10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018

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, 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 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 and post such files).    Yes  ☒     No  ◻

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

Large accelerated filer	◻	Accelerated filer	☒
Non-accelerated filer	◻	Smaller reporting company	◻
		Emerging growth company	☒

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

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

The number of shares outstanding of the registrant’s only class of common stock as of August 2, 2018 was 46,256,454.

AMPHASTAR PHARMACEUTICALS, INC.

TABLE OF CONTENTS

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018

Part I. FINANCIAL INFORMATION
	PAGE
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017	1
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017	2
Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2018 and 2017	3
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017	4
Notes to Condensed Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3. Quantitative and Qualitative Disclosure about Market Risk	41
Item 4. Controls and Procedures	42
Part II. OTHER INFORMATION
Item 1. Legal Proceedings	43
Item 1A. Risk Factors	43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3. Defaults Upon Senior Securities	49
Item 4. Mine Safety Disclosures	49
Item 5. Other Information	49
Item 6. Exhibits	50
Signatures	51

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;

· 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;

· our expectations regarding the business expansion plans of our Chinese subsidiary, 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 API customers;

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

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

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

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

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

· the potential for exposure to product liability claims;

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

· our ability to expand internationally;

· economic and industry trends and trend analysis;

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

· the impact of global and domestic tax reform, including the Tax Cuts and Jobs Act of 2017;

· the impact of trade tariffs or other trade barriers;

· the timing for completion of the validation of the new construction at our IMS facility; and

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

You should read this Quarterly Report and the documents that we reference elsewhere in this Quarterly Report completely and with the understanding that our actual results may differ materially from what we expect as expressed or implied by our forward-looking statements. In light of the significant risks and uncertainties to which our forward-looking statements are subject, you should not place undue reliance on or regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. We discuss many of these risks and uncertainties in greater detail in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2017, 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.

PART I – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	June 30,		December 31,
	2018		2017
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	48,070	$	65,594
Short-term investments		2,818		2,635
Restricted cash and short-term investments		4,155		4,155
Accounts receivable, net		41,279		35,996
Inventories		61,678		63,609
Income tax refunds and deposits		7,542		6,036
Prepaid expenses and other assets		4,404		9,753
Total current assets		169,946		187,778
Property, plant, and equipment, net		198,241		185,339
Goodwill and intangible assets, net		43,450		45,140
Other assets		11,752		8,663
Deferred tax assets		28,257		27,745
Total assets	$	451,646	$	454,665
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	67,092	$	57,555
Income taxes payable		1,607		3,325
Current portion of long-term debt and capital leases		18,891		6,312
Total current liabilities		87,590		67,192
Long-term reserve for income tax liabilities		879		879
Long-term debt and capital leases, net of current portion		33,695		40,844
Deferred tax liabilities		1,325		1,361
Other long-term liabilities		7,631		7,060
Total liabilities		131,120		117,336
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; 50,661,676 and 46,416,789 shares issued and outstanding as of June 30, 2018 and 50,039,212 and 46,623,581 shares issued and outstanding as of December 31, 2017, respectively		5		5
Additional paid-in capital		322,357		313,891
Retained earnings		66,780		76,235
Accumulated other comprehensive loss		(3,166)		(2,100)
Treasury stock		(65,450)		(50,702)
Total stockholders’ equity		320,526		337,329
Total liabilities and stockholders’ equity	$	451,646	$	454,665

See Accompanying Notes to Condensed Consolidated Financial Statements.

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AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share data)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net revenues	$	71,040	$	65,187	$	129,433	$	121,857
Cost of revenues		44,884		38,440		86,216		72,282
Gross profit		26,156		26,747		43,217		49,575
Operating (income) expenses:
Selling, distribution, and marketing		1,876		1,596		3,597		3,075
General and administrative		11,669		12,234		22,667		23,572
Research and development		15,468		10,732		29,728		21,982
Gain on sale of intangible assets		—		—		—		(2,643)
Total operating expenses		29,013		24,562		55,992		45,986
Income (loss) from operations		(2,857)		2,185		(12,775)		3,589
Non-operating income (expenses):
Interest income		106		87		230		178
Interest expense		(100)		(237)		(118)		(428)
Other income (expenses), net		(1,265)		1,138		(483)		1,338
Total non-operating income (expenses), net		(1,259)		988		(371)		1,088
Income (loss) before income taxes		(4,116)		3,173		(13,146)		4,677
Income tax expense (benefit)		(1,326)		1,201		(3,110)		1,812
Net income (loss)	$	(2,790)	$	1,972	$	(10,036)	$	2,865
Net income (loss) per share:
Basic	$	(0.06)	$	0.04	$	(0.22)	$	0.06
Diluted	$	(0.06)	$	0.04	$	(0.22)	$	0.06
Weighted-average shares used to compute net income (loss) per share:
Basic		46,557		46,025		46,535		46,047
Diluted		46,557		47,866		46,535		47,962

See Accompanying Notes to Condensed Consolidated Financial Statements.

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AMPHASTAR PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; in thousands)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net income (loss)	$	(2,790)	$	1,972	$	(10,036)	$	2,865
Other comprehensive income (loss), net of income taxes
Foreign currency translation adjustment		(2,256)		1,010		(1,066)		1,476
Total other comprehensive income (loss)		(2,256)		1,010		(1,066)		1,476
Total comprehensive income (loss)	$	(5,046)	$	2,982	$	(11,102)	$	4,341

See Accompanying Notes to Condensed Consolidated Financial Statements.

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AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)

	Six Months Ended
	June 30,
	2018		2017
Cash Flows From Operating Activities:
Net income (loss)	$	(10,036)	$	2,865
Reconciliation to net cash provided by operating activities:
Loss (gain) on disposal and impairment of long-lived assets		743		(2,561)
Depreciation of property, plant, and equipment		6,570		6,235
Amortization of product rights, trademarks, and patents		1,451		1,426
Share-based compensation expense		8,862		8,749
Changes in operating assets and liabilities:
Accounts receivable, net		(5,221)		2,820
Inventories		1,625		6,965
Prepaid expenses and other assets		1,715		(1,106)
Income tax refund, deposits, and payable		(3,224)		(2,758)
Accounts payable and accrued liabilities		10,408		4,337
Net cash provided by operating activities		12,893		26,972
Cash Flows From Investing Activities:
Purchases and construction of property, plant, and equipment		(24,591)		(13,568)
Sale of intangible assets		4,400		2,000
Purchase of short-term investments		(204)		(1,261)
Maturity of short-term investments		—		1,061
Changes in short-term investments		—		(900)
Payment of deposits and other assets		(114)		(1,123)
Net cash used in investing activities		(20,509)		(13,791)
Cash Flows From Financing Activities:
Proceeds from equity plans, net of withholding tax payments		(294)		7,278
Purchase of treasury stock		(14,851)		(17,181)
Proceeds from borrowing under lines of credit		261		—
Proceeds from issuance of long-term debt		8,000		11,118
Principal payments on long-term debt		(2,834)		(2,618)
Net cash used in financing activities		(9,718)		(1,403)
Effect of exchange rate changes on cash		(190)		277
Net increase (decrease) in cash, cash equivalents, and restricted cash		(17,524)		12,055
Cash, cash equivalents, and restricted cash at beginning of period		67,459		72,354
Cash, cash equivalents, and restricted cash at end of period	$	49,935	$	84,409
Noncash Investing and Financing Activities:
Equipment acquired under capital leases	$	14	$	—
Supplemental Disclosures of Cash Flow Information:
Interest paid, net of capitalized interest	$	1,078	$	792
Income taxes paid	$	149	$	4,569

See Accompanying Notes to Condensed Consolidated Financial Statements.

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.  General

Amphastar Pharmaceuticals, Inc., a California corporation, was incorporated in February 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 if they are approved and 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, 2017, 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, 2017. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles, or GAAP, have been condensed or omitted from the accompanying condensed consolidated financial statements. The accompanying year-end condensed consolidated balance sheet was derived from the audited financial statements. The accompanying interim financial statements are unaudited, but reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the Company’s consolidated financial position, results of operations, comprehensive income (loss) and cash flows for the periods presented. Unless otherwise noted, all such adjustments are of a normal, recurring nature. The Company’s results of operations, comprehensive income (loss) and cash flows for the interim periods are not necessarily indicative of the results of operations and cash flows that it may achieve in future periods.

Note 2.  Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and are prepared in accordance with the requirements of the SEC for interim reporting. Effective January 1, 2018, the Company retrospectively adopted Accounting Standard Update, or ASU, No. 2016-15 Classification of Certain Cash Receipts and Cash Payments. Certain amounts in the prior year’s condensed consolidated statement of cash flows have been reclassified to conform to the current quarter presentation. This reclassification has no impact on net income or cash flows. All significant 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 (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows of the Company.

The Company’s subsidiaries include: (1) International Medication Systems, Limited, or IMS, (2) Armstrong Pharmaceuticals, Inc., or Armstrong, (3) Amphastar Nanjing Pharmaceuticals Inc., or ANP, (4) Nanjing Letop Fine Chemistry Co., Ltd., or Letop, (5) Nanjing Hanxin Medical Technology Co., Ltd, or Hanxin, (6) Nanjing Baixin Trading Co. Ltd., or Baixin, (7) Amphastar France Pharmaceuticals, S.A.S., or AFP, (8) Amphastar UK Ltd., or AUK, and (9) International Medication Systems (UK) Limited, or IMS UK.

In July 2018, ANP completed a private placement of its equity for aggregate gross proceeds of approximately $57.2 million. The Company has retained approximately 58% of the equity interest of ANP immediately after the private placement and continues to consolidate the financial results of ANP with the Company’s results of operations.  (See Note 18 for additional information)

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Foreign Currency

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

The Company’s French subsidiary, AFP, maintains its book of record in Euros. Its other Chinese subsidiaries maintain their books of record in Chinese Yuan. Its U.K. subsidiary, IMS UK, maintains its book of record in Great Britain Pounds. These local currencies have been determined to be the subsidiaries’ respective functional currencies. These books of record are translated into USD using average exchange rates during the period. Assets and liabilities are translated at the rate of exchange prevailing on the balance sheet date. Equity is translated at the prevailing rate of exchange at the date of the equity transactions. Translation adjustments are reflected in stockholders’ equity and are included as a component of other accumulated comprehensive income (loss). The unrealized gains or losses of intercompany foreign currency transactions that are of a long-term investment nature are reported in other accumulated comprehensive income (loss). The unrealized gains and losses of intercompany foreign currency transactions that are of a long-term investment nature for the three and six months ended June 30, 2018 were $1.7 million loss and $0.8 million loss, respectively, and for the three and six months ended June 30, 2017 were $2.2 million gain and $2.7 million gain, respectively.

The Company does not undertake hedging transactions to cover its foreign currency exposure.

Comprehensive Income (loss)

For the three and six months ended June 30, 2018 and 2017, the Company included its foreign currency translation gain or loss as part of its comprehensive income (loss).

Restricted Cash and Short-term Investments

Restricted cash and short-term investments are collateral required for the Company to effect a standby letter of credit and to qualify for workers’ compensation self-insurance and are available to meet the Company’s workers’ compensation obligations on a current basis, as needed. As of June 30, 2018 and December 31, 2017, restricted cash and short-term investments include $1.9 million in cash and $2.3 million in certificates of deposit, respectively. The certificates of deposit have original maturities greater than three months and are classified as short-term investments.

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

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 fixed interest rate swap contracts to exchange the variable interest rates for fixed interest rates without the exchange of the underlying notional debt amounts. Such interest rate swap contracts are recorded at their fair values.

Deferred Income Taxes

The Company utilizes the liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statements and the tax basis of assets and liabilities using enacted tax rates. A valuation allowance is recorded when it is more likely than not that the deferred tax assets will not be realized. At June 30, 2018, the Company had not completed its accounting for the tax effects of the enactment of the Tax Cuts and Jobs Act of 2017, or the Tax Act.

Business Combinations

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

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

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board, or FASB, issued ASU No. 2016-02, Leases, that is aimed at making leasing activities more transparent and comparable, and which requires substantially all leases be recognized by lessees on their balance sheets as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. The ASU and the related clarifications subsequently issued by the FASB will become effective for the Company’s interim and annual reporting periods during the year ending December 31, 2019, and all annual and interim reporting periods thereafter. Early adoption is permitted. The Company is required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements for the reporting periods in which the guidance is adopted. While the Company continues to evaluate the provisions of ASC 842 to determine how it will be affected, the primary effect of adopting the new standard will be to record right-to-use assets and obligations for current operating leases on its consolidated financial statements. Note 16 provides details on the Company’s current operating lease arrangements. The adoption of ASC 842 is not expected to have a material impact on the Company’s results of operations or cash flows.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses, which is aimed at providing financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit. The standard update changes the impairment model for financial assets measured at amortized cost, requiring presentation at the net amount expected to be collected. The measurement of expected credit losses requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Available-for-sale debt securities with unrealized losses will be recorded through an allowance for credit losses. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. Early adoption is permitted for interim or annual periods after December 31, 2019. The Company will be required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company does not believe the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

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

In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends the hedge accounting model in ASC 815 to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. The amendments also simplify the application of hedge accounting in certain situations. The new guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2019. Early adoption is permitted. The Company does not believe that the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows entities to reclassify from accumulated other comprehensive income to retained earnings stranded tax effects resulting from the Tax Act. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2019. Early adoption is permitted. The Company does not believe that the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees. The Company will early-adopt the guidance on July 1, 2018. The adoption will not have a material impact on its consolidated financial statements and related disclosures.

Note 3.  Revenue Recognition

In 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, or ASC 606, using the modified retrospective transition method. The adoption of ASC 606 did not have a material impact on the Company’s revenue recognition or on the condensed consolidated financial statements and related disclosures. Subsequent to the adoption of ASC 606 revenue is recognized at the time that the Company’s customers obtain control of the promised goods. 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 results for the reporting period beginning after January 1, 2018, are presented in accordance with the new standard, although comparative information continues to be reported under the accounting standards and policies in effect for those periods. For the accounting policy related to

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

revenue recognition for the years ended prior to and on December 31, 2017, see Note 4, Revenue Recognition, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2017.

The Company only records revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved, by estimating and recording reductions to revenue for discounts, product returns, and pricing adjustments, such as wholesaler chargebacks and retailer rebates, in the same period that the related revenue is recorded.

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 in net revenues. The following table is an analysis of the chargeback and rebate provision:

	Six Months Ended
	June 30,
	2018		2017
	(in thousands)
Beginning balance	$	18,470	$	39,709
Provision for chargebacks and rebates		55,372		86,935
Credits and payments issued to third parties		(55,999)		(116,429)
Ending balance	$	17,843	$	10,215

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 wholesaler’s 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 30 days to 60 dates 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 June 30, 2018 and December 31, 2017, $6.4 million and $6.8 million were included in accounts receivable, net, on the condensed consolidated balance sheets, respectively. The remaining provision of $11.4 million and $11.7 million were included in accounts payable and accrued liabilities, respectively.

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

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.As of June 30, 2018 and December 31, 2017, cumulative sales of approximately $0.7 million and $1.2 million, respectively, for one of the Company’s products were not recognized in revenues, due to insufficient information available to determine that a significant reversal of such amount will not occur when the uncertainty associated with the return refund is subsequently resolved.

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

	Six Months Ended
	June 30,
	2018		2017
	(in thousands)
Beginning balance	$	6,522	$	3,143
Provision for product returns		917		2,979
Credits issued to third parties		(865)		(966)
Ending balance	$	6,574	$	5,156

Of the provision of product returns as of June 30, 2018 and December 31, 2017, $4.6 million and $4.1 million were included in accounts payable and accrued liabilities on the condensed consolidated balance sheets, respectively. The remaining provision of $1.9 million and $2.4 million were included in other long-term liabilities, respectively. For the six months ended June 30, 2018 and 2017,  the Company’s aggregate product return rate was 1.3% and 1.2% of qualified sales, respectively.

Note 4.  Income (loss) per Share

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

As the Company reported a net loss for the three and six months ended June 30, 2018, the diluted net loss per share, as reported, equals the basic net loss per share since the effect of the assumed exercise of stock options, vesting of non-vested RSUs, and issuance of common shares under the Company’s ESPP are anti-dilutive. Total stock options, non-vested RSUs, and shares issuable under the Company’s ESPP excluded from the three and six months ended June 30, 2018 net loss per share were 11,649,241 stock options; 1,232,237 non-vested RSUs, and 60,854 shares issuable under the ESPP.

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

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands, except per share data)
Basic and dilutive numerator:
Net income (loss)	$	(2,790)	$	1,972	$	(10,036)	$	2,865
Denominator:
Weighted-average shares outstanding — basic		46,557		46,025		46,535		46,047
Net effect of dilutive securities:
Incremental shares from equity awards		—		1,841		—		1,915
Weighted-average shares outstanding — diluted		46,557		47,866		46,535		47,962
Net income (loss) per share — basic	$	(0.06)	$	0.04	$	(0.22)	$	0.06
Net income (loss) per share — diluted	$	(0.06)	$	0.04	$	(0.22)	$	0.06

Note 5.  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, naloxone, phytonadione, lidocaine, medroxyprogesterone acetate, as well as various other critical and non-critical care drugs. The API segment manufactures and distributes recombinant human insulin API and porcine insulin API for external customers and internal product development.

-11-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Selected financial information by reporting segment is presented below:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands)
Net revenues:
Finished pharmaceutical products	$	63,241	$	63,765	$	116,358	$	119,699
API		7,799		1,422		13,075		2,158
Total net revenues		71,040		65,187		129,433		121,857
Gross profit:
Finished pharmaceutical products		27,741		28,866		47,466		53,176
API		(1,585)		(2,119)		(4,249)		(3,601)
Total gross profit		26,156		26,747		43,217		49,575
Operating expenses		29,013		24,562		55,992		45,986
Income (loss) from operations		(2,857)		2,185		(12,775)		3,589
Non-operating income		(1,259)		988		(371)		1,088
Income (loss) before income taxes	$	(4,116)	$	3,173	$	(13,146)	$	4,677

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.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands)
Finished pharmaceutical products net revenues:
Naloxone	$	11,133	$	10,261	$	20,060	$	21,200
Phytonadione		10,806		10,003		19,987		17,890
Lidocaine		10,010		9,334		19,792		17,622
Enoxaparin		8,715		8,288		15,722		18,698
Medroxyprogesterone		6,365		—		9,071		—
Epinephrine		3,687		10,648		6,910		20,222
Other finished pharmaceutical products		12,525		15,231		24,816		24,067
Total finished pharmaceutical products net revenues	$	63,241	$	63,765	$	116,358	$	119,699

Discontinuation of epinephrine injection, USP vial product

In February 2017, the U.S. Food and Drug Administration, or FDA, requested the Company to discontinue the manufacturing and distribution of its epinephrine injection, USP vial product, which had been marketed under the “grandfather” exception to the FDA’s “Prescription Drug Wrap-Up” program. The Company discontinued selling this product in the second quarter of 2017. For the year ended December 31, 2017, the Company recognized $17.8 million in net revenues for the sale of this product.

-12-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

	Net Revenue								Long-Lived Assets
	Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,		December 31,
	2018		2017		2018		2017		2018		2017
	(in thousands)
United States	$	68,560	$	63,799	$	121,664	$	119,729	$	113,554	$	110,235
China		—		—		—		—		47,068		41,078
France		2,480		1,388		7,769		2,128		37,619		34,026
United Kingdom		—		—		—		—		—		—
Total	$	71,040	$	65,187	$	129,433	$	121,857	$	198,241	$	185,339

Note 6.  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. The Company considers these three 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 three and six months ended June 30, 2018 and 2017, and accounts receivable as of June 30, 2018 and December 31, 2017, respectively. The following table provides accounts receivable and net revenue information for these major customers:

	% of Total Accounts				% of Net
	Receivable				Revenue
					Three Months Ended				Six Months Ended
	June 30,		December 31,		June 30,				June 30,
	2018		2017		2018		2017		2018		2017
McKesson	23	%	22	%	25	%	27	%	26	%	27	%
AmerisourceBergen	25	%	33	%	27	%	29	%	26	%	29	%
Cardinal Health	20	%	12	%	20	%	26	%	21	%	25	%

Supplier Concentrations

The Company depends on suppliers for raw materials, active pharmaceutical ingredients, and other components that are subject to stringent 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.

Note 7.  Fair Value Measurements

The accounting standards of the 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;

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

· 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.

As of June 30, 2018, cash equivalents include money market accounts. Short-term investments consist of certificates of deposit with original expiration dates within 12 months. These certificates of deposit are carried at amortized cost in the Company’s consolidated balance sheet, which approximates their fair value determined based on Level 2 inputs. The restrictions on restricted cash and short-term investments have a negligible effect on the fair value of these financial assets.

The Company does not hold any Level 2 or Level 3 instruments that are measured for fair value on a recurring basis.

Nonfinancial 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 June 30, 2018 and December 31, 2017, there were no significant adjustments to fair value for nonfinancial assets or liabilities.

Note 8.  Goodwill and Intangible Assets

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
Cortrosyn® product rights	12	$	27,134	$	27,134	$	—
IMS (UK) international product rights	10		9,239		1,771		7,468
Patents	12		486		191		295
Land-use rights	39		2,540		453		2,087
Other intangible assets	4		69		55		14
Subtotal	12		39,468		29,604		9,864
Indefinite-lived intangible assets
Trademark	*		29,225		—		29,225
Goodwill - Finished pharmaceutical products	*		4,361		—		4,361
Subtotal	*		33,586		—		33,586
As of June 30, 2018	*	$	73,054	$	29,604	$	43,450

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Weighted-Average			Accumulated
	Life (Years)	Original Cost		Amortization		Net Book Value
	(in thousands)
Definite-lived intangible assets
Cortrosyn® product rights	12	$	27,134	$	26,243	$	891
IMS (UK) international product rights	10		9,440		1,337		8,103
Patents	12		486		170		316
Land-use rights	39		2,540		419		2,121
Other intangible assets	4		69		46		23
Subtotal	12		39,669		28,215		11,454
Indefinite-lived intangible assets
Trademark	*		29,225		—		29,225
Goodwill - Finished pharmaceutical products	*		4,461		—		4,461
Subtotal	*		33,686		—		33,686
As of December 31, 2017	*	$	73,355	$	28,215	$	45,140

*Intangible assets with indefinite lives have an indeterminable average life.

Sale of Fourteen Injectable ANDAs

In March 2016, the Company acquired 14 abbreviated new drug applications, or ANDAs, representing 11 different injectable chemical entities from Hikma Pharmaceuticals PLC, or Hikma. In February 2017, the Company sold the 14 ANDAs to an unrelated party. The consideration included a purchase price of $6.4 million of which the amount of $1.0 million was received upon closing, $1.0 million was received in the second quarter of 2017 and the remaining $4.4 million was received in January 2018. In addition to the purchase price, the purchaser agreed to pay the Company a royalty fee equal to 2% of net sales derived from purchaser’s sales of the products for the period from February 2017 through February 2027. The Company has not recognized any royalty fee revenue. The Company recognized a gain of $2.6 million within operating (income) expenses on its condensed consolidated statement of operations for the six months ended June 30, 2017.

Goodwill

The changes in the carrying amounts of goodwill were as follows:

	June 30,		December 31,
	2018		2017
	(in thousands)
Beginning balance	$	4,461	$	3,976
Currency translation		(100)		485
Ending balance	$	4,361	$	4,461

Primatene® Trademark

In January 2009, the Company acquired the exclusive rights to the trademark, domain name, website and domestic marketing, distribution and selling rights related to Primatene® Mist, an over-the-counter bronchodilator product, which are recorded at the allocated fair value of $29.2 million, its carrying value as of June 30, 2018.

The trademark was determined to have an indefinite life. In determining its indefinite life, the Company considered the following: the expected use of the intangible; the longevity of the brand; the legal, regulatory and contractual provisions that affect their maximum useful life; the Company’s ability to renew or extend the asset’s legal or contractual life without substantial costs; effects of the regulatory environment; expected changes in distribution channels; maintenance

-15-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

expenditures required to obtain the expected future cash flows from the asset; and considerations for obsolescence, demand, competition and other economic factors.

As a result of environmental concerns about Chlorofluorocarbons, or CFCs, the FDA issued a final ruling on January 16, 2009 that required the CFC formulation of its Primatene® Mist product to be phased out by December 31, 2011. The former formulation of Primatene® Mist contained CFCs as a propellant; however, the Company intends to use the trademark for a future version of Primatene® that utilizes hydrofluoroalkane, or HFA, as a propellant.

