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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 SEPTEMBER 30, 2022

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 6th Street

 

Rancho Cucamonga, CA

 

91730

(Address of principal executive offices)

(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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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

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  

Securities registered pursuant to Section 12(b) of the Act:

T

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

AMPH

The NASDAQ Stock Market LLC

The number of shares outstanding of the registrant’s only class of common stock as of November 1, 2022 was 48,331,186.

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

TABLE OF CONTENTS

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

Special Note About Forward-Looking Statements

Part I. FINANCIAL INFORMATION

PAGE

Item 1. Financial Statements (unaudited):

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

1

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021

2

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021

3

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021

4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021

6

Notes to Condensed Consolidated Financial Statements

7

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

28

Item 3. Quantitative and Qualitative Disclosure about Market Risk

39

Item 4. Controls and Procedures

39

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

40

Item 1A. Risk Factors

40

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

48

Item 3. Defaults Upon Senior Securities

48

Item 4. Mine Safety Disclosures

48

Item 5. Other Information

48

Item 6. Exhibits

49

Signatures

50

Table of Contents

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

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;
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;
our business and operations in general, including: uncertainty regarding the magnitude, duration and geographic reach of the ongoing COVID-19 pandemic, adverse impacts of the Russia-Ukraine conflict and related macroeconomic conditions on our business, financial condition, operations, cash flows and liquidity;
our ability to successfully execute and maintain the activities and efforts related to the measures we have taken or may take in response to the COVID-19 pandemic and associated costs therewith;
our ability to attract, hire, and retain highly skilled personnel;
interruptions to our manufacturing and production as a result of natural catastrophic events or other causes beyond our control such as power disruptions or widespread disease outbreaks, such as the ongoing COVID-19 pandemic and the Russia-Ukraine conflict;
global, national and local economic and market conditions, specifically with respect to geopolitical uncertainty, including the Russia-Ukraine conflict, the ongoing COVID-19 pandemic, inflation and rising interest rates;
the timing and likelihood of U.S. Food and Drug Administration, or 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;
cost and delays resulting from the extensive pharmaceutical regulations to which we are subject or delays in governmental processing time due to travel and work restrictions caused by the COVID-19 pandemic;
our ability to compete in the development and marketing of our products and product candidates;
our expectations regarding the business of our Chinese subsidiary, Amphastar Nanjing Pharmaceuticals, Ltd., or ANP;
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 active pharmaceutical ingredient, or API, customers;
the effects of reforms in healthcare regulations and reductions in pharmaceutical pricing, reimbursement and coverage;
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;
variations in intellectual property laws, 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;
our ability to successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate 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 impact of trade tariffs, export or import restrictions, or other trade barriers;
the impact of Patient Protection and Affordable Care Act (as amended) and other legislative and regulatory healthcare reforms in the countries in which we operate including the potential for drug price controls;
the timing for completion and the validation of the new construction at our ANP and Amphastar facilities;
the timing and extent of share buybacks; 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.

Table of Contents

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. In particular, the extent of COVID-19’s ongoing impact on our business and the impacts of the ongoing Russia-Ukraine conflict, will depend on several factors, including the severity, duration and extent of the pandemic and the conflict, all of which continue to evolve and remain uncertain at this time. 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, 2021, 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 SHEETS

(in thousands, except share data)

    

September 30, 

    

December 31, 

 

2022

2021

 

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

157,244

$

126,353

Restricted cash

235

235

Short-term investments

26,843

10,320

Restricted short-term investments

 

2,200

 

2,200

Accounts receivable, net

 

77,099

 

78,804

Inventories

 

103,250

 

92,807

Income tax refunds and deposits

 

11,365

 

126

Prepaid expenses and other assets

 

5,986

 

7,274

Total current assets

 

384,222

 

318,119

Property, plant, and equipment, net

 

232,741

 

