500

 

 

568

 

 

 

25,023

 

$

32,010

 

 

In order to facilitate the acquisition, the Company established a subsidiary in France, AFP. The Company will continue 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.

 

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. The Company also records profit-sharing revenue stemming from a distribution agreement with Allergan plc, or Allergan (see Note 1 6 ). Profit-sharing revenue is recognized at the time Allergan sells the products to its customers. 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.

 

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. 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.

 

- 10 -


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 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 provision for chargebacks is reflected in net revenues and a reduction to accounts receivable.  The following table is an analysis of the chargeback provision:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

 

2016

 

2015

 

 

 

(in thousands)

 

Beginning balance

    

$

15,217

    

$

11,872

 

Provision related to sales made in the current period

 

 

32,548

 

 

42,372

 

Credits issued to third parties

 

 

(36,703)

 

 

(42,909)

 

Ending balance

 

$

11,062

 

$

11,335

 

 

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 Company continually monitors the provision for chargebacks and makes adjustments when it believes that the actual chargebacks may differ from the estimates. The settlement of chargebacks generally occurs within 30 days after the sale to wholesalers.

 

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 Allergan 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.

 

- 11 -


 

Table of Contents

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:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

 

2016

 

2015

 

 

 

(in thousands)

 

Beginning balance

    

$

2,621

    

$

2,408

 

Provision for product returns

 

 

(255)

 

 

803

 

Credits issued to third parties

 

 

(493)

 

 

(630)

 

Ending balance

 

$

1,873

 

$

2,581

 

 

For the three months ended March 31, 2016 and 2015 ,   the Company’s aggregate product return rate was 1.1% and 1.1 %   of qualified sales, respectively.

 

5.  Income (loss) per Share

 

Basic loss per share is calculated based upon the weighted-average number of shares outstanding during the period and contingently issuable shares such as fully vested deferred stock units, or DSUs, and in 2015, such equity was issued as restricted stock units, or RSUs (such RSUs and DSUs are collectively referred to herein as RSUs), in addition to shares expected to be issued under the Company’s employee stock purchase plan, or ESPP, as of the date all necessary conditions for issuance have been met. Diluted income per share gives effect to all potential dilutive shares outstanding during the period, such as stock options, nonvested RSUs and shares issuable under the Company’s ESPP.

 

For the three months ended March 31, 2016, options to purchase 10,013,154 shares of stock with a weighted-average exercise price of $16.37 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.

 

As the Company reported a net loss for the three months ended March 31, 2015 , the diluted net loss per share, as reported, is equal to the basic net loss per share since the effect of the assumed exercise of stock options vesting of nonvested RSUs and issuance of common shares under the Company’s ESPP are anti-dilutive. Total stock options, nonvested RSUs, and shares issuable under the Company’s ESPP, excluded from the three months ended March 31, 2015, net loss per share were 13,180,428; 857,319 , and 165,167, respectively.

 

- 12 -


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

 

2016

 

2015

 

 

 

(in thousands, except per share data)

 

Basic and dilutive numerator:

    

 

    

    

 

    

 

Net income (loss)

 

$

2,489

 

$

(665)

 

Denominator:

 

 

 

 

 

 

 

Shares outstanding

 

 

45,041

 

 

44,601

 

Contingently issuable shares – vested RSUs

 

 

 —

 

 

 —

 

Weighted-average shares outstanding — basic

 

 

45,041

 

 

44,601

 

 

 

 

 

 

 

 

 

Net effect of dilutive securities:

 

 

 

 

 

 

 

Stock options

 

 

405

 

 

 —

 

Contingently issuable shares – nonvested RSUs

 

 

1,302

 

 

 —

 

Contingently issuable shares – ESPP

 

 

62

 

 

 —

 

Weighted-average shares outstanding — diluted

 

 

46,810

 

 

44,601

 

Net income (loss) per share — basic

 

$

0.06

 

$

(0.01)

 

Net income (loss) per share — diluted

 

$

0.05

 

$

(0.01)

 

 

 

6.  Segment Reporting

 

The Company’s business is the development, manufacture, and marketing of pharmaceutical products. 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, Cortrosyn ® , Amphadase ® , naloxone, lidocaine jelly, as well as various other critical and non-critical care drugs.  The API segment manufactures and distributes RHI and porcine insulin. The Company also uses RHI for internal product development.