In 2013, the Company filed a new drug application, or NDA, for Primatene® Mist and received a Prescription Drug User Fee Act date set for May 2014. In May 2014, the Company received a complete response letter, or CRL, from the FDA, which required additional non-clinical information, label revisions and follow-up studies (label comprehension, behavioral/human factors and actual use) to assess consumers’ ability to use the device correctly to support approval of the product in the over-the-counter setting. The Company submitted a responsive NDA amendment in June 2016 and received a second CRL from the FDA in December 2016, which requires additional packaging and label revisions and follow-up studies to assess consumers’ ability to use the product correctly to support approval in the over-the-counter setting. After several meetings with the FDA in 2017, the Company further revised its packaging and label and plans to perform another human factors study based on such revisions. In November 2017, the Company submitted its proposed protocol to the FDA. In March 2018, the Company received as Advice Letter from the FDA regarding its proposed protocol. Based on that feedback, the Company has conducted an additional human factors study. The Company believes it has received acceptable results from the study, and the Company has resubmitted the NDA. The Company intends to continue to work with the FDA to address their concerns in the CRL and bring Primatene® Mist back to the over-the-counter market. However, there can be no guarantee that any future amendment to the Company’s NDA will result in timely approval of Primatene® Mist or approval at all.

Based on the Company’s filed version of Primatene® Mist, the long history of the Primatene® trademark (marketed since 1963), the Company’s perpetual rights to the trademark, the nature of the CRL received in December 2016, the plan that the HFA version will be marketed under the same trademark if approved by the FDA, and other factors previously considered, the trademark continues to have an indefinite useful life, and an impairment charge is not required based on the Company’s qualitative assessment as of June 30, 2018.

Note 9.  Inventories

Inventories consist of the following:

	June 30,		December 31,
	2018		2017
	(in thousands)
Raw materials and supplies	$	27,640	$	19,973
Work in process		22,298		22,469
Finished goods		11,740		21,167
Total inventories	$	61,678	$	63,609

Charges totaling $1.2 million and $3.1 million were included in the cost of revenues in the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2018, respectively, to adjust the Company’s inventory and related firm inventory purchase commitments to their net realizable value. For the three and six months ended June 30, 2017, charges totaling $4.7 million and $5.1 million were included in the cost of revenues, respectively, to adjust the Company’s inventory and related firm inventory purchase commitments to their net realizable value.

-16-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note  10.  Property, Plant, and Equipment

Property, plant, and equipment consist of the following:

	June 30,		December 31,
	2018		2017
	(in thousands)
Buildings	$	90,844	$	89,124
Leasehold improvements		30,050		29,847
Land		7,654		7,110
Machinery and equipment		136,716		118,056
Furniture, fixtures, and automobiles		17,561		16,385
Construction in progress		55,126		58,145
Total property, plant, and equipment		337,951		318,667
Less accumulated depreciation		(139,710)		(133,328)
Total property, plant, and equipment, net	$	198,241	$	185,339

As of June 30, 2018 and December 31, 2017, the Company had $2.1 million and $2.3 million, respectively, in capitalized manufacturing equipment that is intended to be used specifically for the manufacture of Primatene® Mist. The Company will continue to monitor developments with the FDA as it relates to its Primatene® indefinite lived intangible assets in determining if there is an impairment of these related fixed assets (see Note 8).

-17-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 11.  Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following:

	June 30,		December 31,
	2018		2017
	(in thousands)
Accrued customer fees and rebates	$	15,664	$	15,981
Accrued payroll and related benefits		18,190		15,680
Accrued product returns, current portion		4,627		4,133
Other accrued liabilities		6,948		5,132
Total accrued liabilities		45,429		40,926
Accounts payable		21,663		16,629
Total accounts payable and accrued liabilities	$	67,092	$	57,555

-18-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note  12.  Debt

Debt consists of the following:

	June 30,		December 31,
	2018		2017
	(in thousands)
Loans with East West Bank
Line of credit facility due December 2018	$	—	$	—
Equipment loan due January 2019		898		1,668
Mortgage payable due February 2021		3,535		3,577
Equipment loan due June 2021		3,673		4,286
Equipment line of credit due December 2022		8,000		—
Mortgage payable due October 2026		3,494		3,524
Mortgage payable due June 2027		8,871		8,936
Loans with Cathay Bank
Line of credit facility due May 2020		—		—
Acquisition loan due April 2019		14,053		15,073
Mortgage payable due August 2027		7,712		7,795
Loans with Bank of Nanjing
Working capital loan due June 2019		260		—
Loans with Seine-Normandie Water Agency
French government loan 1 paid March 2018		—		17
French government loan 2 due June 2020		54		85
French government loan 3 due July 2021		238		239
Payment Obligation to Merck		573		599
Equipment under Capital Leases		1,225		1,357
Total debt and capital leases		52,586		47,156
Less current portion of long-term debt and capital leases		18,891		6,312
Long-term debt and capital leases, net of current portion	$	33,695	$	40,844

As of June 30, 2018, the fair value of the loans approximates their carrying amount. The interest rate used in the fair value estimation was determined to be a Level 2 input. For certain loans with East West Bank, the Company has entered into fixed interest rate swap contracts to exchange the variable interest rates for fixed interest rates over the life of certain debt instruments without the exchange of the underlying notional debt amount. The interest rate swap contracts do not qualify for hedge accounting and are recorded at fair value based on Level 2 inputs. These swap contacts have an aggregate fair value of $0.5 million and $0.1 million as of June 30, 2018 and December 31, 2017, respectively.  The change in fair value is recorded in other income (expense) in the Company’s condensed consolidated statement of operations.

-19-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Loans with East West Bank

Equipment Credit Line—Due December 2022

In June 2018, the Company drew down $8.0 million on the equipment credit line from East West Bank, which is due in December 2022. The loan bears a variable interest rate at the Prime Rate as published by The Wall Street Journal. Subsequent to the quarter end, the Company entered into a fixed interest rate swap contract on this facility to exchange the variable interest rate for a fixed interest rate of 5.87% over the life of the facility without the exchange of the underlying notional debt amount. The interest rate swap contract does not qualify for hedge accounting and will be recorded at fair value based on Level 2 inputs. As of June 30, 2018, the Company had $8.0 million outstanding under this facility.

Covenants

At June 30, 2018 and December 31, 2017, the Company was in compliance with its debt covenants, which include a minimum current ratio, minimum debt service coverage, minimum tangible net worth, maximum debt-to-effective-tangible-net-worth ratio, and minimum deposit requirements, computed on a consolidated basis. 

Equipment under Capital Leases

The Company entered into leases for certain equipment under capital leasing arrangements which will expire at various times through 2022. The cost of equipment under capital leases was $1.6 million and $1.6 million at June 30, 2018 and December 31, 2017, respectively.

Note 13.  Income Taxes

The following table sets forth the Company’s income tax provision for the periods indicated:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
	(in thousands)
Income (loss) before taxes	$	(4,116)		$	3,173		$	(13,146)		$	4,677
Income tax expense (benefit)		(1,326)			1,201			(3,110)			1,812
Net income (loss)	$	(2,790)		$	1,972		$	(10,036)		$	2,865
Income tax provision as a percentage of income before income taxes		32.2	%		37.9	%		23.7	%		38.7	%

The decrease in the Company’s effective tax rate for the three and six months ended June 30, 2018 was primarily due to the Tax Act, which was enacted on December 22, 2017. The Tax Act, among other things, reduces the statutory U.S. federal corporate income tax rate from 35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. In March 2018, the FASB issued ASU No. 2018-05 to incorporate Staff Accounting Bulletin, or SAB 118, pursuant to which the Company’s final analysis will be completed over a one-year measurement period ending December 22, 2018, and any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined. During the three and six months ended June 30, 2018, the Company has made no changes to the provisional amounts recorded at December 31, 2017. The Company will continue to refine its calculations as additional analysis and changes to certain amounts and estimates are completed and tax returns are filed. The Company’s estimates may also be affected as it gains a more thorough understanding of the tax law.

During the three months ended June 30, 2018, the Company recognized a discrete tax benefit of $1.3 million for previously unrecognized tax benefits upon a favorable state audit resolution.

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Effective January 1, 2018, the Company adopted ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, pursuant to which the income tax consequences of intra-entity transfer of an asset other than inventory is required to be recognized in the period in which the transfer occurs. The Company adopted the standard on a modified retrospective basis resulting in an increase of deferred tax assets and the beginning balance of retained earnings by $0.5 million, respectively.

Valuation Allowance

In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. Ultimately, the realization of deferred tax assets depends on the existence of future taxable income. Management considers sources of taxable income such as income in prior carryback periods, future reversal of existing deferred taxable temporary differences, tax-planning strategies, and projected future taxable income.

The Company has discontinued recognizing AFP income tax benefits by recording a full valuation allowance until it is determined that it is more likely than not that AFP will generate sufficient taxable income to realize its deferred income tax assets.

Note 14.  Stockholders’ Equity

The changes in stockholders’ equity for the six months ended June 30, 2018, consisted of the following:

	Six Months Ended
	June 30,
	2018
	(in thousands)
Stockholders’ equity as of December 31, 2017	$	337,329
Beginning balance adjustment as a result of the adoption of new accounting standards		582
Net loss		(10,036)
Other comprehensive loss		(1,066)
Net proceeds from equity plans, net of withholding tax payments		(294)
Share-based compensation expense		8,862
Purchase of treasury stock		(14,851)
Stockholders’ equity as of June 30, 2018	$	320,526

Share Buyback Program

Pursuant to the Company’s share buyback program, the Company purchased 430,137 and 837,741 shares of its common stock during the three and six months ended June 30, 2018, for total consideration of $7.2 million and $14.8 million, respectively. The Company purchased 579,388 and 1,112,282 shares of its common stock during the three and six months ended June 30, 2017, for total consideration of $9.0 million and $17.2 million, respectively.

On May 7, 2018, the Company’s Board of Directors authorized an increase of $20.0 million to the Company’s share buyback program, which is expected to continue for an indefinite period of time. The primary goal of the program is to offset dilution created by the Company’s equity compensation programs.

Purchases are made through open market and private block transactions pursuant to Rule 10b5-1 plans, privately negotiated transactions or other means as determined by the Company’s management and in accordance with the

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

requirements of the SEC. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, and other conditions. These repurchased shares are accounted for under the cost method and are included as a component of treasury stock in the Company’s consolidated balance sheets. 

The 2015 Equity Incentive Plan

As of June 30, 2018, the Company reserved an aggregate of 4,659,989 shares of common stock for future issuance under the 2015 Equity Incentive Plan, or the 2015 Plan. In January 2018, an additional 1,165,590 shares were reserved under the 2015 Plan pursuant to the evergreen provision.

Share-Based Award Activity and Balances

The Company accounts for share-based compensation payments in accordance with ASC 718, which requires measurement and recognition of compensation expense at fair value for all share-based payment awards made to employees and directors. Under these standards, the fair value of option awards and the option components of the Employee Stock Purchase Plan awards are estimated at the grant date using the Black-Scholes option-pricing model. The fair value of RSUs is estimated at the grant date using the Company’s common share price. Non-vested stock options held by non-employees are revalued at each balance sheet date. The portion that is ultimately expected to vest is amortized and recognized in compensation expense on a straight-line basis over the requisite service period, generally from the grant date to the vesting date.

The weighted-averages for key assumptions used in determining the fair value of options granted during the three and six months ended June 30, 2018 and 2017, are as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Average volatility	41.7	%	40.2	%	39.9	%	37.0	%
Risk-free interest rate	2.8	%	1.5	%	2.7	%	2.1	%
Weighted-average expected life in years	4.9		3.0		5.7		5.4
Dividend yield rate	—	%	—	%	—	%	—	%

A summary of option activity under all plans for the six months ended June 30, 2018, is presented below:

				Weighted-Average
		Weighted-Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Options	Price		Term (Years)	Value(1)
					(in thousands)
Outstanding as of December 31, 2017	10,898,701	$	14.65
Options granted	1,086,414		20.16
Options exercised	(200,120)		12.55
Options cancelled	(124,129)		13.21
Options expired	(11,625)		31.60
Outstanding as of June 30, 2018	11,649,241	$	15.20	4.80	$	17,152
Exercisable as of June 30, 2018	8,343,518	$	15.09	3.58	$	12,499

⁽¹⁾ The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the estimated fair value of the Company’s common stock for those awards that have an exercise price below the estimated fair value at June 30, 2018.

For the three and six months ended June 30, 2018,  the Company recorded expenses of $1.9 million and $4.3 million, respectively, related to stock options granted to employees under all plans and expenses of $0.2 million and $0.3 million,

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

respectively, related to stock options granted to the Board of Directors under all plans. For the three and six months ended June 30, 2017,  the Company recorded expenses of $2.0 million and $4.0 million, respectively, related to stock options granted to employees under all plans and expenses of $0.2 million and $0.3 million, respectively, related to stock options granted to the Board of Directors under all plans.

Information relating to option grants and exercises is as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands, except per share data)
Weighted-average grant date fair value per option share	$	6.53	$	5.01	$	7.79	$	4.92
Intrinsic value of options exercised		277		3,037		1,338		3,062
Cash received from options exercised		650		8,643		2,511		8,739
Total fair value of the options vested during the year		1,383		1,424		7,790		6,205

A summary of the status of the Company’s non-vested options as of June 30, 2018, and changes during the six months ended June 30, 2018, is presented below:

		Weighted-Average
		Grant Date
	Options	Fair Value
Non-vested as of December 31, 2017	4,310,241	$	4.21
Options granted	1,086,414		7.79
Options vested	(1,966,803)		3.96
Options forfeited	(124,129)		4.82
Non-vested as of June 30, 2018	3,305,723		5.47

As of June 30, 2018, there was $14.5 million of total unrecognized compensation cost, net of forfeitures, related to non-vested stock option based compensation arrangements granted under all plans. The cost is expected to be recognized over a weighted-average period of 2.5 years and will be adjusted for future changes in estimated forfeitures. 

Restricted Stock Units

The Company grants restricted stock units, or RSUs, to certain employees and members of the Board of Directors with a vesting period of up to five years. The grantee receives one share of common stock at a specified future date for each RSU awarded. The RSUs may not be sold or otherwise transferred until certificates of common stock have been issued, recorded, and delivered to the participant. The RSUs do not have any voting or dividend rights prior to the issuance of certificates of the underlying common stock. The share-based expense associated with these grants was based on the Company’s common stock fair value at the time of grant and is amortized over the requisite service period, which generally is the vesting period using the straight-line method. During the three and six months ended June 30, 2018, the Company recorded expenses of $1.9 million and $3.6 million, respectively, related to RSU awards granted to employees under all plans and expenses of $0.2 million and $0.3 million, respectively, related to RSU awards granted to the Board of Directors. During the three and six months ended June 30, 2017, the Company recorded expenses of $1.7 million and $3.7 million, respectively, related to RSU awards granted to employees under all plans and expenses of $0.2 million and $0.3 million, respectively, related to RSU awards granted to the Board of Directors.

As of June 30, 2018, there was $16.0 million of total unrecognized compensation cost, net of forfeitures, related to non-vested RSU-based compensation arrangements granted under all plans. The cost is expected to be recognized over a weighted-average period of 2.6 years and will be adjusted for future changes in estimated forfeitures.

-23-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Information relating to RSU grants and deliveries is as follows:

		Total Fair Market
		Value of RSUs
		Issued
	Total RSUs	as
	Issued	Compensation(1)
		(in thousands)
RSUs outstanding at December 31, 2017	1,392,781
RSUs granted	435,474	$	8,469
RSUs forfeited	(45,431)
RSUs vested(2)	(550,587)
RSUs outstanding at June 30, 2018	1,232,237

⁽¹⁾ The total fair market value is derived from the number of RSUs granted times the current stock price on the date of grant.

⁽²⁾ Of the vested RSUs, 199,868 shares of common stock were surrendered to fulfill tax withholding obligations.

The Company recorded share-based compensation expense under all plans and it is included in the Company’s consolidated statement of operations as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands)
Cost of revenues	$	981	$	897	$	2,141	$	2,028
Operating expenses:
Selling, distribution, and marketing		104		65		211		149
General and administrative		2,743		2,985		5,636		5,768
Research and development		368		351		874		804
Total share-based compensation	$	4,196	$	4,298	$	8,862	$	8,749

Note 15.  Employee Benefits

401(k) Plan

The Company has a defined contribution 401(k) plan, or the Plan, whereby eligible employees voluntarily contribute up to a defined percentage of their annual compensation. The Company matches contributions at a rate of 50% on the first 6% of employee contributions, and pays the administrative costs of the Plan. Total employer contributions for the three and six months ended June 30, 2018 were approximately $0.3 million and $0.6 million, respectively, compared to the prior year expense of $0.2 million and $0.5 million for the three and six months ended June 30, 2017, respectively.

Defined Benefit Pension Plan

In connection with the Merck API Transaction, the Company assumed an obligation associated with a defined-benefit plan for eligible employees of AFP. This plan provides benefits to the employees from the date of retirement and is based on the employee’s length of time employed by the Company. The calculation is based on a statistical calculation combining a number of factors that include the employee’s age, length of service, and AFP employee turnover rate.

The liability under the plan is based on a discount rate of 1.60% as of June 30, 2018 and December 31, 2017, respectively. The liability is included in accrued liabilities in the accompanying consolidated balance sheets. The plan is currently unfunded, and the benefit obligation under the plan was $2.1 million and $2.1 million at June 30, 2018 and December 31, 2017, respectively. The Company recorded an immaterial amount of expense under the plan for the three months ended

-24-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2018, and $0.1 million for the six months ended June 30, 2018. The Company recorded an immaterial amount of expense under the plan for the three months ended June 30, 2017, and $0.1 million for the six months ended June 30, 2017. 

Note 16.  Commitments and Contingencies

Supply Agreement with MannKind Corporation

On July 31, 2014, the Company entered into a supply agreement with MannKind Corporation, or MannKind, or the Supply Agreement, pursuant to which the Company agreed to manufacture for and supply to MannKind certain quantities of recombinant human insulin, or RHI API for use in MannKind’s product Afrezza®. In January 2015, the Company entered into a supply option agreement with MannKind, or the Option Agreement, pursuant to which MannKind has the option to purchase additional RHI API. The Supply Agreement and the Option Agreement were subsequently amended in November 2016. For the year ended December 31, 2017, sales of RHI API to MannKind totaled $3.2 million, which fulfilled the 2017 commitment of RHI API under the amended Supply Agreement. Under the Option Agreement, the Company recognized the cancellation fee for 2018 of $0.9 million in net revenues in its consolidated statement of operations for the year ended December 31, 2017. For the three and six months ended June 30, 2018, sales of RHI API to MannKind totaled $5.3 million. The Company did not have any sales of RHI API to MannKind for the three and six months ended June 30, 2017.

Collaboration Agreements with Medical Device Manufacturers

In August 2014, the Company entered into a collaboration agreement with a medical device manufacturer to develop a drug delivery system to be used by the Company for one of its pipeline products. As of June 30, 2018, the Company has paid an upfront payment of $0.5 million and $1.5 million in milestone payments under this agreement, which were classified as research and development expense as the milestones were met. The Company is obligated to pay up to an additional $0.5 million if certain research and development milestones are met. As of June 30, 2018, no such obligation existed. Pursuant to the collaboration agreement, if the medical device manufacturer is successful in the development of this drug delivery system and the Company’s pipeline products receive appropriate regulatory approval, the Company intends to enter into a commercial supply agreement with such medical device manufacturer for a minimum purchase of 1.0 million units during the first 12 months.

In October 2017, the Company entered into a collaboration agreement with a medical device manufacturer to develop a drug delivery system to be used by the Company for one of its pipeline products for a total of $1.6 million. As of June 30, 2018, the Company has paid and expensed an upfront payment of $0.4 million, and is obligated to pay up to an additional $1.2 million, if certain research and development milestones are met. As of June 30, 2018, no such obligation existed for the milestones. In addition, pursuant to the collaboration agreement, if the medical device manufacturer is successful in the development of this drug delivery system and the Company’s pipeline products receive appropriate regulatory approval, the Company intends to enter into a commercial supply agreement with such medical device manufacturer under which the Company is obligated to pay an additional $1.0 million if certain commercial development milestones are met and to purchase a minimum of 100,000 units per year for three years.

Operating Lease Agreements

The Company leases real and personal property in the normal course of business under various non-cancelable operating leases. The Company, at its option, can renew a substantial portion of its leases, at the market rate, for various renewal periods ranging from one to six years. Rental expense under these leases for the three and six months ended June 30, 2018, was approximately $1.0 million and $2.1 million, respectively, compared to $0.9 million and $1.7 million for the three and six months ended June 30, 2017, respectively. 

-25-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Purchase Commitments

As of June 30, 2018, the Company has entered into commitments to purchase equipment and raw materials for an aggregate amount of approximately $44.1 million. The Company anticipates that most of these commitments with remaining terms in excess of one year will be fulfilled by 2019. In addition, the Company is obligated to pay a supplier certain payments up to $1.5 million based on the sale of one of the Company’s products.

The Company entered into agreements with a Chinese governmental entity to acquire land-use rights to real property in Nanjing, China. Under the terms of these agreements, the Company committed to invest capital in its wholly-owned subsidiary, ANP, and to develop these properties as an API manufacturing facility for the Company’s pipeline products. In conjunction with these agreements, ANP modified its business license on July 3, 2012 to increase its authorized capital. As of December 31, 2016, the Company had completed its investment of total registered capital commitment of $61.0 million to ANP. This investment in ANP resulted in cash being transferred from the U.S. parent company to ANP.

Per these agreements, in January 2010, the Company acquired certain land-use rights with a carrying value of $1.2 million. In addition, the Company purchased additional land-use rights in November 2012 for $1.3 million. The Company committed to spend approximately $15.0 million in land development. The agreements require the construction of fixed assets on the property and specified a timetable for the construction of these fixed assets. The current pace of development of the property is behind the schedules described in the purchase agreements and, per the purchase agreements, potential monetary penalties could result if the development is delayed or not completed in accordance with the guidelines stated in the purchase agreements. The Company is in discussions with the Chinese government regarding the development and believes that the likelihood of incurring any penalty is remote.

Note 17.  Litigation

Enoxaparin Patent Litigation

In September 2011, Momenta Pharmaceuticals, Inc., or Momenta, a Boston‑based pharmaceutical company, and Sandoz Inc., or Sandoz, the generic division of Novartis, initiated litigation against the Company for alleged patent infringement of two patents related to testing methods for batch release of enoxaparin, which the Company refers to as the “’886 patent” and the “’466 patent.” The lawsuit was filed in the United States District Court for the District of Massachusetts, or the Massachusetts District Court. In October 2011, the Massachusetts District Court issued a preliminary injunction barring the Company from selling its generic enoxaparin product and also requiring Momenta and Sandoz to post a $100.1 million bond. The preliminary injunction was stayed by the United States Court of Appeals for the Federal Circuit, or the Federal Circuit, in January 2012, and reversed by the Federal Circuit in August 2012.

In January 2013, the Company moved for summary judgment of non‑infringement of both patents. Momenta and Sandoz withdrew their allegations as to the ’466 patent, and in July 2013, the Massachusetts District Court granted the Company’s motion for summary judgment of non‑infringement of the ’886 patent and denied Momenta and Sandoz’s motion for leave to amend their infringement contentions. On January 24, 2014, the Massachusetts District Court judge entered final judgment in the Company’s favor on both patents. Momenta and Sandoz also filed a motion to collect attorneys’ fees and costs relating to a discovery motion, which the Massachusetts District Court granted. On May 9, 2016, the Massachusetts District Court issued an order imposing fees and costs of approximately $0.4 million in relation to this discovery motion. This amount has been accrued in the general and administrative expense for the quarter ended March 31, 2016.  On January 30, 2014, Momenta and Sandoz filed a notice of appeal to the Federal Circuit appealing the court’s final judgment including summary judgment denying Momenta and Sandoz’s motion for leave to amend their infringement contentions.

Following appeal briefing filed by the parties, the Federal Circuit held oral argument on May 4, 2015. On November 10, 2015, the Federal Circuit panel affirmed-in-part and vacated-in-part the decision of the Massachusetts District Court granting summary judgment of non-infringement as to the Company, and it remanded the case to the Massachusetts

-26-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

District Court for further proceedings consistent with its opinion. The Federal Circuit panel affirmed the Massachusetts District Court’s holding in the Company’s favor that the Company does not infringe under 35 U.S.C. 271(g), and the panel vacated the grant of summary judgment to the extent it was based on the determination that the Company’s activities fall within the 35 U.S.C. 271(e)(1) safe harbor. The Federal Circuit panel also left to the Massachusetts District Court’s discretion whether to reconsider on remand its denial of leave for Momenta and Sandoz to amend their infringement contentions. On January 11, 2016, the Company filed a Petition for Rehearing En Banc with the Federal Circuit. On February 17, 2016, the Federal Circuit denied the Company’s Petition, and the Federal Circuit issued its mandate on February 24, 2016, whereby the case returned to the Massachusetts District Court for further proceedings. 