244,244

Finance lease right-of-use assets

601

353

Operating lease right-of-use assets

26,456

26,894

Investment in unconsolidated affiliate

2,690

3,985

Goodwill and intangible assets, net

 

37,037

 

38,870

Other assets

 

20,549

 

16,665

Deferred tax assets

 

22,399

 

22,399

Total assets

$

726,695

$

671,529

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

95,796

$

89,545

Income taxes payable

 

1,531

 

9,081

Current portion of long-term debt

 

1,680

 

2,202

Current portion of operating lease liabilities

3,183

2,982

Total current liabilities

 

102,190

 

103,810

Long-term reserve for income tax liabilities

 

6,531

 

6,531

Long-term debt, net of current portion and unamortized debt issuance costs

 

74,011

 

74,776

Long-term operating lease liabilities, net of current portion

24,366

24,703

Deferred tax liabilities

 

242

 

534

Other long-term liabilities

 

14,190

 

15,653

Total liabilities

 

221,530

 

226,007

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; 57,994,848 and 48,612,545 shares issued and outstanding as of September 30, 2022 and 56,440,202 and 47,714,912 shares issued and outstanding as of December 31, 2021, respectively

 

6

 

6

Additional paid-in capital

 

448,741

 

422,423

Retained earnings

 

237,810

 

180,337

Accumulated other comprehensive loss

 

(9,931)

 

(6,765)

Treasury stock

 

(171,461)

 

(150,479)

Total equity

505,165

445,522

Total liabilities and stockholders’ equity

$

726,695

$

671,529

See Accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share data)

Three Months Ended

Nine Months Ended

 

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

 

Net revenues

$

120,129

$

112,198

$

363,964

$

316,881

Cost of revenues

 

61,619

 

61,015

 

186,272

 

173,376

Gross profit

 

58,510

 

51,183

 

177,692

 

143,505

Operating expenses:

Selling, distribution, and marketing

 

4,784

 

4,745

 

16,059

13,411

General and administrative

 

11,984

 

10,910

 

34,433

40,813

Research and development

 

18,514

 

10,759

 

57,535

43,646

Total operating expenses

 

35,282

 

26,414

 

108,027

 

97,870

Income from operations

 

23,228

 

24,769

 

69,665

 

45,635

Non-operating income (expenses):

Interest income

 

331

 

141

 

741

444

Interest expense

 

(566)

 

(527)

 

(1,318)

(717)

Other income (expenses), net

 

(397)

 

13,263

 

5,692

11,615

Total non-operating income (expenses), net

 

(632)

 

12,877

 

5,115

 

11,342

Income before income taxes

 

22,596

 

37,646

 

74,780

 

56,977

Income tax provision

 

6,559

 

6,686

 

16,187

13,436

Income before equity in losses of unconsolidated affiliate

16,037

30,960

58,593

43,541

Equity in losses of unconsolidated affiliate

(163)

(1,120)

Net income

$

15,874

$

30,960

$

57,473

$

43,541

Net income attributable to non-controlling interests

$

$

1,412

$

$

1,185

Net income attributable to Amphastar Pharmaceuticals, Inc.

$

15,874

$

29,548

$

57,473

$

42,356

Net income per share attributable to Amphastar Pharmaceuticals, Inc. stockholders:

Basic

$

0.32

$

0.62

$

1.18

$

0.89

Diluted

$

0.30

$

0.59

$

1.09

$

0.85

Weighted-average shares used to compute net income per share attributable to Amphastar Pharmaceuticals, Inc. stockholders:

Basic

 

48,904

 

48,022

 

48,635

 

47,758

Diluted

 

52,788

 

50,009

 

52,665

 

49,693

See Accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; in thousands)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

 

Net income attributable to Amphastar Pharmaceuticals, Inc.

$

15,874

$

29,548

$

57,473

$

42,356

Other comprehensive income (loss) attributable to Amphastar Pharmaceuticals, Inc., net of income taxes

Reclassification of adjustment for amounts included in net income

(362)

(362)

Foreign currency translation adjustment

 

(1,222)

 

(984)

 

(3,166)

(2,194)

Total other comprehensive income (loss) attributable to Amphastar Pharmaceuticals, Inc.