 

- 13 -


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Selected financial information by reporting segment is presented below:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

 

2016

 

2015

 

 

 

(in thousands)

 

Net revenues:

    

 

    

    

 

    

 

Finished pharmaceutical products

 

$

58,554

 

$

50,872

 

API

 

 

812

 

 

6,014

 

Total net revenues

 

 

59,366

 

 

56,886

 

 

 

 

 

 

 

 

 

Gross Profit:

 

 

 

 

 

 

 

Finished pharmaceutical products

 

 

25,824

 

 

12,853

 

API

 

 

(922)

 

 

427

 

Total gross profit

 

 

24,902

 

 

13,280

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

20,827

 

 

20,541

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

4,075

 

 

(7,261)

 

Non-operating income (expenses)

 

 

(259)

 

 

1,064

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

$

3,816

 

$

(6,197)

 

 

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.

 

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

 

 

 

 

 

 

 

 

 

March 31, 

 

March 31, 

 

December 31, 

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

(in thousands)

 

U.S.

    

$

58,538

    

$

52,960

    

$

100,290

    

$

100,404

 

China

 

 

 —

 

 

 —

 

 

30,739

 

 

28,547

 

France

 

 

828

 

 

3,926

 

 

13,655

 

 

13,210

 

Total

 

$

59,366

 

$

56,886

 

$

144,684

 

$

142,161

 

 

 

7.  Customer and Supplier Concentration

 

Customer Concentrations

 

Three large wholesale drug distributors, AmerisourceBergen Corporation, or AmerisourceBergen, Cardinal Health, Inc. or Cardinal, and McKesson   Corporation, or McKesson, are all distributors of the Company’s products, as well as suppliers of a broad range of health care products. Allergan plc has exclusive marketing rights of the Company’s enoxaparin product to the U.S. retail pharmacy market. MannKind Corporation began buying RHI API from the Company in December 2014. The Company considers these five customers to be its major customers, as each individually, and these customers collectively, represented a significant percentage of the Company’s net revenue for the

- 14 -


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

three months ended March 31 , 201 6 and 201 5 and accounts receivable as of March 31, 2016 and December 31, 201 5 .  The following table provides accounts receivable and net revenues information for these major customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% of Total Accounts

 

% of Net

 

 

 

 

Receivable

 

Revenue

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31, 

 

December 31, 

 

March 31, 

 

 

 

    

2016

    

2015

    

2016

    

2015

    

 

Allergan plc (1)

 

14

%

12

%

22

%

23

%

 

AmerisourceBergen

 

18

%

12

%

19

%

16

%

 

Cardinal Health

 

27

%

20

%

21

%

18

%

 

MannKind Corporation

 

 —

 

13

%

 —

 

10

%

 

McKesson

 

16

%

21

%

20

%

19

%

 


(1)

In June 2015, Actavis plc adopted Allergan plc as its new global name.

 

Supplier Concentrations

 

The Company depends on suppliers for raw materials, active pharmaceutical ingredients, and other components that are subject to stringent U.S. Food and Drug Administration, or FDA, requirements. Some of these materials may only be available from one or a limited number of sources. Establishing additional or replacement suppliers for these materials may take a substantial period of time, as suppliers must be approved by the FDA. Furthermore, a significant portion of raw materials may only be available from foreign sources. If the Company is unable to secure, on a timely basis, sufficient quantities of the materials it depends on to manufacture and market its products, it could have a materially adverse effect on the Company’s business, financial condition, and results of operations.

 

8.  Fair Value Measurements

 

The accounting standards of the Financial Accounting Standards Board, or FASB, define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability at the measurement date (an exit price). These standards also establish a hierarchy that prioritizes observable and unobservable inputs used in measuring fair value of an asset or liability, as described below:

 

·

Level 1  – Inputs to measure fair value are based on quoted prices (unadjusted) in active markets on identical assets or liabilities;

 

·

Level 2 – Inputs to measure fair value are based on the following: a) quoted prices in active markets on similar assets or liabilities, b) quoted prices for identical or similar instruments in inactive markets, or c) observable (other than quoted prices) or collaborated observable market data used in a pricing model from which the fair value is derived; and

 

·

Level 3  – Inputs to measure fair value are unobservable and the assets or liabilities have little, if any, market activity; these inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities based on best information available in the circumstances.