On March 18, 2016, the parties filed a joint status report with the Massachusetts District Court. On June 21, 2016, the Massachusetts District Court granted Momenta and Sandoz’s Motion for Leave to Amend its Infringement Contentions. In light of Momenta and Sandoz’s Amended Infringement Contentions and recent changes in Supreme Court precedent since the case was stayed in 2012, the Company sought to amend its Non-Infringement and Invalidity Contentions.

On July 18, 2016, the Company submitted its Motion for Leave to Amend Its Non-Infringement and Invalidity Contentions and Momenta and Sandoz responded on July 25, 2016. In light of the new arguments made in their response, the Company further filed a Motion For Leave to Reply in Further Support of Defendants’ Motion for Leave to Amend Non-Infringement and Invalidity Contentions, which was granted. A hearing was held on August 23, 2016, where the Magistrate Judge ordered the Company to file its proposed amended contentions, which it filed on August 31, 2016. On February 4, 2017, the Magistrate Judge issued an order denying the Company leave to amend its contentions. The Company filed objections to this order with the District Court on February 21, 2017. On April 13, 2017, the District Court rejected the determination of the Magistrate Judge with respect to the Company’s amended non-infringement contentions, and allowed the Company to amend its non-infringement contentions. With respect to the Company’s amended invalidity contentions, the District Court accepted the Magistrate Judge’s determination; however, the District Court specifically stated that the Company can argue changes in law at the summary judgment stage or at trial.

In parallel with the Massachusetts District Court proceedings, the Company appealed the Federal Circuit’s decision to vacate the grant of the Company’s summary judgment to the extent it was based on the determination that the Company’s activities are protected under the Safe Harbor. The Company filed a Petition for a Writ of Certiorari with the Supreme Court on May 17, 2016. Momenta and Sandoz initially waived their right to respond to the petition; however, on May 31, 2016, the Supreme Court requested a response from Momenta and Sandoz. The response from Momenta and Sandoz was initially due on June 30, 2016, but they requested an extension. Momenta and Sandoz filed their response on August 1, 2016. On October 3, 2016, the Supreme Court declined the Petition for a Writ of Certiorari.

Fact discovery in the Massachusetts District Court proceedings closed on November 22, 2016, and the parties proceeded with expert discovery and exchanged opening and rebuttal expert reports. Expert discovery closed on March 24, 2017. On April 14, 2017, Plaintiffs filed a Motion for Summary Judgment seeking to dismiss the Company’s equitable defenses. On April 14, 2017, the Company filed Defendants’ Motion for Summary Judgment of Invalidity and Noninfringement. In the Motion, the Company moved for the District Court to grant summary judgment in favor of the Company on the following issues: (1) the ’886 patent is invalid under 35 U.S.C. § 101 as claiming non-patentable subject matter; (2) the ’886 patent is invalid under 35 U.S.C. § 112 because the claims are indefinite; and (3) the Company’s tests do not infringe the claims of the ’886 patent. Oppositions to the motions for summary judgment were filed on May 5, 2017. Replies in support of the motions for summary judgment were filed on May 19, 2017.On June 16, 2017, the District Court issued an order denying the summary judgment motions. The District Court also denied Plaintiffs’ motion for summary judgment dismissing the Company’s defenses of implied waiver and equitable estoppel, and denied Plaintiffs’ alternative request for a separate hearing on the implied waiver and equitable estoppel defenses holding that the defenses would be submitted to the jury for an advisory verdict.

Trial in the Massachusetts District Court on all claims and defenses began on July 10, 2017. On July 21, 2017, the jury returned a unanimous verdict finding that although the Company’s tests infringed the asserted patent, the patent was

-27-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

invalid for lack of enablement and lack of written description and the jury further found that Plaintiffs are entitled to zero ($0) damages. As for the Company’s defenses of implied waiver and equitable estoppel, the jury found that Plaintiffs waived their right to recover for infringement of the asserted patent and that Plaintiffs are estopped from enforcing the asserted patent against the Company. The verdict on these equitable defenses was briefed by the parties and submitted to the Court.In the post-trial briefing, the Company requested the Court to adopt the findings of the jury on the equitable defenses, and to set aside the jury’s finding of infringement. In Plaintiffs’ post-trial briefing, Plaintiffs requested a new trial, and requested the Court to set aside the jury’s finding that the asserted patent was invalid for lack of enablement and lack of written description. In a February 7, 2018 Memorandum and Order and with respect to the equitable defenses, the Court found that Plaintiffs waived their right to enforce the ’866 patent against the Company for its use of one of its test, and are equitably estopped from enforcing the ’866 patent against the Company for its use of that same test. The Court also found that Plaintiffs have not waived their right to enforce the ’866 patent against the Company for its use of a second test, and are not equitable estopped from enforcing the ’866 patent against the Company for its use of that same second test. On February 7, 2018, the Court also denied all other post-trial motions. On March 20, 2018, the Court entered final judgment in this matter reflecting the jury’s verdict and the Court’s February 7, 2018 Memorandum and Order.

On March 23, 2018, the Company filed a motion to enforce liability on the bonds related to the preliminary injunction issued in October 2011, stayed in January 2012, and reversed by the Federal Circuit in August 2012. On March 27, 2018, Plaintiffs filed a notice of appeal with the Federal Circuit. On April 3, 2018, Plaintiffs filed a motion with the District Court to defer decision on the Company’s motion to enforce liability on the bonds pending their appeal. On July 13, 2018, the District Court allowed Momenta’s motion to defer consideration of the Company’s motion to enforce liability on the bonds until the appeal is resolved. The appeal is ongoing.

The Company will continue to vigorously defend the jury’s verdict, including against any potential appeal by the Plaintiffs. The Company intends to continue to pursue its attempt to collect the $100.1 million bond posted by Momenta and Sandoz.

False Claims Act Litigation

In January 2009, the Company filed a qui tam complaint in the U.S. District Court for the Central District of California, or the California District Court, alleging that Aventis Pharma S.A., or Aventis, through its acquisition of a patent through false and misleading statements to the U.S. Patent and Trademark Office, as well as through false and misleading statements to the FDA, overcharged the federal and state governments for its Lovenox® product. If the Company is successful in this litigation, it could be entitled to a portion of any damage award that the government ultimately may recover from Aventis. In October 2011, the California District Court unsealed the Company’s complaint.

On February 28, 2014, Aventis filed a motion for summary judgment on the issue of the adequacy of the Company’s notice letter to the government, and the California District Court denied Aventis’ motion for summary judgment in a final order it issued on May 12, 2014. On June 9, 2014, at Aventis’ request, the California District Court issued an order certifying for appeal its order denying Aventis’ motion for summary judgment. On June 9, 2014, Aventis filed with the United States Court of Appeals for the Ninth Circuit, or the Ninth Circuit, a petition for permission to appeal the California District Court’s denial of Aventis’ motion for summary judgment, and the Company filed an opposition to Aventis’ petition on June 19, 2014. On August 22, 2014, the Ninth Circuit granted Aventis’ petition. The parties filed their respective appeal briefs with the Ninth Circuit. On November 10, 2016, the Ninth Circuit heard oral argument on the appeal.

The California District Court set an evidentiary hearing for July 7, 2014 on the “original source” issue, a key element under the False Claims Act. The evidentiary hearing was conducted as scheduled, from July 7, 2014 through July 10, 2014. On July 13, 2015, the California District Court issued a ruling concluding that the Company is not an original source under the False Claims Act, and entered final judgment dismissing the case for lack of subject matter jurisdiction.

-28-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On July 20, 2015, the Company filed with the Ninth Circuit a notice of appeal of the California District Court’s dismissal of the case, and Aventis filed a notice of cross-appeal on August 5, 2015. On November 12, 2015, Aventis filed a pleading asking that the California District Court impose various monetary penalties and fines against the Company, including disgorgement of enoxaparin revenues and attorneys’ fees expended by Aventis in this action, based on Aventis’s allegations that the Company engaged in sanctionable conduct. On November 23, 2015, the California District Court issued an order setting forth a procedure for sanctions proceedings as to the Company as well as its outside counsel. On December 24, 2015, the Company filed a pleading with the California District Court opposing the imposition of sanctions, and on January 20, 2016, Aventis filed a response pleading further pressing for the imposition of sanctions. On May 4, 2016, the California District Court issued three orders requesting that the Company and its outside counsel file a document showing cause as to why sanctions should not be imposed and to set up a conference call with the partiers and the court to discuss whether any discovery and/or a hearing is necessary. On June 13, 2016, the Company and its outside counsel each filed responses to the court’s order to show cause as to why sanctions should not be imposed. On July 21, 2016, Aventis filed a response contending that the court should impose sanctions. On February 10, 2017, the Court held a show cause hearing regarding the potential imposition of sanctions and took the matter under submission. On September 18, 2017, the District Court issued its decision that no sanctions will be imposed on either the Company or its counsel.

On March 28, 2016, the Company filed its opening brief with the Ninth Circuit Court of Appeals setting forth detailed arguments as to why the False Claims Act litigation should not have been dismissed by the California District Court. On June 20, 2016, Aventis filed its principal brief in the appeal, responding to the Company’s arguments regarding dismissal of the False Claims Act litigation, and setting forth Aventis’s argument that it should be awarded attorneys’ fees and expenses. On September 19, 2016, the Company filed its reply brief to Aventis’s principal brief. On October 3, 2016, Aventis filed its reply brief in support of its cross-appeal of the District Court’s denial of attorneys’ fees. On November 10, 2016, the Ninth Circuit heard oral argument on the appeals.

On May 11, 2017, the Ninth Circuit issued an opinion affirming the California District Court’s dismissal of the action for lack of subject matter jurisdiction; dismissing as moot Aventis’s appeal from the District Court’s denial of its motion for summary judgment on the issue of the adequacy of the Company’s notice letter to the government; reversing the District Court’s denial of Aventis’s motion for attorneys’ fees; and remanding the case to the District Court for resolution of the attorneys’ fees issue. On July 14, 2017, Aventis filed an application with the District Court for entitlement to attorneys’ fees and expenses. The Company intends to continue to vigorously defend against any such imposition of attorneys’ fees or sanctions.

Momenta/Sandoz Antitrust Litigation

On September 17, 2015, the Company initiated a lawsuit by filing a complaint in the California District Court against Momenta and Sandoz, or the Defendants. The Company’s complaint generally asserts that Defendants have engaged in certain types of illegal, monopolistic, and anticompetitive conduct giving rise to various causes of action against them. On December 9, 2015, Defendants filed a motion to dismiss and a motion to transfer the case to the District of Massachusetts. On January 4, 2016, the Company filed oppositions to both motions. On January 26, 2016, the California District Court granted Defendants’ motion to transfer and did not rule on Defendants’ motion to dismiss. Accordingly, the case was transferred to the District of Massachusetts. On February 9, 2016, the Company filed a writ of mandamus with the Ninth Circuit to attempt to appeal the California District Court’s granting of Defendants’ motion to transfer to the District of Massachusetts. The Ninth Circuit denied this petition on May 20, 2016, and as such the case will remain before the District of Massachusetts. On July 27, 2016, the Massachusetts District Court granted Defendants’ motion to dismiss based on antitrust immunity doctrine, without addressing the substantive merits of the claims.

On August 25, 2016, the Company filed with the First Circuit Court of Appeals a notice of appeal of the Massachusetts District Court’s dismissal of the antitrust case. On October 31, 2016, the Company filed its appeal brief with the First Circuit. On December 5, 2016, Defendants filed their response brief with the First Circuit Court of Appeals. On December 19, 2016, the Company filed its rely brief with the First Circuit Court of Appeals, which concluded the briefing on this

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

appeal. On February 9, 2017, the First Circuit Court of Appeals heard oral arguments. On March 6, 2017, the First Circuit Court of Appeals issued its decision, in which it held 3 to 0 that the District Court of Massachusetts erred in dismissing the Company’s antitrust case and sent the case back to the District Court to consider additional arguments.

On April 20, 2017, Defendants filed their supplemental motion to dismiss and the Company filed its opposition on May 4, 2017. On March 19, 2018, the District Court entirely denied the Defendants’ motion to dismiss. On April 19, 2018, the Defendants filed a motion to seek interlocutory appeal of the District Court’s motion to dismiss opinion. The Company filed its opposition to interlocutory appeal on May 1, 2018.

On March 19, 2018, the District Court granted the parties’ joint motion to extend the case schedule and accepted their proposed dates with a few modifications. Under the schedule, fact discovery will close on October 1, 2018. Summary judgment arguments are due on April 26, 2019, oppositions are due on June 14, 2019, and replies are due on July 10, 2019. Trial is scheduled for September 9, 2019.

Epinephrine Injection, 0.1 mg/mL Litigation

On June 28, 2018, Belcher Pharmaceuticals, LLC, or Belcher initiated a lawsuit by filing a complaint against IMS for infringement of U.S. Patent No. 9,283,197 with regard to IMS’s New Drug Application No. 211363, filed under 21 U.S.C. § 355(b)(2) of the Hatch-Waxman Act, for FDA approval to manufacture and sell 0.1 mg/mL epinephrine injections. On July 20, 2018, the Company filed a motion to dismiss Belcher’s complaint for patent infringement under Federal Rule of Civil Procedure 12(b)(6). Belcher’s opposition to the Company’s motion to dismiss is currently due on August 17, 2018.

Other Litigation

The Company is also subject to various other claims and lawsuits from time-to-time arising in the ordinary course of business.

The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In the opinion of management, the ultimate resolution of any such matters is not expected to have a material adverse effect on its financial position, results of operations, or cash flows; however, the results of litigation and claims are inherently unpredictable and the Company’s view of these matters may change in the future. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.

Note 18.  Subsequent Events and Related-Party Transactions

ANP Private Placement

In July 2018, ANP completed a private placement of its equity for aggregate gross proceeds of approximately $57.2 million. In connection with the private placement, all of the executive officers of the Company and Stephen Shohet, Howard Lee, and Richard Koo, directors of the Company, entered into subscription agreements (each, a “Subscription Agreement”) for the indirect investment in ANP. These Subscription Agreements were transacted either through an investment in Amphastar Cayman, a Cayman Islands limited liability company, or Qianqia, a Chinese partnership. The total aggregate gross proceeds from such executive officers and directors were approximately $23.5 million. The Company has retained approximately 58% of the equity interest of ANP immediately after the private placement.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of the consolidated operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the “Condensed Consolidated Financial Statements” and the related notes thereto included in this Quarterly Report on Form 10-Q, or Quarterly Report. This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to our management. Actual results could differ materially from those discussed in or implied by forward-looking statements. These risks, uncertainties, and other factors include, among others, those identified under the “Special Note About Forward-Looking Statements,” above and described in greater detail elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2017, particularly in Item 1A. “Risk Factors.”

Overview

We are a specialty pharmaceutical company that focuses primarily on developing, manufacturing, marketing and selling technically challenging generic and proprietary injectable, inhalation, and intranasal products as well as insulin API products. We currently manufacture and sell over 20 products.

We are currently developing a portfolio of 15 generic abbreviated new drug applications, or ANDAs, three generic biosimilar product candidates and six proprietary product candidates, which are in various stages of development and target a variety of indications.With respect to these product candidates, we have two ANDAs, and two NDAs on file with the FDA.

Our largest products by net revenues currently include medroxyprogesterone acetate, naloxone hydrochloride injection, lidocaine jelly and sterile solution, phytonadione, and enoxaparin sodium injection. We launched neostigmine methysulfate in the fourth quarter of 2017, medroxyprogesterone acetate in the first quarter of 2018. We also launched isoproterenol hydrochloride injection in the third quarter of 2018.

To complement our internal growth and expertise, we have made several strategic acquisitions of companies, products and technologies. These acquisitions collectively have strengthened our core injectable and inhalation product technology infrastructure by providing additional manufacturing, marketing, and research and development capabilities including the ability to manufacture raw materials, APIs, and other components for our products.

Included in these acquisitions are marketing authorizations for 33 products in the UK, Ireland, Australia, and New Zealand, representing 11 different injectable chemical entities, from UCB Pharma GmbH. We are in the process of transferring the manufacturing of these products to our facilities in California, which will require approvals from the UK Medicines and Healthcare products Regulatory Agency before we can relaunch the products.

In July 2018, ANP completed a private placement of its equity to accredited investors for aggregate gross proceeds of approximately $57.2 million.  In connection with the private placement, all of the executive officers of the Company and Stephen Shohet, Howard Lee, and Richard Koo, directors of the Company, entered into subscription agreements for the indirect investment in ANP. The total aggregate gross proceeds from such executive officers and directors were approximately $23.5 million. We have retained approximately 58% of the equity interest of ANP immediately after the private placement. ANP intends to use the net proceeds from the private placement for its business expansion plans.

Business Segments

As of June 30, 2018, our performance is assessed and resources are allocated based on the following two reportable segments: (1) finished pharmaceutical products and (2) API products. The finished pharmaceutical products segment currently manufactures, markets and distributes enoxaparin, naloxone, phytonadione, lidocaine, as well as various other critical and non-critical care drugs. The API segment currently manufactures and distributes recombinant human insulin, or RHI API and porcine insulin API. Information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. Factors used to identify our segments include markets, customers and products.

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For more information regarding our segments, see Note 5 of Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Results of Operations

Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017

Net revenues

	Three Months Ended
	June 30,						Change
	2018			2017			Dollars		%
	(in thousands)
Net revenues
Finished pharmaceutical products	$	63,241		$	63,765		$	(524)	(1)	%
API		7,799			1,422			6,377	448	%
Total net revenues	$	71,040		$	65,187		$	5,853	9	%
Cost of revenues
Finished pharmaceutical products	$	35,500		$	34,899		$	601	2	%
API		9,384			3,541			5,843	165	%
Total cost of revenues	$	44,884		$	38,440		$	6,444	17	%
Gross profit	$	26,156		$	26,747		$	(591)	(2)	%
as % of net revenues		37	%		41	%

The decrease in net revenues of the finished pharmaceutical products for the three months ended June 30, 2018, was primarily due to the following changes:

	Three Months Ended
	June 30,				Change
	2018		2017		Dollars		%
	(in thousands)
Finished pharmaceutical products net revenues
Naloxone	$	11,133	$	10,261	$	872	8	%
Phytonadione		10,806		10,003		803	8	%
Lidocaine		10,010		9,334		676	7	%
Enoxaparin		8,715		8,288		427	5	%
Medroxyprogesterone		6,365		—		6,365	N/A
Epinephrine		3,687		10,648		(6,961)	(65)	%
Other finished pharmaceutical products		12,525		15,231		(2,706)	(18)	%
Total finished pharmaceutical products net revenues	$	63,241	$	63,765	$	(524)	(1)	%

We launched medroxyprogesterone acetate in a vial form in January 2018 and in a pre-filled syringe form in February 2018. These products were both approved by the FDA in November 2017.

The increase in sales of naloxone was primarily driven by higher unit volumes. The increase in sales of phytonadione and lidocaine were driven by a  higher average selling price. The increase in sales of enoxaparin was driven by higher unit volumes, resulting in an increase of approximately $1.2 million, which was partially offset by a  lower average selling price. We anticipate that sales of naloxone and enoxaparin will continue to fluctuate in the future as a result of competition.

Sales of epinephrine decreased primarily as a result of the discontinuation of our epinephrine injection, USP vial product in the second quarter of 2017 in accordance with the FDA’s request. Our epinephrine injection, USP vial product, was marketed under the “grandfather” exception to the FDA’s “Prescription Drug Wrap-Up” program. In the second quarter

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of 2017, we recognized $9.9 million in net revenues for the sale of the discontinued vial product. The remainder of our epinephrine sales was from our pre-filled syringe product, which remains on the market.

Sales of API increased primarily due to the timing of customer purchases and, in particular, MannKind purchases of RHI API. We anticipate that sales of API will continue to fluctuate and will likely decrease due to the inherent uncertainties related to sales to MannKind. In addition, most of our API sales are denominated in Euros, and the fluctuation in the value of the Euro versus the U.S. Dollar has had, and will continue to have, an impact on API sales revenues in the near term.

A significant portion of our customer shipments in any period relate to orders received and shipped in the same period, generally resulting in low product backlog relative to total shipments at any time. We had no significant backlog as of June 30, 2018. Our backlog is generally not a meaningful indicator in any given period of our ability to achieve any particular level of overall revenue or financial performance.

Cost of revenues

Gross margins declined primarily due to the effects of increased production expenses and the discontinuation of our epinephrine injection, USP vial product in the second quarter of 2017. Production expenses increased due to increased labor costs resulting from the implementation of new quality standards and increased hourly rates. These trends were partially offset by sales of higher margin medroxyprogesterone acetate products. In addition, for the three months ended June 30, 2018, a charge of $1.2 million was recorded to adjust certain inventory items and related purchase commitments to their net realizable value, as compared with $4.7 million recorded for the three months ended June 30, 2017.

In June 2018, we received FDA approval for our ANDA supplement for the manufacture of semi-purified heparin at ANP, our subsidiary in China, and the manufacture of heparin sodium at IMS, our subsidiary in South El Monte, California. The cost of heparin, which is the starting material for enoxaparin, has increased and is expected to increase further putting downward pressure on our gross margins. However, we believe that this trend will be offset by sales of our higher-margin products, such as medroxyprogesterone acetate, neostigmine, and isoproterenol that were recently launched.

Selling, distribution and marketing, and general and administrative

	Three Months Ended
	June 30,				Change
	2018		2017		Dollars		%
	(in thousands)
Selling, distribution, and marketing	$	1,876	$	1,596	$	280	18	%
General and administrative	$	11,669	$	12,234	$	(565)	(5)	%

The increase in selling, distribution, and marketing expenses is primarily due to increased freight costs and increased expenses at the ANP business. The decrease in general and administrative expense was primarily due to lower legal expenses compared to the same period in 2017 (see Note 17 to the condensed consolidated financial statements for more information regarding litigation matters).    

We expect that general and administrative expenses will increase on an annual basis due to increased costs associated with ongoing compliance with public company reporting obligations and an increase in legal fees associated with patent challenges.

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Research and development

	Three Months Ended
	June 30,				Change
	2018		2017		Dollars		%
	(in thousands)
Salaries and personnel-related expenses	$	4,294	$	3,490	$	804	23	%
Pre-launch inventory		835		—		835	N/A
Clinical trials		1,218		1,216		2	0	%
FDA fees		235		85		150	176	%
Testing, operating and lab supplies		6,292		4,003		2,289	57	%
Depreciation		1,356		1,111		245	22	%
Other expenses		1,238		827		411	50	%
Total research and development expenses	$	15,468	$	10,732	$	4,736	44	%

Research and development costs consist primarily of costs associated with the research and development of our product candidates. We expense research and development costs as incurred. Pre-launch inventory expense relates to the production of Primatene® Mist ahead of our planned launch later this year.

Testing, operating, and lab supplies increased due to expenditures on materials for our pipeline products, particularly production of APIs for our ANP facility.

We expect that research and development expenses will increase on an annual basis due increased clinical trial costs related to our biosimilar and inhalation product candidates. These expenditures will include costs of APIs developed internally and purchased externally, the cost of purchasing reference listed drugs and the costs of performing the clinical trials.

Provision for income tax expense (benefit)

	Three Months Ended
	June 30,						Change
	2018			2017			Dollars		%
	(in thousands)
Income tax expense (benefit)	$	(1,326)		$	1,201		$	(2,527)	NM
Effective tax rate		32	%		38	%

The decrease in the effective tax rate for the three months ended June 30, 2018, was primarily due to the Tax Act, which was enacted on December 22, 2017. The Tax Act reduces the statutory U.S. federal corporate income tax rate from 35% to 21%. During the three months ended June 30, 2018, we recognized a discrete tax benefit for previously unrecognized tax benefits upon a favorable state audit resolution.