 

(1,222)

 

(1,346)

 

(3,166)

 

(2,556)

Total comprehensive income attributable to Amphastar Pharmaceuticals, Inc.

$

14,652

$

28,202

$

54,307

$

39,800

See Accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited; in thousands, except share data)

Common Stock

Accumulated

Treasury Stock

Total

Additional

Other

Amphastar

Non-

Paid-in

Retained

Comprehensive

Stockholders'

controlling

Shares

Amount

Capital

Earnings

loss

Shares

Amount

Equity

Interest

Total

Balance as of December 31, 2021

 

56,440,202

$

6

$

422,423

$

180,337

$

(6,765)

 

(8,725,290)

$

(150,479)

$

445,522

$

$

445,522

Net income attributable to Amphastar Pharmaceuticals, Inc.

 

 

 

 

24,253

 

 

 

 

24,253

 

 

24,253

Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.

 

 

 

 

 

(480)

 

 

 

(480)

 

 

(480)

Purchase of treasury stock

 

 

 

 

 

 

(51,168)

(1,229)

(1,229)

 

(1,229)

Issuance of treasury stock in connection with the Company's equity plans

(428)

33,231

428

Issuance of common stock in connection with the Company's equity plans

 

1,055,200

 

 

6,437

 

 

 

 

 

6,437

 

 

6,437

Share-based compensation expense

 

 

 

5,022

 

 

 

 

 

5,022

 

 

5,022

Balance as of March 31, 2022

 

57,495,402

$

6

$

433,454

$

204,590

$

(7,245)

 

(8,743,227)

$

(151,280)

$

479,525

$

$

479,525

Net income attributable to Amphastar Pharmaceuticals, Inc.

 

 

 

 

17,346

 

 

 

 

17,346

 

 

17,346

Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.

 

 

 

 

 

(1,464)

 

 

 

(1,464)

 

 

(1,464)

Purchase of treasury stock

 

 

 

 

 

 

(189,840)

(6,118)

(6,118)

 

(6,118)

Issuance of treasury stock in connection with the Company's equity plans

 

 

(430)

 

 

 

29,019

430

 

Issuance of common stock in connection with the Company's equity plans

 

400,935

 

 

5,783

 

 

 

 

 

5,783

 

 

5,783

Share-based compensation expense

 

 

 

4,235

 

 

 

 

 

4,235

 

 

4,235

Balance as of June 30, 2022

 

57,896,337

$

6

$

443,042

$

221,936

$

(8,709)

 

(8,904,048)

$

(156,968)

$

499,307

$

$

499,307

Net income attributable to Amphastar Pharmaceuticals, Inc.

 

 

 

 

15,874

 

 

 

 

15,874

 

 

15,874

Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.

 

 

 

 

 

(1,222)

 

 

 

(1,222)

 

 

(1,222)

Purchase of treasury stock

 

 

 

 

 

 

(478,255)

(14,493)

(14,493)

 

(14,493)

Issuance of common stock in connection with the Company's equity plans

 

98,511

 

 

1,400

 

 

 

 

 

1,400

 

 

1,400

Share-based compensation expense

 

 

 

4,299

 

 

 

 

 

4,299

 

 

4,299

Balance as of September 30, 2022

 

57,994,848

$

6

$

448,741

$

237,810

$

(9,931)

 

(9,382,303)

$

(171,461)

$

505,165

$

$

505,165

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited; in thousands, except share data)

Common Stock

Accumulated

Treasury Stock

Total

Additional

Other

Amphastar

Non-

Paid-in

Retained

Comprehensive

Stockholders'

controlling

Shares

Amount

Capital

Earnings

loss

Shares

Amount

Equity

Interest

Total

Balance as of December 31, 2020

 

54,760,922

$

5

$

410,061

$

117,773

$

(3,721)

 

(7,265,483)

$

(121,812)

$

402,306

$

46,417

$

448,723

Net income attributable to Amphastar Pharmaceuticals, Inc.