 

The Company measures fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

- 15 -


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The Company classifies its cash equivalents and short-term investments as Level 1 assets, as they are valued on a recurring basis using quoted market prices with no valuation adjustments applied. The Company does not hold any Level 2 or Level 3 instruments that are measured for fair value on a recurring basis.

 

The fair values of the Company’s financial assets and liabilities measured on a recurring basis, as of March 31, 2016 and December 31, 201 5 , are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quoted Prices in

 

 

 

 

 

 

 

 

 

 

 

 

Active Markets

 

Significant Other

 

Significant Other

 

 

 

 

 

 

for Identical

 

Observable

 

Unobservable

 

 

 

 

 

 

Assets

 

Inputs

 

Inputs

 

 

    

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

 

 

(in thousands)

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market accounts

 

$

35,556

 

$

35,556

 

$

 

$

 

Restricted short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

1,285

 

 

1,285

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value measurement as of March 31, 2016

 

$

36,841

 

$

36,841

 

$

 

$

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market accounts

 

$

42,486

 

$

42,486

 

$

 

$

 

Restricted short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

1,285

 

 

1,285

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value measurement as of December 31, 2015

 

$

43,771

 

$

43,771

 

$

 

$

 

 

The fair value of the Company’s cash equivalents includes money market funds and certificates of deposit with original maturities of three months or less. Short-term investments consist of certificate of deposit accounts that expire within 12 months for which market prices are readily available. The restrictions placed on the certificate of deposit accounts have a negligible effect on the fair value of these financial assets; these funds are restricted to meet the Company’s obligation for workers’ compensation claims.

 

The Company adopted the required fair value measurements and disclosures provisions related to nonfinancial assets and liabilities. These assets and liabilities are not measured at fair value on a recurring basis but are subject to fair value adjustments in certain circumstances. These items primarily include long-lived assets, goodwill, and intangible assets for which the fair value of assets is determined as part of the related impairment test. As of March 31, 2016 and December 31, 201 5 , there were no significant adjustments to fair value for nonfinancial assets or liabilities.

 

- 16 -


 

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

9.  Goodwill and Intangible Assets

 

Intangible assets include product rights, trademarks, patents, land-use rights, and goodwill. The table below shows the weighted-average life, original cost, accumulated amortization, and net book value by major intangible asset classification:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

Accumulated

 

 

 

 

 

    

Life (Years)

    

Original Cost

    

Amortization

    

Net Book Value

 

 

 

(in thousands)

 

Definite-lived intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

Product rights

 

12

 

$

27,134

 

$

23,124

 

$

4,010

 

Patents

 

10

 

 

293

 

 

115

 

 

178

 

Trademarks

 

11

 

 

15

 

 

15

 

 

 —

 

Land-use rights

 

39

 

 

2,540

 

 

304

 

 

2,236

 

Acquired ANDAs (1)

 

*

 

 

4,000

 

 

 —

 

 

4,000

 

Other intangible assets

 

1

 

 

575

 

 

521

 

 

54

 

Subtotal

 

12

 

 

34,557

 

 

24,079

 

 

10,478

 

Indefinite-lived intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

Trademark

 

*

 

 

29,225

 

 

 —

 

 

29,225

 

Goodwill

 

 

 

 

 

 

 

 

 

 

 

 

Finished pharmaceutical products

 

*

 

 

4,321

 

 

 —

 

 

4,321

 

Subtotal

 

*

 

 

33,546

 

 

 —

 

 

33,546

 

As of March 31, 2016

 

*

 

$

68,103

 

$

24,079

 

$

44,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

Accumulated

 

 

 

 

 

    

Life (Years)

    

Original Cost

    

Amortization

    

Net Book Value

 

 

 

(in thousands)

 

Definite-lived intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

Product rights

 

12

 

$

27,134

 

$

22,679

 

$

4,455

 

Patents

 

10

 

 

293

 

 

107

 

 

186

 

Trademarks

 

11

 

 

15

 

 

15

 

 

 —

 

Land-use rights

 

39

 

 

2,540

 

 

288

 

 

2,252

 

Other intangible assets

 

1

 

 

590

 

 

533

 

 

57

 

Subtotal

 

12

 

 

30,572

 

 

23,622

 

 

6,950

 

Indefinite-lived intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

Trademark

 

*

 

 

29,225

 

 

 —

 

 

29,225