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Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

Net revenues

	Six Months Ended
	June 30,						Change
	2018			2017			Dollars		%
	(in thousands)
Net revenues
Finished pharmaceutical products	$	116,358		$	119,699		$	(3,341)	(3)	%
API		13,075			2,158			10,917	506	%
Total net revenues	$	129,433		$	121,857		$	7,576	6	%
Cost of revenues
Finished pharmaceutical products	$	68,892		$	66,523		$	2,369	4	%
API		17,324			5,759			11,565	201	%
Total cost of revenues	$	86,216		$	72,282		$	13,934	19	%
Gross profit	$	43,217		$	49,575		$	(6,358)	(13)	%
as % of net revenues		33	%		41	%

The decrease in net revenues of the finished pharmaceutical products for the six months ended June 30, 2018, was primarily due to the following changes:

	Six Months Ended
	June 30,				Change
	2018		2017		Dollars		%
	(in thousands)
Finished pharmaceutical products net revenues
Naloxone	$	20,060	$	21,200	$	(1,140)	(5)	%
Phytonadione		19,987		17,890		2,097	12	%
Lidocaine		19,792		17,622		2,170	12	%
Enoxaparin		15,722		18,698		(2,976)	(16)	%
Medroxyprogesterone		9,071		—		9,071	N/A
Epinephrine		6,910		20,222		(13,312)	(66)	%
Other finished pharmaceutical products		24,816		24,067		749	3	%
Total finished pharmaceutical products net revenues	$	116,358	$	119,699	$	(3,341)	(3)	%

We launched medroxyprogesterone acetate in a vial form in January 2018 and in a pre-filled syringe form in February 2018. These products were both approved by the FDA in November 2017.

The decrease in sales of naloxone was primarily driven by lower unit volumes. The increase in sales of phytonadione was driven by a  higher average selling price, which resulted in an increase of approximately $2.9 million, as partially offset by lower unit volumes. Higher average selling price of lidocaine led to an increase in sales of approximately $1.3 million, while higher unit volumes caused the remaining increase in sales. The decrease in sales of enoxaparin was primarily driven by lower average selling price. We anticipate that the sales of naloxone and enoxaparin will continue to fluctuate in the future as a result of competition.  

Sales of epinephrine decreased primarily as a result of the discontinuation of our epinephrine injection, USP vial product in the second quarter of 2017 in accordance with the FDA’s request. Our epinephrine injection, USP vial product, was marketed under the “grandfather” exception to the FDA’s “Prescription Drug Wrap-Up” program. In fiscal 2017, we recognized $17.8 million in net revenues for the sale of the discontinued vial product. The remainder of our epinephrine sales was from our pre-filled syringe product, which remains on the market.

Sales of API increased primarily due to the timing of customer purchases, and in particular, MannKind purchases of RHI API. We anticipate that sales of API will continue to fluctuate and will likely decrease due to the inherent uncertainties related to sales to MannKind. In addition, most of our API sales are denominated in Euros, and the fluctuation in the

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value of the Euro versus the U.S. Dollar has had, and will continue to have, an impact on API sales revenues in the near term.

A significant portion of our customer shipments in any period relate to orders received and shipped in the same period, generally resulting in low product backlog relative to total shipments at any time. We had no significant backlog as of June 30, 2018. Our backlog is generally not a meaningful indicator in any given period of our ability to achieve any particular level of overall revenue or financial performance.

Cost of revenues

Changes in cost of revenues and the resulting gross margins decline were primarily due to increased production expenses and the discontinuation of our epinephrine injection, USP vial product in the second quarter of 2017. Production expenses increased due to increased labor costs resulting from the implementation of new quality standards and increased hourly rates. This trend was partially offset by the sales of higher margin medroxyprogesterone acetate products which were launched in the first quarter of 2018. In addition, for the six months ended June 30, 2018, a charge of $3.1 million was recorded to adjust certain inventory items and related purchase commitments to their net realizable value, as compared with $5.1 million recorded for the six months ended June 30, 2017.

In June 2018, we received FDA’s approval of our ANDA supplement for the manufacture of semi-purified heparin at ANP, our subsidiary in China, and the manufacture of heparin sodium at IMS, our subsidiary in South El Monte, California. The cost of heparin, which is the starting material for enoxaparin, has increased and is expected to increase further putting downward pressure on our gross margins. However, we believe that this trend will be offset by sales of our higher-margin products, such as medroxyprogesterone acetate, neostigmine, and isoproterenol that were recently launched, as well as sodium nitroprusside which we plan to launch.

Selling, distribution and marketing, and general and administrative

	Six Months Ended
	June 30,				Change
	2018		2017		Dollars		%
	(in thousands)
Selling, distribution, and marketing	$	3,597	$	3,075	$	522	17	%
General and administrative	$	22,667	$	23,572	$	(905)	(4)	%

The increase in selling, distribution, and marketing expenses is primarily due to increased freight costs and increased expenses at the ANP business. The decrease in general and administrative expense was primarily due to lower legal expenses compared to the same period in 2017 (see Note 17 to the condensed consolidated financial statements for more information regarding litigation matters). 

Research and development

	Six Months Ended
	June 30,				Change
	2018		2017		Dollars		%
	(in thousands)
Salaries and personnel-related expenses	$	8,379	$	7,470	$	909	12	%
Pre-launch inventory		1,573		711		862	121	%
Clinical trials		2,026		2,051		(25)	(1)	%
FDA fees		1,461		100		1,361	1,361	%
Testing, operating and lab supplies		11,063		7,762		3,301	43	%
Depreciation		2,576		2,185		391	18	%
Other expenses		2,650		1,703		947	56	%
Total research and development expenses	$	29,728	$	21,982	$	7,746	35	%

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Research and development costs consist primarily of costs associated with the research and development of our product candidates. We expense research and development costs as incurred. Pre-launched inventory expenses relates to the production of Primatene® Mist and purchases of APIs for an ANDA candidate ahead of our planned launches later this year.

Testing, operating, and lab supplies increased due to expenditures on materials for our pipeline products, particularly production of APIs for our ANP facility. FDA fees increased due to the NDA and ANDA filing fees for products we currently market or previously marketed under the grandfather exception. 

We have made, and expect to continue to make, substantial investments in research and development to expand our product portfolio and grow our business. These costs will fluctuate significantly from quarter to quarter based on the timing of various clinical trials, the pre-launch costs associated with new products, and FDA filing fees. As we undertake new and challenging research and development projects, we anticipate that the associated costs will increase significantly over the next several quarters and years.

Gain on sale of intangible assets

	Six Months Ended
	June 30,				Change
	2018		2017		Dollars		%
	(in thousands)
Gain on sale of intangible assets	$	—	$	(2,643)	$	2,643	(100)	%

In February 2017, we sold the ANDAs that we acquired in March 2016 and recognized a gain of $2.6 million (see Note 8).

Provision for income tax expense (benefit)

	Six Months Ended
	June 30,						Change
	2018			2017			Dollars		%
	(in thousands)
Income tax expense (benefit)	$	(3,110)		$	1,812		$	(4,922)	NM
Effective tax rate		24	%		39	%

The decrease in the effective tax rate for the six months ended June 30, 2018, was primarily due to the Tax Act, which was enacted on December 22, 2017. The Tax Act reduces the statutory U.S. federal corporate income tax rate from 35% to 21%. During the six months ended June 30, 2018, we recognized a discrete tax benefit for previously unrecognized tax benefits upon a favorable state audit resolution.

Liquidity and Capital Resources

Cash Requirements and Sources

We need capital resources to maintain and expand our business. We expect our cash requirements to increase significantly in the foreseeable future as we sponsor clinical trials for, seek regulatory approvals of, and develop, manufacture and market our current development‑stage product candidates and pursue strategic acquisitions of businesses or assets. Our future capital expenditures include projects to upgrade, expand, and improve our manufacturing facilities in the United States, China, and France. Our cash obligations include the principal and interest payments due on our existing loans and lease payments, as described below and throughout this Quarterly Report on Form 10-Q. As of June 30, 2018, our foreign subsidiaries collectively held $5.9 million in cash and cash equivalents. Cash or cash equivalents held at foreign subsidiaries are not available to fund the parent company’s operations in the United States. We believe that our cash reserves, operating cash flows, and borrowing availability under our credit facilities will be sufficient to fund our operations for at least the next 12 months. We expect additional cash flows to be generated in the

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longer term from future product introductions, although there can be no assurance as to the receipt of regulatory approval for any product candidates that we are developing or the timing of any product introductions, which could be lengthy or ultimately unsuccessful.

In July 2018, ANP completed a private placement of its equity to accredited investors for aggregate gross proceeds of approximately $57.2 million. The proceeds from this private placement will be used to fund the cash requirements of the expansion of our manufacturing facility in China.

We maintain a shelf registration statement on Form S-3 pursuant to which we may, from time to time, sell up to an aggregate of $250 million of our common stock, preferred stock, depositary shares, warrants, units, or debt securities. If we require or elect to seek additional capital through debt or equity financing in the future, we may not be able to raise capital on terms acceptable to us or at all. To the extent we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities will result in dilution to our stockholders. If we are required and unable to raise additional capital when desired, our business, operating results and financial condition may be adversely affected.

Working capital decreased by $38.2 million to $82.4 million at June 30, 2018, compared to $120.6 million at December 31, 2017.

Cash Flows from Operations

The following table summarizes our cash flows used in operating, investing, and financing activities for the six months ended June 30, 2018:

	Six Months Ended
	June 30, 2018
	(in thousands)
Statement of Cash Flow Data:
Net cash provided by (used in)
Operating activities	$	12,893
Investing activities		(20,509)
Financing activities		(9,718)
Effect of exchange rate changes on cash		(190)
Net decrease in cash, cash equivalents, and restricted cash	$	(17,524)

Sources and Use of Cash

Operating Activities

Net cash provided by operating activities was $12.9 million for the six months ended June 30, 2018, which included net loss of $10.0 million. Non-cash items were primarily comprised of $8.0 million of depreciation and amortization, and $8.9 million of share-based compensation expense. Operating assets and liabilities changed primarily due to the timing of sales and purchases activities in the normal course of business and the timing of the related cash receipts and disbursements.

Investing Activities

Net cash used in investing activities was $20.5 million for the six months ended June 30, 2018, primarily as a result of $24.6 million in purchases of property, machinery, and equipment, which included $8.4 million incurred in the United States, $7.0 million in France, and $9.2 million in China. The cash used was partially offset by the $4.4 million receipt of the remaining consideration of the sale of the various ANDAs in February 2017 (see Note 8 to the condensed consolidated financial statements for more information).

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Financing Activities

Net cash used in financing activities was $9.7 million for the six months ended June 30, 2018, primarily as a result of $14.9 million used to purchase treasury stock. Additionally, we made $2.8 million in principal payments on our long-term debt, and drew down $8.0 million on the equipment line of credit from East West Bank, which is due December 2022.

Indebtedness

For more information regarding our outstanding indebtedness, see Note 12 of Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Contractual Obligations

There have been no material changes outside the ordinary course of our business in the contractual obligations disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017, except that our outstanding debt obligations have changed as follows:

	June 30,		December 31,
	2018		2017		Change
	(in thousands)
Short-term debt and current portion of long-term debt	$	18,891	$	6,312	$	12,579
Long-term debt		33,695		40,844		(7,149)
Total debt	$	52,586	$	47,156	$	5,430

As of June 30, 2018, we had $35.0 million in unused borrowing capacity under revolving lines of credit with Cathay Bank and East West Bank.

Critical Accounting Policies

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes to the financial statements. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. A summary of our critical accounting policies is presented in Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2017.

There were no material changes to our critical accounting policies during the three and six months ended June 30, 2018, other than the adoption of ASC 606, Revenue from Contracts with Customers, or ASC 606, using the modified retrospective transition method. The adoption of ASC 606 did not have a material impact on the Company’s revenue recognition or on the condensed consolidated financial statements and related disclosures. The results for the reporting period beginning after January 1, 2018, are presented in accordance with the new standard, although comparative information has not been restated and continues to be reported under the accounting standards and policies in effect for those periods.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 2 of Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

We do not have any relationships or financial partnerships with unconsolidated entities, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts.

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Government Regulation

Our products and facilities are subject to regulation by a number of federal and state governmental agencies. The Food and Drug Administration, or FDA, in particular, maintains oversight of the formulation, manufacture, distribution, packaging, and labeling of all of our products. The Drug Enforcement Administration maintains oversight over our products that are considered controlled substances.

From April 19, 2018 to April 27, 2018, two contract laboratories that provide testing services for heparin sodium raw materials were inspected. The first inspection was for the laboratory providing testing services for our current heparin supplier. There was one Form 483 observation issued. The current heparin supplier has responded to the Form 483 and we expect the response to satisfy the requirements of the FDA and that no further actions will be necessary.  The second inspection was for the laboratory providing testing services of heparin sodium for the pending submission for our facility in Nanjing China. These vendors are related to our filing for the heparin sodium. There were no Form 483 observations issued. The inspections covered compliance with Good Laboratory Practice regarding the analytical testing performed for heparin sodium release. 

From June 26, 2018 to June 29, 2018, our French subsidiary, AFP, had a routine inspection performed by the FDA. The routine inspection covered compliance with cGMPs. There were five Form 483 observations issued. A response was sent to the FDA within the 15 working day requirement which we expect will satisfy the requirements of the FDA and that no further actions will be necessary

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The following discussion provides forward-looking quantitative and qualitative information about our potential exposure to market risk. Market risk represents the potential loss arising from adverse changes in the value of financial instruments. The risk of loss is assessed based on the likelihood of adverse changes in fair values, cash flows or future earnings. We are exposed to market risk for changes in the market values of our investments (Investment Risk), the impact of interest rate changes (Interest Rate Risk), and the impact of foreign currency exchange changes (Foreign Currency Exchange Risk).

Investment Risk

We regularly review the carrying value of our investments and identify and recognize losses, for income statement purposes, when events and circumstances indicate that any declines in the fair values of such investments below our accounting basis are other than temporary. As of June 30, 2018, we did not have any such investments.

As of June 30, 2018, we had $1.1 million deposited in seven banks located in China, $4.6 million deposited in one bank located in France, and $0.1 million deposited in one bank located in the United Kingdom. We also maintained $36.0 million in cash equivalents that include money market accounts, as of June 30, 2018. The remaining amounts of our cash equivalent as of June 30, 2018 are in non-interest bearing accounts.

Interest Rate Risk

Our primary exposure to market risk is interest‑rate‑sensitive investments and credit facilities, which are affected by changes in the general level of U.S. interest rates. Due to the nature of our short-term investments, we believe that we are not subject to any material interest rate risk with respect to our short-term investments.

As of June 30, 2018, we had $52.6 million in long-term debt and capital leases outstanding. Of this amount, $22.3 million had variable interest rates which were not locked-in through fixed interest rate swap contracts. The debt with variable interest rate exposure had a weighted-average interest rate of 5.0% at June 30, 2018. An increase in the index underlying these rates of 1% (100 basis points) would increase our annual interest expense on the debt with variable interest rate exposure by approximately $0.2  million per year.    

Foreign Currency Exchange Risk

Our finished pharmaceutical products are primarily sold in the U.S. domestic market, and have little exposure to foreign currency price fluctuations. However, as a result of our acquisition of the API manufacturing business in Éragny-sur-Epte, France, we are exposed to market risk related to changes in foreign currency exchange rates. Specifically, our insulin sales contracts are frequently denominated in Euros, which are subject to fluctuations relative to the U.S. Dollar, or USD.  

Our Chinese subsidiary, 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 our statement of operations.

Our French subsidiary, AFP, maintains its books of record in Euros. Our U.K. subsidiary, IMS UK, maintains its books of record in Great Britain Pounds. These books are translated to USD at the 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 exchange rate at the date of the equity transactions. Translation adjustments are reflected in stockholders’ equity and are included as a component of other comprehensive income.

We are also exposed to the potential earnings effects from intercompany foreign currency assets and liabilities that arise from normal trade receivables and payables and other intercompany loans.

We do not undertake hedging transactions to cover our foreign currency exposure. As of June 30, 2018, a 10%

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unfavorable change in the exchange rate of the U.S. Dollar strengthening against the foreign currencies to which we have exposure would result in approximately $1.3 million reduction of foreign currency gains, and approximately $4.3 million reduction in other comprehensive income.

As of June 30, 2018, our foreign subsidiaries had cash balances denominated in foreign currencies in the amount of $5.7 million. 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, our principal executive and principal financial officers, respectively, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective (a) to ensure that information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (b) to include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

Inherent Limitations of Internal Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management overriding of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth under the “Legal Proceedings” subheading in Note 17 of Notes to Consolidated Financial Statements in Part I, Item 1, of this Quarterly Report on Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

Except as noted below, there were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission on March 14, 2018. 

Some of our products are marketed without FDA approval and may be subject to enforcement actions by the FDA.

A number of our prescription products are marketed without FDA approval. These products, like many other prescription drugs on the market that FDA has not formally evaluated as being effective, contain active ingredients that were first marketed prior to the enactment of the Federal Food, Drug, and Cosmetic Act, or FFDCA. The FDA has assessed these products in a program known as the “Prescription Drug Wrap-Up” and has stated that these drugs cannot be lawfully marketed unless they comply with certain “grandfather” exceptions to the definition of “new drug” in the FFDCA. These exceptions have been strictly construed by FDA and by the courts, and the FDA has stated that it is unlikely that any of the unapproved prescription drugs on the market, including certain of our drugs, qualify for the exceptions. At any time, the FDA may require that some or all of our unapproved prescription drugs be submitted for approval and may direct us to recall these products and/or cease marketing the products until they are approved. The FDA may also take enforcement actions based on our marketing of these unapproved products, including but not limited to the issuance of an untitled letter or a warning letter, and a judicial action seeking an injunction, product seizure and/or civil or criminal penalties. The enforcement posture could change at any time and our ability to market such drugs could terminate with little or no notice. Moreover, if our competitors seek and obtain approval and market FDA-approved prescription products that compete against our unapproved prescription products, we would be subject to a higher likelihood that FDA may seek to take action against our unapproved products. Such competitors have brought and may bring claims against us alleging unfair competition or related claims.

As a result of our meetings with the FDA in 2009, we decided to discontinue all of our products that were subject to the Prescription Drug Wrap-Up program, with the exception of epinephrine in vial form. These products were all produced at our subsidiary, IMS. During the third quarter of 2010, the FDA requested that we reintroduce several of the withdrawn products to cope with a drug shortage, while we prepared and filed applications for approval of the products. Between August and October, 2010, we reintroduced atropine, calcium chloride, morphine, dextrose, epinephrine prefilled syringes, epinephrine injection, USP vial, and sodium bicarbonate injections.

In February 2017, the FDA requested that we discontinue the manufacturing and distribution of our epinephrine injection, USP vial product, which had been marketed under the “grandfather” exception to the FDA’s Prescription Drug Wrap-Up program. We discontinued selling this product in the second quarter of 2017. For the years ended December 31, 2017, 2016, and 2015, we recognized $17.8 million, $18.6 million, and $7.8 million in net revenues for the sale of this product, respectively.

The FDA granted approval of our ANDAs for Sodium Bicarbonate injection and Calcium Chloride injection in September 2017 and May 2018, respectively.

For the years ended December 31, 2017, 2016, and 2015, we recorded net revenues of $22.0 million, $17.4 million, and $19.8 million, respectively, from our unapproved products. For the six months ended June 30, 2018 and 2017, we recorded net revenues of $14.9 million and $8.5 million, respectively from our unapproved products. Our unapproved products currently on the market include: atropine, morphine, dextrose and epinephrine prefilled syringes. We have filed two ANDAs and one NDA with respect to our remaining unapproved products in order to mitigate all risk associated with the marketing of unapproved drug products. Prior to the approval of our ANDA and NDA submissions, we continue to operate in compliance with the FDA Compliance Policy Guide, CPG Sec. 440.100 Marketed New Drugs Without Approved NDAs and ANDAs.

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Because a portion of our manufacturing takes place in China, a significant disruption in the construction or operation of our manufacturing facility in China, political unrest in China, tariffs or changes in social, political and economic conditions or in laws, regulations and policies governing foreign trade could materially and adversely affect our business, financial condition and results of operations.

We currently manufacture the starting material for Amphadase® and the API for Nitroprusside at our manufacturing facility in China, and we plan to use this facility to manufacture several of the APIs for products in our pipeline. Additionally, we intend to continue to invest in the expansion of this manufacturing facility. Our manufacturing facility and operations in China involve significant risks, including:

· disruptions in the construction of the manufacturing facility;

· interruptions to our operations in China or the inability of our manufacturing facility to produce adequate quantities of raw materials or APIs to meet our needs as a result of natural catastrophic events or other causes beyond our control such as power disruptions;

· product supply disruptions and increased costs as a result of heighten exposure to change in the policies of the Chinese government, political unrest or unstable economic conditions in China;

· the imposition of tariffs or other trade barriers as a result of changes in social, political, and economic conditions or in laws, regulations, and policies governing foreign trade, including the tariffs recently implemented and additional tariffs that have been proposed by the U.S. government on various imports from China and by the Chinese government on certain U.S. goods, the scope and duration of which, if implemented, remain uncertain;

· the nationalization or other expropriation of private enterprises by the Chinese government, which could result in the total loss of our investment in China;

Any of these matters could materially and adversely affect our business and results of operations. These interruptions or failures could impair our ability to operate our business, impede the commercialization of our product candidates or delay the introduction of new products, impact our product quality, or impair our competitive position.

We are exposed to risks related to our international operations and failure to manage these risks may adversely affect our operating results and financial condition.

We have operations both inside and outside the U.S. For example, we have suppliers in Asia and Europe, and we own manufacturing facilities in Nanjing, China, and Éragny-sur-Epte, France. As a result, a significant portion of our operations is conducted by and/or rely on entities outside the markets in which our products are sold, and, accordingly, we import a substantial number of products into such markets. We may, therefore, be denied access to our customers or suppliers or denied the ability to ship products from any of our sites as a result of a closing of the borders of the countries in which we sell our products, or in which our operations are located, due to economic, legislative, political and military conditions in such countries.

International operations are subject to a number of other inherent risks, and our future results could be adversely affected by a number of factors, including:

· requirements or preferences for domestic products or solutions, which could reduce demand for our products;

· differing existing or future regulatory and certification requirements;

· management communication and integration problems resulting from cultural and geographic dispersion;

· greater difficulty in collecting accounts receivable and longer collection periods;

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· difficulties in enforcing contracts;

· difficulties and costs of staffing and managing non-U.S. operations;

· difficulty hiring and retaining appropriate personnel due to intense competition for such resources and resulting wage inflation in the cities where our operations are located;

· different labor regulations, especially in the European Union, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;

· the uncertainty of protection for intellectual property rights in some countries and resulting exposure to misappropriation of intellectual property or information that is proprietary to us, our customers and other third parties;  

· tariffs and trade barriers, export regulations and other regulatory and contractual limitations on our ability to sell our products;

· changes in social, political, and economic conditions or in laws, regulations and policies governing foreign trade, manufacturing, development and investment both domestically as well as in other countries and jurisdictions into which we manufacture or sell our products;

· exposure to liabilities under both U.S. and foreign laws, including export and antitrust regulations, anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, and similar applicable laws and regulations in other jurisdictions, and any trade regulations ensuring fair trade practices;

· uneven electricity supply that can negatively impact manufacturing;

· heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, or irregularities in, financial statements;

· fluctuations in currency exchange rates and regulatory compliance;

· delays, inefficiencies, and other challenges inherent to efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs;

· potentially adverse tax consequences, including multiple and possibly overlapping tax structures; and

· political and economic instability, political unrest and terrorism.

In addition, the expansion of our existing international operations, including our facility expansion in Nanjing, China, and entry into additional international markets, including our acquisition of a manufacturing business in Éragny-sur-Epte, France, have required and will continue to require significant management attention and financial resources. These and other factors could harm our ability to gain future revenues and, consequently, materially impact our business, operations results and financial condition.

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Enhanced trade tariffs, import restrictions, export restrictions, Chinese regulations or other trade barriers may materially harm our business.

We are continuing to expand our international operations as part of our growth strategy. In July 2018, the Trump Administration announced a list of thousands of categories of goods that could face tariffs of 10%.  It is expected that these tariffs will be finalized after a public comment period ending in early September 2018.  If the tariff list remains unaltered, non-U.S. sourced APIs and starting materials used in our products could be subject to a 10% tariff assessed on these goods, raising our cost of goods.  Furthermore, if tariffs, trade restrictions, or trade barriers are placed on products such as ours by foreign governments, especially China, it could raise prices for our products, which may result in the loss of customers and our business, financial condition and results of operations may be harmed.  Additionally, the Trump Administration continues to signal that it may alter trade agreements and terms between China and the United States, including limiting trade with China, and may impose additional tariffs on imports from China.  Therefore, it is possible further tariffs may be imposed that could cover imports of APIs and starting materials used in our products, or our business may be adversely impacted by retaliatory trade measures taken by China or other countries, including restricted access to APIs or starting materials used in our products, causing us to raise prices or make changes to our products, which could materially harm our business, financial condition and results of operations.  Further, the continued threats of tariffs, trade restrictions, and trade barriers could have a generally disruptive impact on the global economy and, therefore, negatively impact our sales.  Given the relatively fluid regulatory environment in China and the United States, there could be additional tax or other regulatory changes in the future. Any such changes could directly and adversely impact our financial results and results of operations.