 

 

 

 

5,041

 

 

 

 

5,041

 

 

5,041

Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.

 

 

 

 

 

(1,921)

 

 

 

(1,921)

 

 

(1,921)

Net loss attributable to non-controlling interest

(1,082)

(1,082)

Purchase of treasury stock

 

 

 

 

 

 

(204,698)

(3,783)

(3,783)

 

(3,783)

Issuance of treasury stock in connection with the Company's equity plans

(49)

4,184

49

Issuance of common stock in connection with the Company's equity plans

 

423,078

 

1

 

(853)

 

 

 

 

 

(852)

 

 

(852)

Share-based compensation expense

 

 

 

4,767

 

 

 

 

 

4,767

 

67

 

4,834

Balance as of March 31, 2021

 

55,184,000

$

6

$

413,926

$

122,814

$

(5,642)

 

(7,465,997)

$

(125,546)

$

405,558

$

45,402

$

450,960

Net income attributable to Amphastar Pharmaceuticals, Inc.

 

 

 

 

7,767

 

 

 

 

7,767

 

 

7,767

Other comprehensive income attributable to Amphastar Pharmaceuticals, Inc.

 

 

 

 

 

711

 

 

 

711

 

 

711

Net income attributable to non-controlling interest

855

855

Purchase of treasury stock

 

 

 

 

 

 

(298,727)

(5,560)

(5,560)

 

(5,560)

Issuance of treasury stock in connection with the Company's equity plans

 

 

(142)

 

 

 

12,064

142

 

Issuance of common stock in connection with the Company's equity plans

 

552,209

 

 

7,247

 

 

 

 

 

7,247

 

 

7,247

Share-based compensation expense

 

 

 

6,270

 

 

 

 

 

6,270

 

(1,027)

 

5,243

Balance as of June 30, 2021

 

55,736,209

$

6

$

427,301

$

130,581

$

(4,931)

 

(7,752,660)

$

(130,964)

$

421,993

$

45,230

$

467,223

Net income attributable to Amphastar Pharmaceuticals, Inc.

 

 

 

 

29,548

 

 

 

 

29,548

 

 

29,548

Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.

 

 

 

 

 

(984)

 

 

 

(984)

 

 

(984)

ANP restructuring (see Note 3)

(22,162)

448

(362)

(22,076)

(46,642)

(68,718)

Net income attributable to non-controlling interest

1,412

1,412

Purchase of treasury stock

 

 

 

 

 

 

(317,212)

(6,094)

(6,094)

 

(6,094)

Issuance of treasury stock in connection with the Company's equity plans

 

 

(11)

 

 

 

900

11

 

Issuance of common stock in connection with the Company's equity plans

 

315,413

 

 

3,869

 

 

 

 

 

3,869

 

 

3,869

Share-based compensation expense

 

 

 

3,920

 

 

 

 

 

3,920

 

 

3,920

Balance as of September 30, 2021

 

56,051,622

$

6

$

412,917

$

160,577

$

(6,277)

 

(8,068,972)

$

(137,047)

$

430,176

$

$

430,176

See Accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)

Nine Months Ended

September 30, 

    

2022

    

2021

Cash Flows From Operating Activities:

Net income

$

57,473

$

43,541

Reconciliation to net cash provided by operating activities:

(Gain) loss on disposal of assets

 

(52)

 

338

Gain on deconsolidation of subsidiary

(13,587)

(Gain) loss on interest rate swaps and foreign currency transactions, net

(1,124)

800

Depreciation of property, plant, and equipment

 

17,615

 

16,800

Amortization of product rights, trademarks, and patents

 

1,088

 

930

Operating lease right-of-use asset amortization

2,604

2,471

Equity in losses of unconsolidated affiliate

1,120

Share-based compensation expense

 