We could be materially and adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.

The U.S. Foreign Corrupt Practices Act of 1977, as amended and similar applicable laws and regulations in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws, which often carry substantial penalties. We are currently expanding our operation abroad, including expanding our facilities in China, a country which has experienced governmental and private sector corruption to some degree, and in certain circumstances, strict compliance with anti-bribery laws may conflict with certain local customs and practices. Our internal control policies and procedures may not always protect us from acts committed by our affiliates, employees or agents which may violate these laws and regulations. Violations of foreign and U.S. laws and regulations could result in fines and penalties, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business and on our ability to offer our products in one or more countries, and could also materially affect our brand, our international growth efforts, our ability to attract and retain employees, our business, and our operating results. There can be no assurance that our partners, our employees, contractors, or agents will not subject us to potential claims or penalties. Any violations of these laws, or allegations of such violations, could have a material adverse effect on our business, financial position, and results of operations and could cause the market value of our common stock to decline.

Movements in foreign currency exchange rates could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

A portion of our revenues, indebtedness and other liabilities and our costs are denominated in foreign currencies, including the Chinese Yuan and the Euro. We report our financial results in U.S. dollars. Our results of operations and, in some cases, cash flows may in the future be adversely affected by certain movements in exchange rates. From time to time, we may implement currency hedges intended to reduce our exposure to changes in foreign currency exchange rates. However, any such hedging strategies may not be successful, and any of our unhedged foreign exchange exposures will continue to be subject to market fluctuations. These risks could cause a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

The Chinese government may exert substantial influence over the manner in which we conduct our business operations in China.

The Chinese government has exercised, and continues to exercise, substantial control over virtually every sector of the

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Chinese economy through regulation and state ownership. Our ability to conduct our proposed manufacturing operations in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property ownership and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof and could require us to divest ourselves of any interest we then hold in Chinese properties or entities, including our Chinese operating subsidiary, Amphastar Nanjing Pharmaceuticals Co., Ltd., or ANP.

The Chinese legal system can be uncertain and could limit the legal protections available to us.

Unlike common law systems, such as the United States, the Chinese legal system is based on written statutes and decided legal cases have little precedential value. Our Chinese operating subsidiary, ANP, is subject to laws and regulations applicable to foreign investments in China in general and laws and regulations applicable to foreign invested enterprises in particular. ANP is also subject to laws and regulations governing the formation and conduct of domestic Chinese companies. Relevant Chinese laws, regulations and legal requirements may change frequently, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protections under law or contract. However, since Chinese administrative and court authorities have significant discretion in interpreting and implementing statutory and contract terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and our level of legal protection in China compared to other legal systems. Such uncertainties, including the inability to enforce our contracts and intellectual property rights, could materially and adversely affect our business and operations. In addition, confidentiality protections in China may not be as effective as in the U.S. or other countries. Accordingly, future developments in the Chinese legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local requirements by national laws, could limit the legal protections available to us. 

Our financial performance is impacted by the financial performance of our Chinese operating subsidiary, ANP.

Because we consolidate ANP’s financial results in our results of operations, our financial performance is impacted by the financial performance of ANP. ANP’s financial performance may be affected by a number of factors, including, but not limited to:

· ANP’s ability to execute on its expansion plans;

· the commercial success of ANP’s APIs, starting materials and finished pharmaceutical products;

· results of clinical trials of our product candidates or those of ANP’s customers;

· pricing actions by competitors;

· the timing of orders or any cancellation of orders from ANP’s customers;

· manufacturing or supply interruptions;

· actions by regulatory bodies, such as the FDA;

· changes or developments in laws or regulations;

· disputes or other developments relating to patents or other proprietary rights;

· litigation or investigations involving ANP, our industry, or both; and

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· ANP’s ability to control costs, including its operating expenses.

Jack Y. Zhang and Mary Z. Luo, each of whom serves as a director and an executive officer, own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

As of August 2, 2018, Jack Y. Zhang and Mary Z. Luo, each of whom serves as one of our directors and executive officers, and their affiliates beneficially own approximately 27.6% of our outstanding common stock, including shares of common stock subject to options exercisable within 60 days of August 2, 2018. Our directors, executive officers and each of our stockholders who own greater than 5% of our outstanding common stock and their affiliates, in the aggregate, own approximately 31.7% of the outstanding, including shares of our common stock, based on the number of shares outstanding and shares of our common stock subject to options exercisable within 60 days of August 2, 2018. As a result, these stockholders, if acting together, will be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, depriving our stockholders of an opportunity to receive a premium for their common stock as part of a sale of us and might ultimately affect the market price of our common stock.

Jack Y. Zhang and Mary Z. Luo have pledged shares of our common stock to secure certain borrowed funds. The forced sale of these shares pursuant to a margin call or otherwise could cause our stock price to decline and negatively impact our business.

Since September 2015, UBS Bank USA, or UBS USA, has made extensions of credit in the aggregate amount of $7.8 million to Applied Physics & Chemistry Laboratories, Inc., or APCL, which is controlled by Jack Y. Zhang and Mary Z. Luo. The loan is secured by a pledge of 2,000,000 shares of our common stock currently held by APCL. Interest on the loan accrues at market rates. UBS received customary fees and expense reimbursements in connection with these loans.

Since May 2017, UBS Bank Utah, or UBS Utah, has made an extension of credit in the aggregate amount of $7.8 million to APCL. The loan is secured by a pledge of 1,907,898 shares of our common stock currently held by APCL. Interest on the loan accrues at market rates. UBS Utah received customary fees and expense reimbursements in connection with these loans.

In October 2017, East West Bank, or East West, entered into an agreement with Drs. Zhang and Luo whereby East West would loan them up to $5.0 million. The loan is secured by a pledge of 650,000 shares of our common stock held by Dr. Zhang and 550,000 shares of our common stock held by Dr. Luo. Interest on the loan accrues at market rates.

In May 2018, Drs. Zhang and Luo entered into a business loan agreement with Cathay Bank, or Cathay, for the extension of credit in the aggregate amount of $25.0 million. The loan is secured by pledged shares of our common stock currently held by APCL. Interest on the loan accrues at market rates. Cathay received customary fees and expense reimbursements in connection with this loan.

We are not a party to these loans, which are full recourse against APCL and each of Drs. Zhang and Luo, respectively, and are secured by pledges of a portion of the shares of our common stock currently beneficially owned by Drs. Zhang and Luo. 

If the price of our common stock declines, Drs. Zhang and Luo may be forced by these financial institutions to provide additional collateral for the loans or to sell shares of our common stock held by them in order to remain within the margin limitations imposed under the terms of their loans. Furthermore, in the event of a default under the terms of such loans, the pledged shares may be acquired and sold by the lenders. The loans between these banking institutions and Drs. Zhang and Luo prohibit the non-pledged shares currently owned by Drs. Zhang and Luo from being pledged to secure any other loans. These factors may limit Dr. Zhang and Dr. Luo’s ability to either pledge additional shares of our common stock or sell shares of our common stock held by them as a means to avoid or satisfy a margin call with respect to their pledged common stock in the event of a decline in our stock price that is large enough to trigger a margin call. Any sales of our common stock following a margin call that is not satisfied may cause the price of our common stock to decline further.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c)Issuer Purchases of Equity Securities

The table below provides information with respect to repurchases of our common stock:

				Total Number of Shares	Maximum Number of
		Average		Purchased as Part of	Shares that May Yet Be
	Total Number of Shares	Price Paid		Publicly Announced Plans	Purchased Under the Plans
Period	Purchased (1)	per Share		or Programs	or Programs
April 1 – April 30, 2018	80,098	$	18.82	80,098	—
May 1 – May 31, 2018	119,456		16.23	119,456	—
June 1 – June 30, 2018	230,583		16.33	230,583	—

⁽¹⁾ During the second quarter of 2018, we repurchased shares of our common stock as part of the share buyback program authorized by our Board of Directors on August 7, 2017 and May 7, 2018. As of June 30, 2018, $14.3 million remained available under such program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

Exhibit No.	Description
10.1	Subscription Agreement between Amphastar Cayman, LLC and Jason B. Shandell dated June 28, 2018
10.2	Subscription Agreement between Amphastar Cayman, LLC and William J. Peters dated June 28, 2018
10.3	Subscription Agreement between Amphastar Cayman, LLC and Rong Zhou dated June 28, 2018
10.4	Subscription Agreement between Amphastar Cayman, LLC and Yakob Liawatidewi dated June 28, 2018
10.5	Subscription Agreement between Amphastar Cayman, LLC and Stephen B. Shohet dated June 28, 2018
10.6	Subscription Agreement between Amphastar Cayman, LLC and Chieh-Lin J. Lee dated June 28, 2018
10.7	Subscription Agreement between Amphastar Cayman, LLC and Yu-Chieh W. Lee dated June 28, 2018
10.8	Subscription Agreement between Amphastar Cayman, LLC and KYW Investment partnership dated June 28, 2018
10.9	Partnership Agreement by and between Zhang Chongqing, Bill Zhang and Applied Physics & Chemistry Laboratories, Inc. dated July 27, 2018
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1#	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2#	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document

#The information in Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act (including this Report), unless the Registrant specifically incorporates the foregoing information into those documents by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AMPHASTAR PHARMACEUTICALS, INC. (Registrant)
By:	/s/ JACK Y. ZHANG
	Jack Y. Zhang
	Chief Executive Officer (Principal Executive Officer)

Date: August 9, 2018

	AMPHASTAR PHARMACEUTICALS, INC. (Registrant)
By:	/s/ WILLIAM J. PETERS
	William J. Peters
	Chief Financial Officer (Principal Financial and Accounting Officer)

Date: August 9, 2018

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EX-10.1

Exhibit 10.1

SUBSCRIPTION MATERIALS

AMPHASTAR CAYMAN

a Cayman Islands limited liability company

These subscription materials (the “Subscription Materials”) set out representations, warranties and undertakings required to be made in connection with an investment in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”).  Any investment in the Company may be approved or disapproved in the reasonable discretion of Jason Shandell and William Peters, as the initial managers of the Company (the “Managers”).

To complete these Subscription Materials, please complete the steps as follows:

1. Investor Undertakings. Carefully review the “Investor Undertakings” provided as Exhibit A.

2. Investor Status. Mark where appropriate to confirm status as an “Accredited Investor” on Exhibit B.

3. Tax Form. Complete and return an IRS Form W-9, available at:https://www.irs.gov/pub/irs-pdf/fw9.pdf

4. Complete, Sign and Return.  Complete all “Investor” information in these Subscription Materials, sign the signature page hereto and return, completed and signed, to the Company.

SUBSCRIPTION MATERIALS

The undersigned investor (the “Investor”) subscribes for and agrees to purchase interests designated as units (each, a “Unit” and collectively, the “Units”) in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”), with one or more capital contributions as set forth below. The Investor agrees to be bound by all the terms and provisions of these Subscription Materials and the Amended and Restated Limited Liability Company Agreement of the Company (as amended and/or restated from time to time, the “Company Agreement”) in the final form provided to the Investor. Capitalized terms not defined herein are used as defined in the Company Agreement.

The Investor further confirms that he has carefully read and completed the Investor Undertakings at Exhibit A hereto and the Investor Status confirmation at Exhibit B hereto, each of which comprise part of these Subscription Materials, and hereby expressly makes each representation, warranty, covenant and other undertaking set forth therein.

Investor Information

Full Legal Name of Investor
For Entities	For Natural Persons
	Jason B. Shandell
Type of Entity:	First Name, Middle Initial, Last Name
For Entities	For Natural Persons
Date of Organization:	Date of Birth:
State of Organization:
Mailing Address	Telephone Number:
Address – Line 1:
Address – Line 2:	E-Mail Address:
City and State:
Postal Code:
Social Security Number or Tax Identification Number:

If investment is accepted, distributions made to Investor may be wired to:

Bank Name:

ABA Routing Number:

Bank Address:

Account Name:

Account Number:

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned Investor has executed and delivered these Subscription Materials and agrees to be bound by these Subscription Materials and the Company Agreement.

Capital Contribution		For Natural Persons:
		/s/Jason Shandell
		Name:	Jason Shandell
US$	102,000
Date:	June 28, 2018	For Entities:
		By:
		Name:
		Title:

ACCEPTANCE OF SUBSCRIPTION

(to be filled out only by the Managers of the Company)

The Managers hereby accept the above application for subscription for Units on behalf of the Company.

Name of Investor:	Jason Shandell
Amount of Capital Contribution Accepted: US$	102,000

Managers:
/s/Jason Shandell
Jason Shandell
/s/William Peters
William Peters
	Date:	June 28, 2018
	Accepted for	June 28, 2018
	Admission as of:

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Exhibit A

Investor Undertakings

Pursuant to its signature on the foregoing Subscription Materials, the Investor represents, warrants and agrees as follows:

1.          General.

(a)         The Investor has been furnished and has carefully read in its entirety the Company Agreement.  Without limiting the foregoing, the Investor understands that investment in the Company is subject to various risks and uncertainties, which may lead to the complete loss of any investment the Investor makes in the Company.

(b)         The Investor has no contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or pledge to such person or entity or to anyone else any of the Units that the Investor hereby subscribes to purchase, or any part thereof, and the Investor has no present plans to enter into any such contract, undertaking, agreement or arrangement. The Investor will not transfer or deliver any interest in the Company other than pursuant to the terms and restrictions set forth in the Company Agreement.

(c)         The Investor understands that the Units have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), the securities laws of any state or the securities laws of any other jurisdiction, nor is any such registration contemplated. The Investor will not assign, transfer, offer, sell, pledge, hypothecate or otherwise dispose of all or any part of its Units (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of all or any part of its Units), or otherwise seek to withdraw from the Company, except in accordance with:  (i) the registration provisions of the 1933 Act or an exemption from such registration provisions, (ii) the securities and similar laws of each applicable jurisdiction, and (iii) the terms of the Company Agreement. The Investor is able to bear the risks of holding the Units as an illiquid investment for an indefinite period of time and can afford to suffer a loss of its entire investment in the Units.

(d)         Other than pursuant to the Company Agreement, the Investor is not relying, and will not rely, upon any information, representation or warranty by the Company, the Managers, or any Affiliate of the foregoing or any agent of them, written or otherwise, in determining to invest in the Company. The Investor has consulted, to the extent deemed appropriate by the Investor, with the Investor’s own advisers as to the financial, tax, regulatory, legal, accounting and related matters concerning an investment in Units and on that basis understands such matters and related consequences of an investment in the Units, and believes that an investment in the Units is suitable and appropriate for the Investor.

(e)         If the Investor is not an individual, (i) the Investor is duly organized, formed or incorporated, as the case may be, and validly existing and in good standing under the laws of the Investor’s jurisdiction of organization, formation, or incorporation, and (ii) the Investor has the power and authority to enter into the Company Agreement, and to perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby.

(f)         These Subscription Materials have been duly executed by the Investor and constitute, and the Company Agreement will constitute, a valid and legally binding agreement of the Investor, enforceable against him in accordance with its terms. The execution and delivery by the Investor of, and compliance by the Investor with, these Subscription Materials and the Company Agreement do not violate, represent a breach of, or constitute a default under, any instruments governing the Investor, any law, regulation or order, or any agreement to which the Investor is a party or by which the Investor is bound.

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2.          Status.  The Investor is an “accredited investor” within the meaning of Regulation D under the 1933 Act. The Investor has indicated the basis for such status, as applicable, on Exhibit B hereto.

3.          No Disqualifying Event.  Neither the Investor nor, in the case of an Investor that is not an individual, any of its directors, officers, general partners, managers, managing members or any person whose interest in, or relationship to, the Investor is deemed to make that person a beneficial owner of the Investor’s voting securities within the meaning of Rule 506(d) of the 1933 Act, is subject to any of the “bad actor” disqualifications described in Rule 506(d)(1) under the 1933 Act (each event, a “Disqualifying Event”), except for Disqualifying Events covered by Rule 506(d)(2)(ii) or (iii) or (d)(3) under the 1933 Act and disclosed reasonably in advance of the Investor’s investment in writing in reasonable detail to the Company.   The Investor will promptly notify the Company in writing to the extent that any person listed above becomes, or is reasonably likely to become, subject to a Disqualifying Event.

4.          Anti-Money Laundering, Source of Funds, etc. Neither the Investor, nor any of its Affiliates or beneficial owners, appears on the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”), nor are they otherwise a party with which the Company is prohibited to deal under the laws of the United States. The Investor further represents that the monies used to fund the investment in the Units are not derived from, invested for the benefit of, or related in any way to, the governments of, or Persons within, (i) any country under a U.S. embargo enforced by OFAC, (ii) that has been designated as a “non-cooperative country or territory” by the Financial Action Task Force on Money Laundering or (iii) that has been designated by the U.S. Secretary of the Treasury as a “primary money laundering concern.”  The Investor further represents and warrants that the Investor: (a) has conducted thorough due diligence with respect to all of its beneficial owners, (b) has established the identities of all beneficial owners and the source of each of the beneficial owner’s funds and (c) will retain evidence of any such identities, any such source of funds and any such due diligence. The Investor further represents that it does not know or have any reason to suspect that (x) the monies used to fund the Investor’s investment in the Units have been or will be derived from or related to any illegal activities, including but not limited to, money laundering activities and (y) the proceeds from the Investor’s investment in the Units will be used to finance any illegal activities. The Investor further agrees and acknowledges that, among other remedial measures, (i) the Managers, on their own behalf and on behalf of the Company, may be obligated to “freeze the account” of such Investor, either by prohibiting additional investments by the Investor and/or segregating assets of the Investor in compliance with governmental regulations and/or if the Managers determine in good faith that such action is in the best interests of the Company, and (ii) the Managers, on their own behalf and on behalf of the Company, may be required to report such action or confidential information relating to the Investor (including, without limitation, disclosing the Investor’s identity) to the regulatory authorities.

5.          Further Advice and Assurances. All information that the Investor has provided to the Company, including the information in these Subscription Materials, is true, correct and complete as of the date hereof, and the Investor agrees to notify the Managers immediately if any representation or warranty contained in these Subscription Materials or any of the information in the exhibits hereto, becomes untrue at any time. The Investor will provide such information and execute and deliver such documents with respect to itself and its direct and indirect beneficial owners as the Managers may require to verify the accuracy of the Investor’s representations and warranties herein, establish the identity of the Investor and any direct and indirect participants in its investment in Units, to the extent applicable, and/or to comply with any law, rule or regulation to which the Company may be subject, including, without limitation, compliance with anti-money laundering laws and regulations.

6.          Power of Attorney.  The Investor, by executing these Subscription Materials, hereby appoints the Managers, with full power of substitution, as the Investor’s true and lawful representative and attorney-in-fact, and agent of the Investor, with full power and authority to make, execute, acknowledge,

5

verify, swear to, deliver, record and file, in the Investor’s name, place and stead, the Company Agreement (thereby causing the Investor to be admitted as a Member in the Company), or any other agreement or instrument that the Managers deem appropriate to admit the Investor as a Member of the Company.  To the maximum extent permitted by law, this power of attorney is coupled with an interest, is irrevocable and will survive, and will not be affected by, the subsequent death, disability, incapacity, incompetency, termination, bankruptcy, insolvency or dissolution of the Investor.  The Investor represents and warrants that the power of attorney granted by the Investor has been executed by it in compliance with the laws of the state or jurisdiction in which these Subscription Materials were executed and to which the Investor is subject.

7.          Governing Law; Consent to Jurisdiction; Venue and Service of Process.  These Subscription Materials shall be construed in accordance with and governed by the laws of the Cayman Islands without regard to its conflicts of law rules, notwithstanding the place where these Subscription Materials may be executed by any party.  Except as otherwise specifically provided in these Subscription Materials, as otherwise required by a non-waivable provision of applicable law, or as otherwise agreed by the Managers, any controversy, claim or other dispute arising out of or relating to these Subscription Materials shall be resolved exclusively through binding arbitration in accordance with the Expedited Procedures and Commercial Arbitration Rules of the American Arbitration Association (www.adr.com), and judgment upon an award arising in connection therewith may be entered in any court of competent jurisdiction.  THE INVESTORS EXPRESSLY ACKNOWLEDGE THAT, UNDER THE PRECEDING SENTENCE, THEY ARE, TO THE FULLEST EXTENT PERMITTED BY LAW AND EXCEPT AS OTHERWISE AGREED TO IN WRITING WITH THE MANAGERS, WAIVING THEIR RIGHT TO A JURY TRIAL WITH REGARD TO ALL MATTERS FOR WHICH ARBITRATION IS REQUIRED.  Any arbitration, mediation, court action, or other adjudicative proceeding arising out of or relating to these Subscription Materials shall be held in Orange County, California or, if such proceeding cannot be lawfully held in such location, as near thereto as applicable law permits.  The arbitrator(s) shall apply the substantive law of the Cayman Islands.  To the maximum extent permitted by applicable law, in any dispute relating to the obligation of a party to make indemnification payments, the burden of proof shall be upon the party seeking to avoid making such payments.  The resolution of any controversy or claim described in this Section 7 shall be conducted in the English language and, to the maximum extent reasonably practicable, in a manner that preserves the confidentiality of Confidential Information and otherwise minimizes disruption to the operations of the Company.

8.          Entire Agreement. These Subscription Materials along with the Company Agreement and any other agreement between the Investor and the Managers and/or the Company constitute the entire agreement between the parties hereto with respect to the subject matter of these Subscription Materials and may be amended only in writing, executed by all parties hereto.

9.          Severability. Each provision of these Subscription Materials shall be considered severable.  If it is determined by a court of competent jurisdiction that any provision of these Subscription Materials is invalid or unenforceable under any applicable law, then that provision shall (i) be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with applicable law; and (ii) not affect the validity or enforceability of any other provisions of these Subscription Materials, and to this extent the provisions of these Subscription Materials shall be severable.

10.        Successors and Assigns. These Subscription Materials (i) shall be binding upon the Investor and the heirs, legal representatives, successors and permitted assigns of the Investor and shall inure to the benefit of the Company and its successors and assigns, (ii) shall survive the acceptance of the Investor as a Member of the Company, (iii) shall, if the Investor consists of more than one person, be the joint and several obligation of each, and (iv) may be executed in counterparts, all of which when taken together, shall be deemed one original.

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11.        Survival. The representations and warranties of the Investor in, and the other provisions of, these Subscription Materials shall survive the execution and delivery of these Subscription Materials and the admission of the Investor to the Company.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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Exhibit B

Investor Status

Accredited Investor. The Investor is an “accredited investor” within the meaning of Rule 501 of Regulation D under the U.S. Securities Act of 1933, as amended, and has circled the letter(s) below that are next to the category or categories under which the Investor qualifies as an “accredited investor.”  The Investor agrees to provide such further information and execute and deliver such documents as the Managers or the Company may reasonably request from time to time to verify that the Investor qualifies as an “accredited investor.”

Circle the items applicable to the Investor:

(A)       A natural person with individual net worth (or joint net worth with spouse) at the time of his or her purchase in excess of $1 million. For purposes of this item, “net worth” means the excess of total assets at fair market value (and including property owned by a spouse) over total liabilities, excluding the value of a person’s primary residence. The related amount of indebtedness secured by the primary residence up to its fair market value should be subtracted from the value of a person’s primary residence for purposes of the foregoing (except that if the amount of such indebtedness outstanding at the time of the Investor’s investment in the Company exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability). Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from the person’s net worth.

(B)        A natural person with an individual income (without including any income of my spouse) in excess of $200,000, in each of the two most recent years, or a joint income with his or her spouse in excess of $300,000, in each of the two most recent years, and a reasonable expectation to reach the same income level in the current year.

(C)        A corporation, limited liability company or partnership, an organization described in Section 501(c)(3) of the Internal Revenue Code, Massachusetts or similar business trust, or a trust whose purchase is directed by a person with knowledge and expertise in business matters as to be capable of evaluating the merits and risks of an investment in the Units, in each case not formed for the specific purpose of acquiring any Units, with total assets in excess of $5 million.

(D)        A trust with total assets in excess of $5 million not formed for the specific purpose of acquiring Units, whose purchase is directed by a person with such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Units.

(E)        An entity, including a grantor trust, in which all of the equity owners are accredited investors (for this purpose, a beneficiary of a trust is not an equity owner, but the grantor of a grantor trust may be an equity owner).

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EX-10.2

Exhibit 10.2

SUBSCRIPTION MATERIALS

AMPHASTAR CAYMAN

a Cayman Islands limited liability company

These subscription materials (the “Subscription Materials”) set out representations, warranties and undertakings required to be made in connection with an investment in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”).  Any investment in the Company may be approved or disapproved in the reasonable discretion of Jason Shandell and William Peters, as the initial managers of the Company (the “Managers”).

To complete these Subscription Materials, please complete the steps as follows:

1. Investor Undertakings. Carefully review the “Investor Undertakings” provided as Exhibit A.

2. Investor Status. Mark where appropriate to confirm status as an “Accredited Investor” on Exhibit B.

3. Tax Form. Complete and return an IRS Form W-9, available at:https://www.irs.gov/pub/irs-pdf/fw9.pdf

4. Complete, Sign and Return.  Complete all “Investor” information in these Subscription Materials, sign the signature page hereto and return, completed and signed, to the Company.

SUBSCRIPTION MATERIALS

The undersigned investor (the “Investor”) subscribes for and agrees to purchase interests designated as units (each, a “Unit” and collectively, the “Units”) in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”), with one or more capital contributions as set forth below. The Investor agrees to be bound by all the terms and provisions of these Subscription Materials and the Amended and Restated Limited Liability Company Agreement of the Company (as amended and/or restated from time to time, the “Company Agreement”) in the final form provided to the Investor. Capitalized terms not defined herein are used as defined in the Company Agreement.

The Investor further confirms that he has carefully read and completed the Investor Undertakings at Exhibit A hereto and the Investor Status confirmation at Exhibit B hereto, each of which comprise part of these Subscription Materials, and hereby expressly makes each representation, warranty, covenant and other undertaking set forth therein.

Investor Information

Full Legal Name of Investor
For Entities	For Natural Persons
	William J. Peters
Type of Entity:	First Name, Middle Initial, Last Name
For Entities	For Natural Persons
Date of Organization:	Date of Birth:
State of Organization:
Mailing Address	Telephone Number:
Address – Line 1:
Address – Line 2:	E-Mail Address:
City and State:
Postal Code:
Social Security Number or Tax Identification Number:

If investment is accepted, distributions made to Investor may be wired to:

Bank Name:

ABA Routing Number:

Bank Address:

Account Name:

Account Number:

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned Investor has executed and delivered these Subscription Materials and agrees to be bound by these Subscription Materials and the Company Agreement.

Capital Contribution		For Natural Persons:
		/s/William Peters
		Name:	William Peters
US$	102,000
Date:	June 26, 2018	For Entities:
		By:
		Name:
		Title:

ACCEPTANCE OF SUBSCRIPTION

(to be filled out only by the Managers of the Company)

The Managers hereby accept the above application for subscription for Units on behalf of the Company.

Name of Investor:	William Peters
Amount of Capital Contribution Accepted: US$	102,000

Managers:
/s/Jason Shandell
Jason Shandell
/s/William Peters
William Peters
	Date:	June 28, 2018
	Accepted for	June 28, 2018
	Admission as of:

3

Exhibit A

Investor Undertakings

Pursuant to its signature on the foregoing Subscription Materials, the Investor represents, warrants and agrees as follows:

1.          General.

(a)         The Investor has been furnished and has carefully read in its entirety the Company Agreement.  Without limiting the foregoing, the Investor understands that investment in the Company is subject to various risks and uncertainties, which may lead to the complete loss of any investment the Investor makes in the Company.

(b)         The Investor has no contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or pledge to such person or entity or to anyone else any of the Units that the Investor hereby subscribes to purchase, or any part thereof, and the Investor has no present plans to enter into any such contract, undertaking, agreement or arrangement. The Investor will not transfer or deliver any interest in the Company other than pursuant to the terms and restrictions set forth in the Company Agreement.

(c)         The Investor understands that the Units have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), the securities laws of any state or the securities laws of any other jurisdiction, nor is any such registration contemplated. The Investor will not assign, transfer, offer, sell, pledge, hypothecate or otherwise dispose of all or any part of its Units (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of all or any part of its Units), or otherwise seek to withdraw from the Company, except in accordance with:  (i) the registration provisions of the 1933 Act or an exemption from such registration provisions, (ii) the securities and similar laws of each applicable jurisdiction, and (iii) the terms of the Company Agreement. The Investor is able to bear the risks of holding the Units as an illiquid investment for an indefinite period of time and can afford to suffer a loss of its entire investment in the Units.

(d)         Other than pursuant to the Company Agreement, the Investor is not relying, and will not rely, upon any information, representation or warranty by the Company, the Managers, or any Affiliate of the foregoing or any agent of them, written or otherwise, in determining to invest in the Company. The Investor has consulted, to the extent deemed appropriate by the Investor, with the Investor’s own advisers as to the financial, tax, regulatory, legal, accounting and related matters concerning an investment in Units and on that basis understands such matters and related consequences of an investment in the Units, and believes that an investment in the Units is suitable and appropriate for the Investor.

(e)         If the Investor is not an individual, (i) the Investor is duly organized, formed or incorporated, as the case may be, and validly existing and in good standing under the laws of the Investor’s jurisdiction of organization, formation, or incorporation, and (ii) the Investor has the power and authority to enter into the Company Agreement, and to perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby.

(f)         These Subscription Materials have been duly executed by the Investor and constitute, and the Company Agreement will constitute, a valid and legally binding agreement of the Investor, enforceable against him in accordance with its terms. The execution and delivery by the Investor of, and compliance by the Investor with, these Subscription Materials and the Company Agreement do not violate, represent a breach of, or constitute a default under, any instruments governing the Investor, any law, regulation or order, or any agreement to which the Investor is a party or by which the Investor is bound.

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2.          Status.  The Investor is an “accredited investor” within the meaning of Regulation D under the 1933 Act. The Investor has indicated the basis for such status, as applicable, on Exhibit B hereto.

3.          No Disqualifying Event.  Neither the Investor nor, in the case of an Investor that is not an individual, any of its directors, officers, general partners, managers, managing members or any person whose interest in, or relationship to, the Investor is deemed to make that person a beneficial owner of the Investor’s voting securities within the meaning of Rule 506(d) of the 1933 Act, is subject to any of the “bad actor” disqualifications described in Rule 506(d)(1) under the 1933 Act (each event, a “Disqualifying Event”), except for Disqualifying Events covered by Rule 506(d)(2)(ii) or (iii) or (d)(3) under the 1933 Act and disclosed reasonably in advance of the Investor’s investment in writing in reasonable detail to the Company.   The Investor will promptly notify the Company in writing to the extent that any person listed above becomes, or is reasonably likely to become, subject to a Disqualifying Event.

4.          Anti-Money Laundering, Source of Funds, etc. Neither the Investor, nor any of its Affiliates or beneficial owners, appears on the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”), nor are they otherwise a party with which the Company is prohibited to deal under the laws of the United States. The Investor further represents that the monies used to fund the investment in the Units are not derived from, invested for the benefit of, or related in any way to, the governments of, or Persons within, (i) any country under a U.S. embargo enforced by OFAC, (ii) that has been designated as a “non-cooperative country or territory” by the Financial Action Task Force on Money Laundering or (iii) that has been designated by the U.S. Secretary of the Treasury as a “primary money laundering concern.”  The Investor further represents and warrants that the Investor: (a) has conducted thorough due diligence with respect to all of its beneficial owners, (b) has established the identities of all beneficial owners and the source of each of the beneficial owner’s funds and (c) will retain evidence of any such identities, any such source of funds and any such due diligence. The Investor further represents that it does not know or have any reason to suspect that (x) the monies used to fund the Investor’s investment in the Units have been or will be derived from or related to any illegal activities, including but not limited to, money laundering activities and (y) the proceeds from the Investor’s investment in the Units will be used to finance any illegal activities. The Investor further agrees and acknowledges that, among other remedial measures, (i) the Managers, on their own behalf and on behalf of the Company, may be obligated to “freeze the account” of such Investor, either by prohibiting additional investments by the Investor and/or segregating assets of the Investor in compliance with governmental regulations and/or if the Managers determine in good faith that such action is in the best interests of the Company, and (ii) the Managers, on their own behalf and on behalf of the Company, may be required to report such action or confidential information relating to the Investor (including, without limitation, disclosing the Investor’s identity) to the regulatory authorities.

5.          Further Advice and Assurances. All information that the Investor has provided to the Company, including the information in these Subscription Materials, is true, correct and complete as of the date hereof, and the Investor agrees to notify the Managers immediately if any representation or warranty contained in these Subscription Materials or any of the information in the exhibits hereto, becomes untrue at any time. The Investor will provide such information and execute and deliver such documents with respect to itself and its direct and indirect beneficial owners as the Managers may require to verify the accuracy of the Investor’s representations and warranties herein, establish the identity of the Investor and any direct and indirect participants in its investment in Units, to the extent applicable, and/or to comply with any law, rule or regulation to which the Company may be subject, including, without limitation, compliance with anti-money laundering laws and regulations.

6.          Power of Attorney.  The Investor, by executing these Subscription Materials, hereby appoints the Managers, with full power of substitution, as the Investor’s true and lawful representative and attorney-in-fact, and agent of the Investor, with full power and authority to make, execute, acknowledge,

5

verify, swear to, deliver, record and file, in the Investor’s name, place and stead, the Company Agreement (thereby causing the Investor to be admitted as a Member in the Company), or any other agreement or instrument that the Managers deem appropriate to admit the Investor as a Member of the Company.  To the maximum extent permitted by law, this power of attorney is coupled with an interest, is irrevocable and will survive, and will not be affected by, the subsequent death, disability, incapacity, incompetency, termination, bankruptcy, insolvency or dissolution of the Investor.  The Investor represents and warrants that the power of attorney granted by the Investor has been executed by it in compliance with the laws of the state or jurisdiction in which these Subscription Materials were executed and to which the Investor is subject.

7.          Governing Law; Consent to Jurisdiction; Venue and Service of Process.  These Subscription Materials shall be construed in accordance with and governed by the laws of the Cayman Islands without regard to its conflicts of law rules, notwithstanding the place where these Subscription Materials may be executed by any party.  Except as otherwise specifically provided in these Subscription Materials, as otherwise required by a non-waivable provision of applicable law, or as otherwise agreed by the Managers, any controversy, claim or other dispute arising out of or relating to these Subscription Materials shall be resolved exclusively through binding arbitration in accordance with the Expedited Procedures and Commercial Arbitration Rules of the American Arbitration Association (www.adr.com), and judgment upon an award arising in connection therewith may be entered in any court of competent jurisdiction.  THE INVESTORS EXPRESSLY ACKNOWLEDGE THAT, UNDER THE PRECEDING SENTENCE, THEY ARE, TO THE FULLEST EXTENT PERMITTED BY LAW AND EXCEPT AS OTHERWISE AGREED TO IN WRITING WITH THE MANAGERS, WAIVING THEIR RIGHT TO A JURY TRIAL WITH REGARD TO ALL MATTERS FOR WHICH ARBITRATION IS REQUIRED.  Any arbitration, mediation, court action, or other adjudicative proceeding arising out of or relating to these Subscription Materials shall be held in Orange County, California or, if such proceeding cannot be lawfully held in such location, as near thereto as applicable law permits.  The arbitrator(s) shall apply the substantive law of the Cayman Islands.  To the maximum extent permitted by applicable law, in any dispute relating to the obligation of a party to make indemnification payments, the burden of proof shall be upon the party seeking to avoid making such payments.  The resolution of any controversy or claim described in this Section 7 shall be conducted in the English language and, to the maximum extent reasonably practicable, in a manner that preserves the confidentiality of Confidential Information and otherwise minimizes disruption to the operations of the Company.

8.          Entire Agreement. These Subscription Materials along with the Company Agreement and any other agreement between the Investor and the Managers and/or the Company constitute the entire agreement between the parties hereto with respect to the subject matter of these Subscription Materials and may be amended only in writing, executed by all parties hereto.

9.          Severability. Each provision of these Subscription Materials shall be considered severable.  If it is determined by a court of competent jurisdiction that any provision of these Subscription Materials is invalid or unenforceable under any applicable law, then that provision shall (i) be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with applicable law; and (ii) not affect the validity or enforceability of any other provisions of these Subscription Materials, and to this extent the provisions of these Subscription Materials shall be severable.

10.        Successors and Assigns. These Subscription Materials (i) shall be binding upon the Investor and the heirs, legal representatives, successors and permitted assigns of the Investor and shall inure to the benefit of the Company and its successors and assigns, (ii) shall survive the acceptance of the Investor as a Member of the Company, (iii) shall, if the Investor consists of more than one person, be the joint and several obligation of each, and (iv) may be executed in counterparts, all of which when taken together, shall be deemed one original.

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11.        Survival. The representations and warranties of the Investor in, and the other provisions of, these Subscription Materials shall survive the execution and delivery of these Subscription Materials and the admission of the Investor to the Company.

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7

Exhibit B

Investor Status

Accredited Investor. The Investor is an “accredited investor” within the meaning of Rule 501 of Regulation D under the U.S. Securities Act of 1933, as amended, and has circled the letter(s) below that are next to the category or categories under which the Investor qualifies as an “accredited investor.”  The Investor agrees to provide such further information and execute and deliver such documents as the Managers or the Company may reasonably request from time to time to verify that the Investor qualifies as an “accredited investor.”

Circle the items applicable to the Investor:

(A)       A natural person with individual net worth (or joint net worth with spouse) at the time of his or her purchase in excess of $1 million. For purposes of this item, “net worth” means the excess of total assets at fair market value (and including property owned by a spouse) over total liabilities, excluding the value of a person’s primary residence. The related amount of indebtedness secured by the primary residence up to its fair market value should be subtracted from the value of a person’s primary residence for purposes of the foregoing (except that if the amount of such indebtedness outstanding at the time of the Investor’s investment in the Company exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability). Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from the person’s net worth.

(B)        A natural person with an individual income (without including any income of my spouse) in excess of $200,000, in each of the two most recent years, or a joint income with his or her spouse in excess of $300,000, in each of the two most recent years, and a reasonable expectation to reach the same income level in the current year.

(C)        A corporation, limited liability company or partnership, an organization described in Section 501(c)(3) of the Internal Revenue Code, Massachusetts or similar business trust, or a trust whose purchase is directed by a person with knowledge and expertise in business matters as to be capable of evaluating the merits and risks of an investment in the Units, in each case not formed for the specific purpose of acquiring any Units, with total assets in excess of $5 million.

(D)        A trust with total assets in excess of $5 million not formed for the specific purpose of acquiring Units, whose purchase is directed by a person with such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Units.

(E)        An entity, including a grantor trust, in which all of the equity owners are accredited investors (for this purpose, a beneficiary of a trust is not an equity owner, but the grantor of a grantor trust may be an equity owner).

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EX-10.3

Exhibit 10.3

SUBSCRIPTION MATERIALS

AMPHASTAR CAYMAN

a Cayman Islands limited liability company

These subscription materials (the “Subscription Materials”) set out representations, warranties and undertakings required to be made in connection with an investment in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”).  Any investment in the Company may be approved or disapproved in the reasonable discretion of Jason Shandell and William Peters, as the initial managers of the Company (the “Managers”).

To complete these Subscription Materials, please complete the steps as follows:

1. Investor Undertakings. Carefully review the “Investor Undertakings” provided as Exhibit A.

2. Investor Status. Mark where appropriate to confirm status as an “Accredited Investor” on Exhibit B.

3. Tax Form. Complete and return an IRS Form W-9, available at:https://www.irs.gov/pub/irs-pdf/fw9.pdf

4. Complete, Sign and Return.  Complete all “Investor” information in these Subscription Materials, sign the signature page hereto and return, completed and signed, to the Company.

SUBSCRIPTION MATERIALS

The undersigned investor (the “Investor”) subscribes for and agrees to purchase interests designated as units (each, a “Unit” and collectively, the “Units”) in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”), with one or more capital contributions as set forth below. The Investor agrees to be bound by all the terms and provisions of these Subscription Materials and the Amended and Restated Limited Liability Company Agreement of the Company (as amended and/or restated from time to time, the “Company Agreement”) in the final form provided to the Investor. Capitalized terms not defined herein are used as defined in the Company Agreement.

The Investor further confirms that he has carefully read and completed the Investor Undertakings at Exhibit A hereto and the Investor Status confirmation at Exhibit B hereto, each of which comprise part of these Subscription Materials, and hereby expressly makes each representation, warranty, covenant and other undertaking set forth therein.

Investor Information

Full Legal Name of Investor
For Entities	For Natural Persons
	Rong Zhou
Type of Entity:	First Name, Middle Initial, Last Name
For Entities	For Natural Persons
Date of Organization:	Date of Birth:
State of Organization:
Mailing Address	Telephone Number:
Address – Line 1:
Address – Line 2:	E-Mail Address:
City and State:
Postal Code:
Social Security Number or Tax Identification Number:

If investment is accepted, distributions made to Investor may be wired to:

Bank Name:

ABA Routing Number:

Bank Address:

Account Name:

Account Number:

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned Investor has executed and delivered these Subscription Materials and agrees to be bound by these Subscription Materials and the Company Agreement.

Capital Contribution		For Natural Persons:
		/s/Rong Zhou
		Name:	Rong Zhou
US$	102,000
Date:	June 27, 2018	For Entities:
		By:
		Name:
		Title:

ACCEPTANCE OF SUBSCRIPTION

(to be filled out only by the Managers of the Company)

The Managers hereby accept the above application for subscription for Units on behalf of the Company.

Name of Investor:	Rong Zhou
Amount of Capital Contribution Accepted: US$	102,000

Managers:
/s/Jason Shandell
Jason Shandell
/s/William Peters
William Peters
	Date:	June 28, 2018
	Accepted for	June 28, 2018
	Admission as of:

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Exhibit A

Investor Undertakings

Pursuant to its signature on the foregoing Subscription Materials, the Investor represents, warrants and agrees as follows:

1.          General.

(a)         The Investor has been furnished and has carefully read in its entirety the Company Agreement.  Without limiting the foregoing, the Investor understands that investment in the Company is subject to various risks and uncertainties, which may lead to the complete loss of any investment the Investor makes in the Company.

(b)         The Investor has no contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or pledge to such person or entity or to anyone else any of the Units that the Investor hereby subscribes to purchase, or any part thereof, and the Investor has no present plans to enter into any such contract, undertaking, agreement or arrangement. The Investor will not transfer or deliver any interest in the Company other than pursuant to the terms and restrictions set forth in the Company Agreement.

(c)         The Investor understands that the Units have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), the securities laws of any state or the securities laws of any other jurisdiction, nor is any such registration contemplated. The Investor will not assign, transfer, offer, sell, pledge, hypothecate or otherwise dispose of all or any part of its Units (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of all or any part of its Units), or otherwise seek to withdraw from the Company, except in accordance with:  (i) the registration provisions of the 1933 Act or an exemption from such registration provisions, (ii) the securities and similar laws of each applicable jurisdiction, and (iii) the terms of the Company Agreement. The Investor is able to bear the risks of holding the Units as an illiquid investment for an indefinite period of time and can afford to suffer a loss of its entire investment in the Units.

(d)         Other than pursuant to the Company Agreement, the Investor is not relying, and will not rely, upon any information, representation or warranty by the Company, the Managers, or any Affiliate of the foregoing or any agent of them, written or otherwise, in determining to invest in the Company. The Investor has consulted, to the extent deemed appropriate by the Investor, with the Investor’s own advisers as to the financial, tax, regulatory, legal, accounting and related matters concerning an investment in Units and on that basis understands such matters and related consequences of an investment in the Units, and believes that an investment in the Units is suitable and appropriate for the Investor.

(e)         If the Investor is not an individual, (i) the Investor is duly organized, formed or incorporated, as the case may be, and validly existing and in good standing under the laws of the Investor’s jurisdiction of organization, formation, or incorporation, and (ii) the Investor has the power and authority to enter into the Company Agreement, and to perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby.

(f)         These Subscription Materials have been duly executed by the Investor and constitute, and the Company Agreement will constitute, a valid and legally binding agreement of the Investor, enforceable against him in accordance with its terms. The execution and delivery by the Investor of, and compliance by the Investor with, these Subscription Materials and the Company Agreement do not violate, represent a breach of, or constitute a default under, any instruments governing the Investor, any law, regulation or order, or any agreement to which the Investor is a party or by which the Investor is bound.

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2.          Status.  The Investor is an “accredited investor” within the meaning of Regulation D under the 1933 Act. The Investor has indicated the basis for such status, as applicable, on Exhibit B hereto.

3.          No Disqualifying Event.  Neither the Investor nor, in the case of an Investor that is not an individual, any of its directors, officers, general partners, managers, managing members or any person whose interest in, or relationship to, the Investor is deemed to make that person a beneficial owner of the Investor’s voting securities within the meaning of Rule 506(d) of the 1933 Act, is subject to any of the “bad actor” disqualifications described in Rule 506(d)(1) under the 1933 Act (each event, a “Disqualifying Event”), except for Disqualifying Events covered by Rule 506(d)(2)(ii) or (iii) or (d)(3) under the 1933 Act and disclosed reasonably in advance of the Investor’s investment in writing in reasonable detail to the Company.   The Investor will promptly notify the Company in writing to the extent that any person listed above becomes, or is reasonably likely to become, subject to a Disqualifying Event.

4.          Anti-Money Laundering, Source of Funds, etc. Neither the Investor, nor any of its Affiliates or beneficial owners, appears on the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”), nor are they otherwise a party with which the Company is prohibited to deal under the laws of the United States. The Investor further represents that the monies used to fund the investment in the Units are not derived from, invested for the benefit of, or related in any way to, the governments of, or Persons within, (i) any country under a U.S. embargo enforced by OFAC, (ii) that has been designated as a “non-cooperative country or territory” by the Financial Action Task Force on Money Laundering or (iii) that has been designated by the U.S. Secretary of the Treasury as a “primary money laundering concern.”  The Investor further represents and warrants that the Investor: (a) has conducted thorough due diligence with respect to all of its beneficial owners, (b) has established the identities of all beneficial owners and the source of each of the beneficial owner’s funds and (c) will retain evidence of any such identities, any such source of funds and any such due diligence. The Investor further represents that it does not know or have any reason to suspect that (x) the monies used to fund the Investor’s investment in the Units have been or will be derived from or related to any illegal activities, including but not limited to, money laundering activities and (y) the proceeds from the Investor’s investment in the Units will be used to finance any illegal activities. The Investor further agrees and acknowledges that, among other remedial measures, (i) the Managers, on their own behalf and on behalf of the Company, may be obligated to “freeze the account” of such Investor, either by prohibiting additional investments by the Investor and/or segregating assets of the Investor in compliance with governmental regulations and/or if the Managers determine in good faith that such action is in the best interests of the Company, and (ii) the Managers, on their own behalf and on behalf of the Company, may be required to report such action or confidential information relating to the Investor (including, without limitation, disclosing the Investor’s identity) to the regulatory authorities.

5.          Further Advice and Assurances. All information that the Investor has provided to the Company, including the information in these Subscription Materials, is true, correct and complete as of the date hereof, and the Investor agrees to notify the Managers immediately if any representation or warranty contained in these Subscription Materials or any of the information in the exhibits hereto, becomes untrue at any time. The Investor will provide such information and execute and deliver such documents with respect to itself and its direct and indirect beneficial owners as the Managers may require to verify the accuracy of the Investor’s representations and warranties herein, establish the identity of the Investor and any direct and indirect participants in its investment in Units, to the extent applicable, and/or to comply with any law, rule or regulation to which the Company may be subject, including, without limitation, compliance with anti-money laundering laws and regulations.

6.          Power of Attorney.  The Investor, by executing these Subscription Materials, hereby appoints the Managers, with full power of substitution, as the Investor’s true and lawful representative and attorney-in-fact, and agent of the Investor, with full power and authority to make, execute, acknowledge,

5

verify, swear to, deliver, record and file, in the Investor’s name, place and stead, the Company Agreement (thereby causing the Investor to be admitted as a Member in the Company), or any other agreement or instrument that the Managers deem appropriate to admit the Investor as a Member of the Company.  To the maximum extent permitted by law, this power of attorney is coupled with an interest, is irrevocable and will survive, and will not be affected by, the subsequent death, disability, incapacity, incompetency, termination, bankruptcy, insolvency or dissolution of the Investor.  The Investor represents and warrants that the power of attorney granted by the Investor has been executed by it in compliance with the laws of the state or jurisdiction in which these Subscription Materials were executed and to which the Investor is subject.