13,556

 

14,837

Changes in deferred taxes, net

 

 

5,170

Changes in operating assets and liabilities:

Accounts receivable, net

 

1,423

 

(14,166)

Inventories

 

(12,922)

 

(5,768)

Prepaid expenses and other assets

 

1,342

 

1,174

Income tax refunds, deposits, and payable, net

 

(18,789)

 

2,832

Operating lease liabilities

(2,303)

(2,529)

Accounts payable and accrued liabilities

 

12,924

 

4,710

Net cash provided by operating activities

 

73,955

 

57,553

Cash Flows From Investing Activities:

Purchases and construction of property, plant, and equipment

 

(17,724)

 

(20,578)

Proceeds from the sale of property, plant and equipment

 

421

 

Purchase of investments

(30,568)

(12,459)

Maturity of investments

15,465

17,423

Payment of deposits and other assets

 

(142)

 

(1,104)

Net cash used in investing activities

 

(32,548)

 

(16,718)

Cash Flows From Financing Activities:

ANP restructuring (see Note 3)

(53,592)

Proceeds from equity plans, net of withholding tax payments

 

13,620

 

10,264

Purchase of treasury stock

 

(21,840)

 

(15,437)

Settlement of ANP equity awards

(839)

Debt issuance costs

(404)

(1,430)

Repayments under lines of credit

 

 

(1,161)

Proceeds from issuance of long-term debt

 

 

70,000

Principal payments on long-term debt

 

(1,653)

 

(36,127)

Net cash used in financing activities

 

(10,277)

 

(28,322)

Effect of exchange rate changes on cash

 

(239)

(175)

Net increase in cash, cash equivalents, and restricted cash

 

30,891

 

12,338

Cash, cash equivalents, and restricted cash at beginning of period

 

126,588

94,507

Cash, cash equivalents, and restricted cash at end of period

$

157,479

$

106,845

Noncash Investing and Financing Activities:

Capital expenditure included in accounts payable

$

3,431

$

6,246

Operating lease right-of-use assets in exchange for operating lease liabilities

$

2,166

$

11,015

Equipment acquired under finance leases

$

453

$

107

Supplemental Disclosures of Cash Flow Information:

Interest paid, net of capitalized interest

$

1,960

$

1,868

Income taxes paid

$

35,166

$

5,480

See Accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. General

Amphastar Pharmaceuticals, Inc., a Delaware corporation (together with its subsidiaries, hereinafter referred to as the “Company”) is a bio-pharmaceutical company that 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 product, Primatene Mist®, is primarily distributed through drug retailers.

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, 2021 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, 2021. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with United States 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), stockholders’ equity, 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 subsidiaries, and are prepared in accordance with GAAP. Certain prior period amounts have been reclassified within the operating activities of the condensed consolidated statements of cash flows to conform to the current period presentation. All intercompany activity has been eliminated in the preparation of the condensed consolidated financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, 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) Amphastar France Pharmaceuticals, S.A.S., or AFP, (5) Amphastar UK Ltd., or AUK, and (6) International Medication Systems (UK) Limited, or IMS UK.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The principal accounting estimates include: determination of allowances for credit losses, fair value of financial instruments, allowance for discounts, provision for chargebacks and rebates, provision for product returns, adjustment of inventory to its net realizable values, impairment

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

of investments, long-lived and intangible assets and goodwill, accrual for workers’ compensation liabilities, litigation reserves, stock price volatility 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, 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 condensed consolidated statements of operations.

The Company’s French subsidiary, AFP, maintains its book of record in euros. AUK’s subsidiary, IMS UK, maintains its book of record in British pounds. These local currencies have been determined to be the subsidiaries’ respective functional currencies. Activities in the statements of operations are translated to 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 were a $2.0 million loss and a $4.7 million loss for the three and nine months ended September 30, 2022, respectively. For the three and nine months ended September 30, 2021, the unrealized gains and losses of intercompany foreign currency transactions that are of a long-term investment nature were a $0.9 million loss and a $1.9 million loss, respectively.