7.          Governing Law; Consent to Jurisdiction; Venue and Service of Process.  These Subscription Materials shall be construed in accordance with and governed by the laws of the Cayman Islands without regard to its conflicts of law rules, notwithstanding the place where these Subscription Materials may be executed by any party.  Except as otherwise specifically provided in these Subscription Materials, as otherwise required by a non-waivable provision of applicable law, or as otherwise agreed by the Managers, any controversy, claim or other dispute arising out of or relating to these Subscription Materials shall be resolved exclusively through binding arbitration in accordance with the Expedited Procedures and Commercial Arbitration Rules of the American Arbitration Association (www.adr.com), and judgment upon an award arising in connection therewith may be entered in any court of competent jurisdiction.  THE INVESTORS EXPRESSLY ACKNOWLEDGE THAT, UNDER THE PRECEDING SENTENCE, THEY ARE, TO THE FULLEST EXTENT PERMITTED BY LAW AND EXCEPT AS OTHERWISE AGREED TO IN WRITING WITH THE MANAGERS, WAIVING THEIR RIGHT TO A JURY TRIAL WITH REGARD TO ALL MATTERS FOR WHICH ARBITRATION IS REQUIRED.  Any arbitration, mediation, court action, or other adjudicative proceeding arising out of or relating to these Subscription Materials shall be held in Orange County, California or, if such proceeding cannot be lawfully held in such location, as near thereto as applicable law permits.  The arbitrator(s) shall apply the substantive law of the Cayman Islands.  To the maximum extent permitted by applicable law, in any dispute relating to the obligation of a party to make indemnification payments, the burden of proof shall be upon the party seeking to avoid making such payments.  The resolution of any controversy or claim described in this Section 7 shall be conducted in the English language and, to the maximum extent reasonably practicable, in a manner that preserves the confidentiality of Confidential Information and otherwise minimizes disruption to the operations of the Company.

8.          Entire Agreement. These Subscription Materials along with the Company Agreement and any other agreement between the Investor and the Managers and/or the Company constitute the entire agreement between the parties hereto with respect to the subject matter of these Subscription Materials and may be amended only in writing, executed by all parties hereto.

9.          Severability. Each provision of these Subscription Materials shall be considered severable.  If it is determined by a court of competent jurisdiction that any provision of these Subscription Materials is invalid or unenforceable under any applicable law, then that provision shall (i) be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with applicable law; and (ii) not affect the validity or enforceability of any other provisions of these Subscription Materials, and to this extent the provisions of these Subscription Materials shall be severable.

10.        Successors and Assigns. These Subscription Materials (i) shall be binding upon the Investor and the heirs, legal representatives, successors and permitted assigns of the Investor and shall inure to the benefit of the Company and its successors and assigns, (ii) shall survive the acceptance of the Investor as a Member of the Company, (iii) shall, if the Investor consists of more than one person, be the joint and several obligation of each, and (iv) may be executed in counterparts, all of which when taken together, shall be deemed one original.

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11.        Survival. The representations and warranties of the Investor in, and the other provisions of, these Subscription Materials shall survive the execution and delivery of these Subscription Materials and the admission of the Investor to the Company.

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7

Exhibit B

Investor Status

Accredited Investor. The Investor is an “accredited investor” within the meaning of Rule 501 of Regulation D under the U.S. Securities Act of 1933, as amended, and has circled the letter(s) below that are next to the category or categories under which the Investor qualifies as an “accredited investor.”  The Investor agrees to provide such further information and execute and deliver such documents as the Managers or the Company may reasonably request from time to time to verify that the Investor qualifies as an “accredited investor.”

Circle the items applicable to the Investor:

(A) A natural person with individual net worth (or joint net worth with spouse) at the time of his or her purchase in excess of $1 million. For purposes of this item, “net worth” means the excess of total assets at fair market value (and including property owned by a spouse) over total liabilities, excluding the value of a person’s primary residence. The related amount of indebtedness secured by the primary residence up to its fair market value should be subtracted from the value of a person’s primary residence for purposes of the foregoing (except that if the amount of such indebtedness outstanding at the time of the Investor’s investment in the Company exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability). Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from the person’s net worth.

(B)        A natural person with an individual income (without including any income of my spouse) in excess of $200,000, in each of the two most recent years, or a joint income with his or her spouse in excess of $300,000, in each of the two most recent years, and a reasonable expectation to reach the same income level in the current year.

(C)        A corporation, limited liability company or partnership, an organization described in Section 501(c)(3) of the Internal Revenue Code, Massachusetts or similar business trust, or a trust whose purchase is directed by a person with knowledge and expertise in business matters as to be capable of evaluating the merits and risks of an investment in the Units, in each case not formed for the specific purpose of acquiring any Units, with total assets in excess of $5 million.

(D)        A trust with total assets in excess of $5 million not formed for the specific purpose of acquiring Units, whose purchase is directed by a person with such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Units.

(E)        An entity, including a grantor trust, in which all of the equity owners are accredited investors (for this purpose, a beneficiary of a trust is not an equity owner, but the grantor of a grantor trust may be an equity owner).

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EX-10.4

Exhibit 10.4

SUBSCRIPTION MATERIALS

AMPHASTAR CAYMAN

a Cayman Islands limited liability company

These subscription materials (the “Subscription Materials”) set out representations, warranties and undertakings required to be made in connection with an investment in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”).  Any investment in the Company may be approved or disapproved in the reasonable discretion of Jason Shandell and William Peters, as the initial managers of the Company (the “Managers”).

To complete these Subscription Materials, please complete the steps as follows:

1. Investor Undertakings. Carefully review the “Investor Undertakings” provided as Exhibit A.

2. Investor Status. Mark where appropriate to confirm status as an “Accredited Investor” on Exhibit B.

3. Tax Form. Complete and return an IRS Form W-9, available at:https://www.irs.gov/pub/irs-pdf/fw9.pdf

4. Complete, Sign and Return.  Complete all “Investor” information in these Subscription Materials, sign the signature page hereto and return, completed and signed, to the Company.

SUBSCRIPTION MATERIALS

The undersigned investor (the “Investor”) subscribes for and agrees to purchase interests designated as units (each, a “Unit” and collectively, the “Units”) in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”), with one or more capital contributions as set forth below. The Investor agrees to be bound by all the terms and provisions of these Subscription Materials and the Amended and Restated Limited Liability Company Agreement of the Company (as amended and/or restated from time to time, the “Company Agreement”) in the final form provided to the Investor. Capitalized terms not defined herein are used as defined in the Company Agreement.

The Investor further confirms that he has carefully read and completed the Investor Undertakings at Exhibit A hereto and the Investor Status confirmation at Exhibit B hereto, each of which comprise part of these Subscription Materials, and hereby expressly makes each representation, warranty, covenant and other undertaking set forth therein.

Investor Information

Full Legal Name of Investor
For Entities	For Natural Persons
	Yakob Liawatidewi
Type of Entity:	First Name, Middle Initial, Last Name
For Entities	For Natural Persons
Date of Organization:	Date of Birth:
State of Organization:
Mailing Address	Telephone Number:
Address – Line 1:
Address – Line 2:	E-Mail Address:
City and State:
Postal Code:
Social Security Number or Tax Identification Number:

If investment is accepted, distributions made to Investor may be wired to:

Bank Name:

ABA Routing Number:

Bank Address:

Account Name:

Account Number:

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned Investor has executed and delivered these Subscription Materials and agrees to be bound by these Subscription Materials and the Company Agreement.

Capital Contribution		For Natural Persons:
		/s/Yakob Liawatidewi
		Name:	Yakob Liawatidewi
US$	102,000
Date:	June 28, 2018	For Entities:
		By:
		Name:
		Title:

ACCEPTANCE OF SUBSCRIPTION

(to be filled out only by the Managers of the Company)

The Managers hereby accept the above application for subscription for Units on behalf of the Company.

Name of Investor:	Yabok Liawatidewi
Amount of Capital Contribution Accepted: US$	102,000

Managers:
/s/Jason Shandell
Jason Shandell
/s/William Peters
William Peters
	Date:	June 28, 2018
	Accepted for	June 28, 2018
	Admission as of:

3

Exhibit A

Investor Undertakings

Pursuant to its signature on the foregoing Subscription Materials, the Investor represents, warrants and agrees as follows:

1.          General.

(a)         The Investor has been furnished and has carefully read in its entirety the Company Agreement.  Without limiting the foregoing, the Investor understands that investment in the Company is subject to various risks and uncertainties, which may lead to the complete loss of any investment the Investor makes in the Company.

(b)         The Investor has no contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or pledge to such person or entity or to anyone else any of the Units that the Investor hereby subscribes to purchase, or any part thereof, and the Investor has no present plans to enter into any such contract, undertaking, agreement or arrangement. The Investor will not transfer or deliver any interest in the Company other than pursuant to the terms and restrictions set forth in the Company Agreement.

(c)         The Investor understands that the Units have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), the securities laws of any state or the securities laws of any other jurisdiction, nor is any such registration contemplated. The Investor will not assign, transfer, offer, sell, pledge, hypothecate or otherwise dispose of all or any part of its Units (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of all or any part of its Units), or otherwise seek to withdraw from the Company, except in accordance with:  (i) the registration provisions of the 1933 Act or an exemption from such registration provisions, (ii) the securities and similar laws of each applicable jurisdiction, and (iii) the terms of the Company Agreement. The Investor is able to bear the risks of holding the Units as an illiquid investment for an indefinite period of time and can afford to suffer a loss of its entire investment in the Units.

(d)         Other than pursuant to the Company Agreement, the Investor is not relying, and will not rely, upon any information, representation or warranty by the Company, the Managers, or any Affiliate of the foregoing or any agent of them, written or otherwise, in determining to invest in the Company. The Investor has consulted, to the extent deemed appropriate by the Investor, with the Investor’s own advisers as to the financial, tax, regulatory, legal, accounting and related matters concerning an investment in Units and on that basis understands such matters and related consequences of an investment in the Units, and believes that an investment in the Units is suitable and appropriate for the Investor.

(e)         If the Investor is not an individual, (i) the Investor is duly organized, formed or incorporated, as the case may be, and validly existing and in good standing under the laws of the Investor’s jurisdiction of organization, formation, or incorporation, and (ii) the Investor has the power and authority to enter into the Company Agreement, and to perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby.

(f)         These Subscription Materials have been duly executed by the Investor and constitute, and the Company Agreement will constitute, a valid and legally binding agreement of the Investor, enforceable against him in accordance with its terms. The execution and delivery by the Investor of, and compliance by the Investor with, these Subscription Materials and the Company Agreement do not violate, represent a breach of, or constitute a default under, any instruments governing the Investor, any law, regulation or order, or any agreement to which the Investor is a party or by which the Investor is bound.

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2.          Status.  The Investor is an “accredited investor” within the meaning of Regulation D under the 1933 Act. The Investor has indicated the basis for such status, as applicable, on Exhibit B hereto.

3.          No Disqualifying Event.  Neither the Investor nor, in the case of an Investor that is not an individual, any of its directors, officers, general partners, managers, managing members or any person whose interest in, or relationship to, the Investor is deemed to make that person a beneficial owner of the Investor’s voting securities within the meaning of Rule 506(d) of the 1933 Act, is subject to any of the “bad actor” disqualifications described in Rule 506(d)(1) under the 1933 Act (each event, a “Disqualifying Event”), except for Disqualifying Events covered by Rule 506(d)(2)(ii) or (iii) or (d)(3) under the 1933 Act and disclosed reasonably in advance of the Investor’s investment in writing in reasonable detail to the Company.   The Investor will promptly notify the Company in writing to the extent that any person listed above becomes, or is reasonably likely to become, subject to a Disqualifying Event.

4.          Anti-Money Laundering, Source of Funds, etc. Neither the Investor, nor any of its Affiliates or beneficial owners, appears on the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”), nor are they otherwise a party with which the Company is prohibited to deal under the laws of the United States. The Investor further represents that the monies used to fund the investment in the Units are not derived from, invested for the benefit of, or related in any way to, the governments of, or Persons within, (i) any country under a U.S. embargo enforced by OFAC, (ii) that has been designated as a “non-cooperative country or territory” by the Financial Action Task Force on Money Laundering or (iii) that has been designated by the U.S. Secretary of the Treasury as a “primary money laundering concern.”  The Investor further represents and warrants that the Investor: (a) has conducted thorough due diligence with respect to all of its beneficial owners, (b) has established the identities of all beneficial owners and the source of each of the beneficial owner’s funds and (c) will retain evidence of any such identities, any such source of funds and any such due diligence. The Investor further represents that it does not know or have any reason to suspect that (x) the monies used to fund the Investor’s investment in the Units have been or will be derived from or related to any illegal activities, including but not limited to, money laundering activities and (y) the proceeds from the Investor’s investment in the Units will be used to finance any illegal activities. The Investor further agrees and acknowledges that, among other remedial measures, (i) the Managers, on their own behalf and on behalf of the Company, may be obligated to “freeze the account” of such Investor, either by prohibiting additional investments by the Investor and/or segregating assets of the Investor in compliance with governmental regulations and/or if the Managers determine in good faith that such action is in the best interests of the Company, and (ii) the Managers, on their own behalf and on behalf of the Company, may be required to report such action or confidential information relating to the Investor (including, without limitation, disclosing the Investor’s identity) to the regulatory authorities.

5.          Further Advice and Assurances. All information that the Investor has provided to the Company, including the information in these Subscription Materials, is true, correct and complete as of the date hereof, and the Investor agrees to notify the Managers immediately if any representation or warranty contained in these Subscription Materials or any of the information in the exhibits hereto, becomes untrue at any time. The Investor will provide such information and execute and deliver such documents with respect to itself and its direct and indirect beneficial owners as the Managers may require to verify the accuracy of the Investor’s representations and warranties herein, establish the identity of the Investor and any direct and indirect participants in its investment in Units, to the extent applicable, and/or to comply with any law, rule or regulation to which the Company may be subject, including, without limitation, compliance with anti-money laundering laws and regulations.

6.          Power of Attorney.  The Investor, by executing these Subscription Materials, hereby appoints the Managers, with full power of substitution, as the Investor’s true and lawful representative and attorney-in-fact, and agent of the Investor, with full power and authority to make, execute, acknowledge,

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verify, swear to, deliver, record and file, in the Investor’s name, place and stead, the Company Agreement (thereby causing the Investor to be admitted as a Member in the Company), or any other agreement or instrument that the Managers deem appropriate to admit the Investor as a Member of the Company.  To the maximum extent permitted by law, this power of attorney is coupled with an interest, is irrevocable and will survive, and will not be affected by, the subsequent death, disability, incapacity, incompetency, termination, bankruptcy, insolvency or dissolution of the Investor.  The Investor represents and warrants that the power of attorney granted by the Investor has been executed by it in compliance with the laws of the state or jurisdiction in which these Subscription Materials were executed and to which the Investor is subject.

7.          Governing Law; Consent to Jurisdiction; Venue and Service of Process.  These Subscription Materials shall be construed in accordance with and governed by the laws of the Cayman Islands without regard to its conflicts of law rules, notwithstanding the place where these Subscription Materials may be executed by any party.  Except as otherwise specifically provided in these Subscription Materials, as otherwise required by a non-waivable provision of applicable law, or as otherwise agreed by the Managers, any controversy, claim or other dispute arising out of or relating to these Subscription Materials shall be resolved exclusively through binding arbitration in accordance with the Expedited Procedures and Commercial Arbitration Rules of the American Arbitration Association (www.adr.com), and judgment upon an award arising in connection therewith may be entered in any court of competent jurisdiction.  THE INVESTORS EXPRESSLY ACKNOWLEDGE THAT, UNDER THE PRECEDING SENTENCE, THEY ARE, TO THE FULLEST EXTENT PERMITTED BY LAW AND EXCEPT AS OTHERWISE AGREED TO IN WRITING WITH THE MANAGERS, WAIVING THEIR RIGHT TO A JURY TRIAL WITH REGARD TO ALL MATTERS FOR WHICH ARBITRATION IS REQUIRED.  Any arbitration, mediation, court action, or other adjudicative proceeding arising out of or relating to these Subscription Materials shall be held in Orange County, California or, if such proceeding cannot be lawfully held in such location, as near thereto as applicable law permits.  The arbitrator(s) shall apply the substantive law of the Cayman Islands.  To the maximum extent permitted by applicable law, in any dispute relating to the obligation of a party to make indemnification payments, the burden of proof shall be upon the party seeking to avoid making such payments.  The resolution of any controversy or claim described in this Section 7 shall be conducted in the English language and, to the maximum extent reasonably practicable, in a manner that preserves the confidentiality of Confidential Information and otherwise minimizes disruption to the operations of the Company.

8.          Entire Agreement. These Subscription Materials along with the Company Agreement and any other agreement between the Investor and the Managers and/or the Company constitute the entire agreement between the parties hereto with respect to the subject matter of these Subscription Materials and may be amended only in writing, executed by all parties hereto.

9.          Severability. Each provision of these Subscription Materials shall be considered severable.  If it is determined by a court of competent jurisdiction that any provision of these Subscription Materials is invalid or unenforceable under any applicable law, then that provision shall (i) be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with applicable law; and (ii) not affect the validity or enforceability of any other provisions of these Subscription Materials, and to this extent the provisions of these Subscription Materials shall be severable.

10.        Successors and Assigns. These Subscription Materials (i) shall be binding upon the Investor and the heirs, legal representatives, successors and permitted assigns of the Investor and shall inure to the benefit of the Company and its successors and assigns, (ii) shall survive the acceptance of the Investor as a Member of the Company, (iii) shall, if the Investor consists of more than one person, be the joint and several obligation of each, and (iv) may be executed in counterparts, all of which when taken together, shall be deemed one original.

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11.        Survival. The representations and warranties of the Investor in, and the other provisions of, these Subscription Materials shall survive the execution and delivery of these Subscription Materials and the admission of the Investor to the Company.

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7

Exhibit B

Investor Status

Accredited Investor. The Investor is an “accredited investor” within the meaning of Rule 501 of Regulation D under the U.S. Securities Act of 1933, as amended, and has circled the letter(s) below that are next to the category or categories under which the Investor qualifies as an “accredited investor.”  The Investor agrees to provide such further information and execute and deliver such documents as the Managers or the Company may reasonably request from time to time to verify that the Investor qualifies as an “accredited investor.”

Circle the items applicable to the Investor:

(A) A natural person with individual net worth (or joint net worth with spouse) at the time of his or her purchase in excess of $1 million. For purposes of this item, “net worth” means the excess of total assets at fair market value (and including property owned by a spouse) over total liabilities, excluding the value of a person’s primary residence. The related amount of indebtedness secured by the primary residence up to its fair market value should be subtracted from the value of a person’s primary residence for purposes of the foregoing (except that if the amount of such indebtedness outstanding at the time of the Investor’s investment in the Company exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability). Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from the person’s net worth.

(B)        A natural person with an individual income (without including any income of my spouse) in excess of $200,000, in each of the two most recent years, or a joint income with his or her spouse in excess of $300,000, in each of the two most recent years, and a reasonable expectation to reach the same income level in the current year.

(C)        A corporation, limited liability company or partnership, an organization described in Section 501(c)(3) of the Internal Revenue Code, Massachusetts or similar business trust, or a trust whose purchase is directed by a person with knowledge and expertise in business matters as to be capable of evaluating the merits and risks of an investment in the Units, in each case not formed for the specific purpose of acquiring any Units, with total assets in excess of $5 million.

(D)        A trust with total assets in excess of $5 million not formed for the specific purpose of acquiring Units, whose purchase is directed by a person with such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Units.

(E)        An entity, including a grantor trust, in which all of the equity owners are accredited investors (for this purpose, a beneficiary of a trust is not an equity owner, but the grantor of a grantor trust may be an equity owner).

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EX-10.5

Exhibit 10.5

SUBSCRIPTION MATERIALS

AMPHASTAR CAYMAN

a Cayman Islands limited liability company

These subscription materials (the “Subscription Materials”) set out representations, warranties and undertakings required to be made in connection with an investment in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”).  Any investment in the Company may be approved or disapproved in the reasonable discretion of Jason Shandell and William Peters, as the initial managers of the Company (the “Managers”).

To complete these Subscription Materials, please complete the steps as follows:

1. Investor Undertakings. Carefully review the “Investor Undertakings” provided as Exhibit A.

2. Investor Status. Mark where appropriate to confirm status as an “Accredited Investor” on Exhibit B.

3. Tax Form. Complete and return an IRS Form W-9, available at:https://www.irs.gov/pub/irs-pdf/fw9.pdf

4. Complete, Sign and Return.  Complete all “Investor” information in these Subscription Materials, sign the signature page hereto and return, completed and signed, to the Company.

SUBSCRIPTION MATERIALS

The undersigned investor (the “Investor”) subscribes for and agrees to purchase interests designated as units (each, a “Unit” and collectively, the “Units”) in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”), with one or more capital contributions as set forth below. The Investor agrees to be bound by all the terms and provisions of these Subscription Materials and the Amended and Restated Limited Liability Company Agreement of the Company (as amended and/or restated from time to time, the “Company Agreement”) in the final form provided to the Investor. Capitalized terms not defined herein are used as defined in the Company Agreement.

The Investor further confirms that he has carefully read and completed the Investor Undertakings at Exhibit A hereto and the Investor Status confirmation at Exhibit B hereto, each of which comprise part of these Subscription Materials, and hereby expressly makes each representation, warranty, covenant and other undertaking set forth therein.

Investor Information

Full Legal Name of Investor
For Entities	For Natural Persons
	Dr. Stephen B. Shohet
Type of Entity:	First Name, Middle Initial, Last Name
For Entities	For Natural Persons
Date of Organization:	Date of Birth:
State of Organization:
Mailing Address	Telephone Number:
Address – Line 1:
Address – Line 2:	E-Mail Address:
City and State:
Postal Code:
Social Security Number or Tax Identification Number:

If investment is accepted, distributions made to Investor may be wired to:

Bank Name:

ABA Routing Number:

Bank Address:

Account Name:

Account Number:

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned Investor has executed and delivered these Subscription Materials and agrees to be bound by these Subscription Materials and the Company Agreement.

Capital Contribution		For Natural Persons:
		/s/Steven B. Shohet
		Name:	Dr. Stephen B. Shohet
US$	102,000
Date:	June 28, 2018	For Entities:
		By:
		Name:
		Title:

ACCEPTANCE OF SUBSCRIPTION

(to be filled out only by the Managers of the Company)

The Managers hereby accept the above application for subscription for Units on behalf of the Company.

Name of Investor:	Dr. Stephen B. Shohet
Amount of Capital Contribution Accepted: US$	102,000

Managers:
/s/Jason Shandell
Jason Shandell
/s/William Peters
William Peters
	Date:	June 28, 2018
	Accepted for	June 28, 2018
	Admission as of:

3

Exhibit A

Investor Undertakings

Pursuant to its signature on the foregoing Subscription Materials, the Investor represents, warrants and agrees as follows:

1.          General.

(a)         The Investor has been furnished and has carefully read in its entirety the Company Agreement.  Without limiting the foregoing, the Investor understands that investment in the Company is subject to various risks and uncertainties, which may lead to the complete loss of any investment the Investor makes in the Company.

(b)         The Investor has no contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or pledge to such person or entity or to anyone else any of the Units that the Investor hereby subscribes to purchase, or any part thereof, and the Investor has no present plans to enter into any such contract, undertaking, agreement or arrangement. The Investor will not transfer or deliver any interest in the Company other than pursuant to the terms and restrictions set forth in the Company Agreement.

(c)         The Investor understands that the Units have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), the securities laws of any state or the securities laws of any other jurisdiction, nor is any such registration contemplated. The Investor will not assign, transfer, offer, sell, pledge, hypothecate or otherwise dispose of all or any part of its Units (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of all or any part of its Units), or otherwise seek to withdraw from the Company, except in accordance with:  (i) the registration provisions of the 1933 Act or an exemption from such registration provisions, (ii) the securities and similar laws of each applicable jurisdiction, and (iii) the terms of the Company Agreement. The Investor is able to bear the risks of holding the Units as an illiquid investment for an indefinite period of time and can afford to suffer a loss of its entire investment in the Units.

(d)         Other than pursuant to the Company Agreement, the Investor is not relying, and will not rely, upon any information, representation or warranty by the Company, the Managers, or any Affiliate of the foregoing or any agent of them, written or otherwise, in determining to invest in the Company. The Investor has consulted, to the extent deemed appropriate by the Investor, with the Investor’s own advisers as to the financial, tax, regulatory, legal, accounting and related matters concerning an investment in Units and on that basis understands such matters and related consequences of an investment in the Units, and believes that an investment in the Units is suitable and appropriate for the Investor.