Comprehensive Income

The Company’s comprehensive income includes its foreign currency translation gains and losses as well as its share of other comprehensive income from its equity method investment.

Advertising Expense

Advertising expenses, primarily associated with Primatene Mist®, are recorded as they are incurred, except for expenses related to the development of a major commercial or media campaign, which are expensed in the period in which the commercial or campaign is first presented, and are reflected as a component of selling, distribution and marketing in the Company’s condensed consolidated statements of operations. For the three and nine months ended September 30, 2022, advertising expenses were $1.6 million and $6.5 million, respectively. For the three and nine months ended September 30, 2021, advertising expenses were $2.3 million and $6.4 million, respectively.

Financial Instruments

The carrying amounts of cash and cash equivalents, short-term investments, restricted cash and short-term investments, accounts receivable, accounts payable, accrued expenses, and short-term borrowings approximate fair value due to the short maturity of these items. The 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. The Company at times enters into interest rate swap contracts to manage its exposure to interest rate changes and its overall cost of long-term debt. The Company’s interest rate swap contracts exchange the variable interest rates for fixed interest rates. The Company’s interest rate swaps have not been

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

designated as hedging instruments and, therefore are recorded at their fair values at the end of each reporting period with changes in fair value recorded in other income (expenses) on the condensed consolidated statements of operations.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash, money market accounts, certificates of deposit and highly liquid investments purchased with original maturities of three months or less.

Investments

Investments as of September 30, 2022 and December 31, 2021 consisted of certificates of deposit and investment grade corporate and municipal bonds with original maturity dates between three and fifteen months.

Restricted Cash

Restricted cash is collateral required for the Company to guarantee certain vendor payments in France. As of September 30, 2022 and December 31, 2021, the restricted cash balances were $0.2 million.

Restricted Short-Term Investments

Restricted short-term investments consist of certificates of deposit that are collateral for standby letters of credit to qualify for workers’ compensation self-insurance. The certificates of deposit have original maturities greater than three months, but less than one year. As of September 30, 2022 and December 31, 2021, the balance of restricted short-term investments was $2.2 million.

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.

Litigation, Commitments and Contingencies

Litigation, commitments and contingencies are accrued when management, after considering the facts and circumstances of each matter as then known to management, has determined it is probable a liability will be found to have been incurred and the amount of the loss can be reasonably estimated. When only a range of amounts is reasonably estimable and no amount within the range is more likely than another, the low end of the range is recorded. Legal fees are expensed as incurred. Due to the inherent uncertainties surrounding gain contingencies, the Company generally does not recognize potential gains until realized.

Recent Accounting Pronouncements

The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying condensed consolidated financial statements.

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3. ANP Restructuring

As a result of the ANP restructuring that was completed during the third quarter of 2021, and subsequent investments by other equity holders of Hanxin, the Company had a 14% noncontrolling investment in Hanxin as of September 30, 2022 that is accounted for as an equity method investment.

In addition to the retained noncontrolling investment in Hanxin, the Company maintains a seat on Hanxin’s board of directors, and Henry Zhang, a relative of Dr. Jack Zhang and Dr. Mary Luo, is an equity holder, general manager, and chairman of the board of directors of Hanxin. As a result, it was determined that the Company has significant influence over Hanxin and the retained noncontrolling investment in Hanxin is accounted for as an equity method investment.

Hanxin continues to be a related party after the restructuring.

Note 4. Revenue Recognition

In accordance with Accounting Standard Codification, or ASC, 606 Revenue from Contracts with Customers, revenue is recognized at the time that the Company’s customers obtain control of the promised goods.

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 consideration the Company receives in exchange for its goods or services is only recognized when it is probable that a significant reversal will not occur. The consideration to which the Company expects to be entitled includes a stated list price, less various forms of variable consideration. The Company makes significant estimates for related variable consideration at the point of sale, including chargebacks, rebates, product returns, other discounts and allowances.

The Company’s payment terms vary by types and locations of customers and the products or services offered. Payment terms differ by jurisdiction and customers, but payment is generally required in a term ranging from 30 to 75 days from date of shipment or satisfaction of the performance obligation. For certain products or services and certain customer types, the Company may require payment before products are delivered or services are rendered to customers.

Provisions for estimated chargebacks, rebates, discounts, product returns and credit losses are made at the time of sale and are analyzed and adjusted, if necessary, at each balance sheet date.

Revenues derived from contract manufacturing services are recognized when third-party products are shipped to customers, and after the customer has accepted test samples of the products to be shipped.

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 performance obligations.

Service revenues derived from research and development contracts is recognized over time based on progress toward satisfaction of the performance obligation. For each performance obligation satisfied over time, the Company assesses the proper method to be used for revenue recognition, either an input method to measure progress toward the satisfaction of services or an output method of determining the progress of completion of performance obligation. For the three and nine months ended September 30, 2022, revenues from research and development services at ANP were $0.8 million and $2.1 million, respectively. For the three and nine months ended September 30, 2021, revenues from research and development services at ANP were $2.6 million and $3.9 million, respectively.

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Provision for Chargebacks and Rebates

The provision for chargebacks and rebates is a significant estimate used in the recognition of revenue. Wholesaler chargebacks relate to sales terms under which 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 that wholesalers resell under the Company’s various contractual arrangements with third parties such as hospitals and group purchasing organizations in the United States. Rebates include primarily amounts paid to retailers, payers, and providers in the United States, including those paid to state Medicaid programs, and are based on contractual arrangements or statutory requirements. The Company estimates chargebacks and rebates using the expected value method at the time of sale to wholesalers based on wholesaler inventory stocking levels, historic chargeback and rebate rates, and current contract pricing.

The provision for chargebacks and rebates is reflected as a component of net revenues. The following table is an analysis of the chargeback and rebate provision:

Nine Months Ended

 

September 30, 

2022

2021

 

(in thousands)

 

Beginning balance

    

$

20,167

    

$

20,380

Provision for chargebacks and rebates

 

147,899

 

151,174

Credits and payments issued to third parties

 

(144,233)

 

(154,143)

Ending balance

$

23,833

$

17,411

Changes in the chargeback provision from period to period are primarily dependent on the Company’s sales to its wholesalers, the level of inventory held by wholesalers, and the wholesalers’ customer mix. Changes in the rebate provision from period to period are primarily dependent on retailer’s and other indirect customers’ purchases. 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 rebates and makes adjustments when it believes that the actual chargebacks and rebates may differ from the estimates. The settlement of chargebacks and rebates generally occurs within 20 days to 60 days after the sale to wholesalers. Accounts receivable and/or accounts payable and accrued liabilities are reduced and/or increased by the chargebacks and rebate amounts depending on whether the Company has the right to offset with the customer.

Of the provision for chargebacks and rebates as of September 30, 2022 and December 31, 2021, $18.4 million and $15.6 million were included as a reduction to accounts receivable, net, on the condensed consolidated balance sheets, respectively. The remaining provision as of September 30, 2022 and December 31, 2021 of $5.4 million and $4.6 million, respectively, were included in accounts payable and accrued liabilities.

Accrual for Product Returns

The Company offers most customers the right to return qualified excess or expired inventory for partial credit; however, API product sales are generally 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 product returns estimated using the expected value method. 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 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

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Company analyzes these situations on a case-by-case basis and makes adjustments to the product return reserve as appropriate.

The provision for product returns is reflected as a component of net revenues. The following table is an analysis of the product return liability:

Nine Months Ended

 

September 30, 

2022

2021

 

(in thousands)

 

Beginning balance

    

$

21,677

    

$

14,204

Provision for product returns

 

3,086

 

11,714