(e)         If the Investor is not an individual, (i) the Investor is duly organized, formed or incorporated, as the case may be, and validly existing and in good standing under the laws of the Investor’s jurisdiction of organization, formation, or incorporation, and (ii) the Investor has the power and authority to enter into the Company Agreement, and to perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby.

(f)         These Subscription Materials have been duly executed by the Investor and constitute, and the Company Agreement will constitute, a valid and legally binding agreement of the Investor, enforceable against him in accordance with its terms. The execution and delivery by the Investor of, and compliance by the Investor with, these Subscription Materials and the Company Agreement do not violate, represent a breach of, or constitute a default under, any instruments governing the Investor, any law, regulation or order, or any agreement to which the Investor is a party or by which the Investor is bound.

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2.          Status.  The Investor is an “accredited investor” within the meaning of Regulation D under the 1933 Act. The Investor has indicated the basis for such status, as applicable, on Exhibit B hereto.

3.          No Disqualifying Event.  Neither the Investor nor, in the case of an Investor that is not an individual, any of its directors, officers, general partners, managers, managing members or any person whose interest in, or relationship to, the Investor is deemed to make that person a beneficial owner of the Investor’s voting securities within the meaning of Rule 506(d) of the 1933 Act, is subject to any of the “bad actor” disqualifications described in Rule 506(d)(1) under the 1933 Act (each event, a “Disqualifying Event”), except for Disqualifying Events covered by Rule 506(d)(2)(ii) or (iii) or (d)(3) under the 1933 Act and disclosed reasonably in advance of the Investor’s investment in writing in reasonable detail to the Company.   The Investor will promptly notify the Company in writing to the extent that any person listed above becomes, or is reasonably likely to become, subject to a Disqualifying Event.

4.          Anti-Money Laundering, Source of Funds, etc. Neither the Investor, nor any of its Affiliates or beneficial owners, appears on the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”), nor are they otherwise a party with which the Company is prohibited to deal under the laws of the United States. The Investor further represents that the monies used to fund the investment in the Units are not derived from, invested for the benefit of, or related in any way to, the governments of, or Persons within, (i) any country under a U.S. embargo enforced by OFAC, (ii) that has been designated as a “non-cooperative country or territory” by the Financial Action Task Force on Money Laundering or (iii) that has been designated by the U.S. Secretary of the Treasury as a “primary money laundering concern.”  The Investor further represents and warrants that the Investor: (a) has conducted thorough due diligence with respect to all of its beneficial owners, (b) has established the identities of all beneficial owners and the source of each of the beneficial owner’s funds and (c) will retain evidence of any such identities, any such source of funds and any such due diligence. The Investor further represents that it does not know or have any reason to suspect that (x) the monies used to fund the Investor’s investment in the Units have been or will be derived from or related to any illegal activities, including but not limited to, money laundering activities and (y) the proceeds from the Investor’s investment in the Units will be used to finance any illegal activities. The Investor further agrees and acknowledges that, among other remedial measures, (i) the Managers, on their own behalf and on behalf of the Company, may be obligated to “freeze the account” of such Investor, either by prohibiting additional investments by the Investor and/or segregating assets of the Investor in compliance with governmental regulations and/or if the Managers determine in good faith that such action is in the best interests of the Company, and (ii) the Managers, on their own behalf and on behalf of the Company, may be required to report such action or confidential information relating to the Investor (including, without limitation, disclosing the Investor’s identity) to the regulatory authorities.

5.          Further Advice and Assurances. All information that the Investor has provided to the Company, including the information in these Subscription Materials, is true, correct and complete as of the date hereof, and the Investor agrees to notify the Managers immediately if any representation or warranty contained in these Subscription Materials or any of the information in the exhibits hereto, becomes untrue at any time. The Investor will provide such information and execute and deliver such documents with respect to itself and its direct and indirect beneficial owners as the Managers may require to verify the accuracy of the Investor’s representations and warranties herein, establish the identity of the Investor and any direct and indirect participants in its investment in Units, to the extent applicable, and/or to comply with any law, rule or regulation to which the Company may be subject, including, without limitation, compliance with anti-money laundering laws and regulations.

6.          Power of Attorney.  The Investor, by executing these Subscription Materials, hereby appoints the Managers, with full power of substitution, as the Investor’s true and lawful representative and attorney-in-fact, and agent of the Investor, with full power and authority to make, execute, acknowledge,

5

verify, swear to, deliver, record and file, in the Investor’s name, place and stead, the Company Agreement (thereby causing the Investor to be admitted as a Member in the Company), or any other agreement or instrument that the Managers deem appropriate to admit the Investor as a Member of the Company.  To the maximum extent permitted by law, this power of attorney is coupled with an interest, is irrevocable and will survive, and will not be affected by, the subsequent death, disability, incapacity, incompetency, termination, bankruptcy, insolvency or dissolution of the Investor.  The Investor represents and warrants that the power of attorney granted by the Investor has been executed by it in compliance with the laws of the state or jurisdiction in which these Subscription Materials were executed and to which the Investor is subject.

7.          Governing Law; Consent to Jurisdiction; Venue and Service of Process.  These Subscription Materials shall be construed in accordance with and governed by the laws of the Cayman Islands without regard to its conflicts of law rules, notwithstanding the place where these Subscription Materials may be executed by any party.  Except as otherwise specifically provided in these Subscription Materials, as otherwise required by a non-waivable provision of applicable law, or as otherwise agreed by the Managers, any controversy, claim or other dispute arising out of or relating to these Subscription Materials shall be resolved exclusively through binding arbitration in accordance with the Expedited Procedures and Commercial Arbitration Rules of the American Arbitration Association (www.adr.com), and judgment upon an award arising in connection therewith may be entered in any court of competent jurisdiction.  THE INVESTORS EXPRESSLY ACKNOWLEDGE THAT, UNDER THE PRECEDING SENTENCE, THEY ARE, TO THE FULLEST EXTENT PERMITTED BY LAW AND EXCEPT AS OTHERWISE AGREED TO IN WRITING WITH THE MANAGERS, WAIVING THEIR RIGHT TO A JURY TRIAL WITH REGARD TO ALL MATTERS FOR WHICH ARBITRATION IS REQUIRED.  Any arbitration, mediation, court action, or other adjudicative proceeding arising out of or relating to these Subscription Materials shall be held in Orange County, California or, if such proceeding cannot be lawfully held in such location, as near thereto as applicable law permits.  The arbitrator(s) shall apply the substantive law of the Cayman Islands.  To the maximum extent permitted by applicable law, in any dispute relating to the obligation of a party to make indemnification payments, the burden of proof shall be upon the party seeking to avoid making such payments.  The resolution of any controversy or claim described in this Section 7 shall be conducted in the English language and, to the maximum extent reasonably practicable, in a manner that preserves the confidentiality of Confidential Information and otherwise minimizes disruption to the operations of the Company.

8.          Entire Agreement. These Subscription Materials along with the Company Agreement and any other agreement between the Investor and the Managers and/or the Company constitute the entire agreement between the parties hereto with respect to the subject matter of these Subscription Materials and may be amended only in writing, executed by all parties hereto.

9.          Severability. Each provision of these Subscription Materials shall be considered severable.  If it is determined by a court of competent jurisdiction that any provision of these Subscription Materials is invalid or unenforceable under any applicable law, then that provision shall (i) be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with applicable law; and (ii) not affect the validity or enforceability of any other provisions of these Subscription Materials, and to this extent the provisions of these Subscription Materials shall be severable.

10.        Successors and Assigns. These Subscription Materials (i) shall be binding upon the Investor and the heirs, legal representatives, successors and permitted assigns of the Investor and shall inure to the benefit of the Company and its successors and assigns, (ii) shall survive the acceptance of the Investor as a Member of the Company, (iii) shall, if the Investor consists of more than one person, be the joint and several obligation of each, and (iv) may be executed in counterparts, all of which when taken together, shall be deemed one original.

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11.        Survival. The representations and warranties of the Investor in, and the other provisions of, these Subscription Materials shall survive the execution and delivery of these Subscription Materials and the admission of the Investor to the Company.

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7

Exhibit B

Investor Status

Accredited Investor. The Investor is an “accredited investor” within the meaning of Rule 501 of Regulation D under the U.S. Securities Act of 1933, as amended, and has circled the letter(s) below that are next to the category or categories under which the Investor qualifies as an “accredited investor.”  The Investor agrees to provide such further information and execute and deliver such documents as the Managers or the Company may reasonably request from time to time to verify that the Investor qualifies as an “accredited investor.”

Circle the items applicable to the Investor:

(A)       A natural person with individual net worth (or joint net worth with spouse) at the time of his or her purchase in excess of $1 million. For purposes of this item, “net worth” means the excess of total assets at fair market value (and including property owned by a spouse) over total liabilities, excluding the value of a person’s primary residence. The related amount of indebtedness secured by the primary residence up to its fair market value should be subtracted from the value of a person’s primary residence for purposes of the foregoing (except that if the amount of such indebtedness outstanding at the time of the Investor’s investment in the Company exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability). Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from the person’s net worth.

(B)        A natural person with an individual income (without including any income of my spouse) in excess of $200,000, in each of the two most recent years, or a joint income with his or her spouse in excess of $300,000, in each of the two most recent years, and a reasonable expectation to reach the same income level in the current year.

(C)        A corporation, limited liability company or partnership, an organization described in Section 501(c)(3) of the Internal Revenue Code, Massachusetts or similar business trust, or a trust whose purchase is directed by a person with knowledge and expertise in business matters as to be capable of evaluating the merits and risks of an investment in the Units, in each case not formed for the specific purpose of acquiring any Units, with total assets in excess of $5 million.

(D)        A trust with total assets in excess of $5 million not formed for the specific purpose of acquiring Units, whose purchase is directed by a person with such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Units.

(E)        An entity, including a grantor trust, in which all of the equity owners are accredited investors (for this purpose, a beneficiary of a trust is not an equity owner, but the grantor of a grantor trust may be an equity owner).

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EX-10.6

Exhibit 10.6

SUBSCRIPTION MATERIALS

AMPHASTAR CAYMAN

a Cayman Islands limited liability company

These subscription materials (the “Subscription Materials”) set out representations, warranties and undertakings required to be made in connection with an investment in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”).  Any investment in the Company may be approved or disapproved in the reasonable discretion of Jason Shandell and William Peters, as the initial managers of the Company (the “Managers”).

To complete these Subscription Materials, please complete the steps as follows:

1. Investor Undertakings. Carefully review the “Investor Undertakings” provided as Exhibit A.

2. Investor Status. Mark where appropriate to confirm status as an “Accredited Investor” on Exhibit B.

3. Tax Form. Complete and return an IRS Form W-9, available at:https://www.irs.gov/pub/irs-pdf/fw9.pdf

4. Complete, Sign and Return.  Complete all “Investor” information in these Subscription Materials, sign the signature page hereto and return, completed and signed, to the Company.

SUBSCRIPTION MATERIALS

The undersigned investor (the “Investor”) subscribes for and agrees to purchase interests designated as units (each, a “Unit” and collectively, the “Units”) in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”), with one or more capital contributions as set forth below. The Investor agrees to be bound by all the terms and provisions of these Subscription Materials and the Amended and Restated Limited Liability Company Agreement of the Company (as amended and/or restated from time to time, the “Company Agreement”) in the final form provided to the Investor. Capitalized terms not defined herein are used as defined in the Company Agreement.

The Investor further confirms that he has carefully read and completed the Investor Undertakings at Exhibit A hereto and the Investor Status confirmation at Exhibit B hereto, each of which comprise part of these Subscription Materials, and hereby expressly makes each representation, warranty, covenant and other undertaking set forth therein.

Investor Information

Full Legal Name of Investor
For Entities	For Natural Persons
	Chieh-Lin J. Lee
Type of Entity:	First Name, Middle Initial, Last Name
For Entities	For Natural Persons
Date of Organization:	Date of Birth:
State of Organization:
Mailing Address	Telephone Number:
Address – Line 1:
Address – Line 2:	E-Mail Address:
City and State:
Postal Code:
Social Security Number or Tax Identification Number:

If investment is accepted, distributions made to Investor may be wired to:

Bank Name:

ABA Routing Number:

Bank Address:

Account Name:

Account Number:

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned Investor has executed and delivered these Subscription Materials and agrees to be bound by these Subscription Materials and the Company Agreement.

Capital Contribution		For Natural Persons:
		/s/ Chieh-Lin J. Lee
		Name:	Chieh-Lin J. Lee
US$	510,000
Date:	June 28, 2018	For Entities:
		By:
		Name:
		Title:

ACCEPTANCE OF SUBSCRIPTION

(to be filled out only by the Managers of the Company)

The Managers hereby accept the above application for subscription for Units on behalf of the Company.

Name of Investor:	Chieh-Lin J. Lee
Amount of Capital Contribution Accepted: US$	510,000

Managers:
/s/Jason Shandell
Jason Shandell
/s/William Peters
William Peters
	Date:	June 28, 2018
	Accepted for	June 28, 2018
	Admission as of:

3

Exhibit A

Investor Undertakings

Pursuant to its signature on the foregoing Subscription Materials, the Investor represents, warrants and agrees as follows:

1.          General.

(a)         The Investor has been furnished and has carefully read in its entirety the Company Agreement.  Without limiting the foregoing, the Investor understands that investment in the Company is subject to various risks and uncertainties, which may lead to the complete loss of any investment the Investor makes in the Company.

(b)         The Investor has no contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or pledge to such person or entity or to anyone else any of the Units that the Investor hereby subscribes to purchase, or any part thereof, and the Investor has no present plans to enter into any such contract, undertaking, agreement or arrangement. The Investor will not transfer or deliver any interest in the Company other than pursuant to the terms and restrictions set forth in the Company Agreement.

(c)         The Investor understands that the Units have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), the securities laws of any state or the securities laws of any other jurisdiction, nor is any such registration contemplated. The Investor will not assign, transfer, offer, sell, pledge, hypothecate or otherwise dispose of all or any part of its Units (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of all or any part of its Units), or otherwise seek to withdraw from the Company, except in accordance with:  (i) the registration provisions of the 1933 Act or an exemption from such registration provisions, (ii) the securities and similar laws of each applicable jurisdiction, and (iii) the terms of the Company Agreement. The Investor is able to bear the risks of holding the Units as an illiquid investment for an indefinite period of time and can afford to suffer a loss of its entire investment in the Units.

(d)         Other than pursuant to the Company Agreement, the Investor is not relying, and will not rely, upon any information, representation or warranty by the Company, the Managers, or any Affiliate of the foregoing or any agent of them, written or otherwise, in determining to invest in the Company. The Investor has consulted, to the extent deemed appropriate by the Investor, with the Investor’s own advisers as to the financial, tax, regulatory, legal, accounting and related matters concerning an investment in Units and on that basis understands such matters and related consequences of an investment in the Units, and believes that an investment in the Units is suitable and appropriate for the Investor.

(e)         If the Investor is not an individual, (i) the Investor is duly organized, formed or incorporated, as the case may be, and validly existing and in good standing under the laws of the Investor’s jurisdiction of organization, formation, or incorporation, and (ii) the Investor has the power and authority to enter into the Company Agreement, and to perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby.

(f)         These Subscription Materials have been duly executed by the Investor and constitute, and the Company Agreement will constitute, a valid and legally binding agreement of the Investor, enforceable against him in accordance with its terms. The execution and delivery by the Investor of, and compliance by the Investor with, these Subscription Materials and the Company Agreement do not violate, represent a breach of, or constitute a default under, any instruments governing the Investor, any law, regulation or order, or any agreement to which the Investor is a party or by which the Investor is bound.

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2.          Status.  The Investor is an “accredited investor” within the meaning of Regulation D under the 1933 Act. The Investor has indicated the basis for such status, as applicable, on Exhibit B hereto.

3.          No Disqualifying Event.  Neither the Investor nor, in the case of an Investor that is not an individual, any of its directors, officers, general partners, managers, managing members or any person whose interest in, or relationship to, the Investor is deemed to make that person a beneficial owner of the Investor’s voting securities within the meaning of Rule 506(d) of the 1933 Act, is subject to any of the “bad actor” disqualifications described in Rule 506(d)(1) under the 1933 Act (each event, a “Disqualifying Event”), except for Disqualifying Events covered by Rule 506(d)(2)(ii) or (iii) or (d)(3) under the 1933 Act and disclosed reasonably in advance of the Investor’s investment in writing in reasonable detail to the Company.   The Investor will promptly notify the Company in writing to the extent that any person listed above becomes, or is reasonably likely to become, subject to a Disqualifying Event.

4.          Anti-Money Laundering, Source of Funds, etc. Neither the Investor, nor any of its Affiliates or beneficial owners, appears on the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”), nor are they otherwise a party with which the Company is prohibited to deal under the laws of the United States. The Investor further represents that the monies used to fund the investment in the Units are not derived from, invested for the benefit of, or related in any way to, the governments of, or Persons within, (i) any country under a U.S. embargo enforced by OFAC, (ii) that has been designated as a “non-cooperative country or territory” by the Financial Action Task Force on Money Laundering or (iii) that has been designated by the U.S. Secretary of the Treasury as a “primary money laundering concern.”  The Investor further represents and warrants that the Investor: (a) has conducted thorough due diligence with respect to all of its beneficial owners, (b) has established the identities of all beneficial owners and the source of each of the beneficial owner’s funds and (c) will retain evidence of any such identities, any such source of funds and any such due diligence. The Investor further represents that it does not know or have any reason to suspect that (x) the monies used to fund the Investor’s investment in the Units have been or will be derived from or related to any illegal activities, including but not limited to, money laundering activities and (y) the proceeds from the Investor’s investment in the Units will be used to finance any illegal activities. The Investor further agrees and acknowledges that, among other remedial measures, (i) the Managers, on their own behalf and on behalf of the Company, may be obligated to “freeze the account” of such Investor, either by prohibiting additional investments by the Investor and/or segregating assets of the Investor in compliance with governmental regulations and/or if the Managers determine in good faith that such action is in the best interests of the Company, and (ii) the Managers, on their own behalf and on behalf of the Company, may be required to report such action or confidential information relating to the Investor (including, without limitation, disclosing the Investor’s identity) to the regulatory authorities.

5.          Further Advice and Assurances. All information that the Investor has provided to the Company, including the information in these Subscription Materials, is true, correct and complete as of the date hereof, and the Investor agrees to notify the Managers immediately if any representation or warranty contained in these Subscription Materials or any of the information in the exhibits hereto, becomes untrue at any time. The Investor will provide such information and execute and deliver such documents with respect to itself and its direct and indirect beneficial owners as the Managers may require to verify the accuracy of the Investor’s representations and warranties herein, establish the identity of the Investor and any direct and indirect participants in its investment in Units, to the extent applicable, and/or to comply with any law, rule or regulation to which the Company may be subject, including, without limitation, compliance with anti-money laundering laws and regulations.

6.          Power of Attorney.  The Investor, by executing these Subscription Materials, hereby appoints the Managers, with full power of substitution, as the Investor’s true and lawful representative and attorney-in-fact, and agent of the Investor, with full power and authority to make, execute, acknowledge,

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verify, swear to, deliver, record and file, in the Investor’s name, place and stead, the Company Agreement (thereby causing the Investor to be admitted as a Member in the Company), or any other agreement or instrument that the Managers deem appropriate to admit the Investor as a Member of the Company.  To the maximum extent permitted by law, this power of attorney is coupled with an interest, is irrevocable and will survive, and will not be affected by, the subsequent death, disability, incapacity, incompetency, termination, bankruptcy, insolvency or dissolution of the Investor.  The Investor represents and warrants that the power of attorney granted by the Investor has been executed by it in compliance with the laws of the state or jurisdiction in which these Subscription Materials were executed and to which the Investor is subject.

7.          Governing Law; Consent to Jurisdiction; Venue and Service of Process.  These Subscription Materials shall be construed in accordance with and governed by the laws of the Cayman Islands without regard to its conflicts of law rules, notwithstanding the place where these Subscription Materials may be executed by any party.  Except as otherwise specifically provided in these Subscription Materials, as otherwise required by a non-waivable provision of applicable law, or as otherwise agreed by the Managers, any controversy, claim or other dispute arising out of or relating to these Subscription Materials shall be resolved exclusively through binding arbitration in accordance with the Expedited Procedures and Commercial Arbitration Rules of the American Arbitration Association (www.adr.com), and judgment upon an award arising in connection therewith may be entered in any court of competent jurisdiction.  THE INVESTORS EXPRESSLY ACKNOWLEDGE THAT, UNDER THE PRECEDING SENTENCE, THEY ARE, TO THE FULLEST EXTENT PERMITTED BY LAW AND EXCEPT AS OTHERWISE AGREED TO IN WRITING WITH THE MANAGERS, WAIVING THEIR RIGHT TO A JURY TRIAL WITH REGARD TO ALL MATTERS FOR WHICH ARBITRATION IS REQUIRED.  Any arbitration, mediation, court action, or other adjudicative proceeding arising out of or relating to these Subscription Materials shall be held in Orange County, California or, if such proceeding cannot be lawfully held in such location, as near thereto as applicable law permits.  The arbitrator(s) shall apply the substantive law of the Cayman Islands.  To the maximum extent permitted by applicable law, in any dispute relating to the obligation of a party to make indemnification payments, the burden of proof shall be upon the party seeking to avoid making such payments.  The resolution of any controversy or claim described in this Section 7 shall be conducted in the English language and, to the maximum extent reasonably practicable, in a manner that preserves the confidentiality of Confidential Information and otherwise minimizes disruption to the operations of the Company.

8.          Entire Agreement. These Subscription Materials along with the Company Agreement and any other agreement between the Investor and the Managers and/or the Company constitute the entire agreement between the parties hereto with respect to the subject matter of these Subscription Materials and may be amended only in writing, executed by all parties hereto.

9.          Severability. Each provision of these Subscription Materials shall be considered severable.  If it is determined by a court of competent jurisdiction that any provision of these Subscription Materials is invalid or unenforceable under any applicable law, then that provision shall (i) be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with applicable law; and (ii) not affect the validity or enforceability of any other provisions of these Subscription Materials, and to this extent the provisions of these Subscription Materials shall be severable.

10.        Successors and Assigns. These Subscription Materials (i) shall be binding upon the Investor and the heirs, legal representatives, successors and permitted assigns of the Investor and shall inure to the benefit of the Company and its successors and assigns, (ii) shall survive the acceptance of the Investor as a Member of the Company, (iii) shall, if the Investor consists of more than one person, be the joint and several obligation of each, and (iv) may be executed in counterparts, all of which when taken together, shall be deemed one original.

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11.        Survival. The representations and warranties of the Investor in, and the other provisions of, these Subscription Materials shall survive the execution and delivery of these Subscription Materials and the admission of the Investor to the Company.

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Exhibit B

Investor Status

Accredited Investor. The Investor is an “accredited investor” within the meaning of Rule 501 of Regulation D under the U.S. Securities Act of 1933, as amended, and has circled the letter(s) below that are next to the category or categories under which the Investor qualifies as an “accredited investor.”  The Investor agrees to provide such further information and execute and deliver such documents as the Managers or the Company may reasonably request from time to time to verify that the Investor qualifies as an “accredited investor.”

Circle the items applicable to the Investor:

(A)       A natural person with individual net worth (or joint net worth with spouse) at the time of his or her purchase in excess of $1 million. For purposes of this item, “net worth” means the excess of total assets at fair market value (and including property owned by a spouse) over total liabilities, excluding the value of a person’s primary residence. The related amount of indebtedness secured by the primary residence up to its fair market value should be subtracted from the value of a person’s primary residence for purposes of the foregoing (except that if the amount of such indebtedness outstanding at the time of the Investor’s investment in the Company exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability). Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from the person’s net worth.

(B)        A natural person with an individual income (without including any income of my spouse) in excess of $200,000, in each of the two most recent years, or a joint income with his or her spouse in excess of $300,000, in each of the two most recent years, and a reasonable expectation to reach the same income level in the current year.

(C)        A corporation, limited liability company or partnership, an organization described in Section 501(c)(3) of the Internal Revenue Code, Massachusetts or similar business trust, or a trust whose purchase is directed by a person with knowledge and expertise in business matters as to be capable of evaluating the merits and risks of an investment in the Units, in each case not formed for the specific purpose of acquiring any Units, with total assets in excess of $5 million.

(D)        A trust with total assets in excess of $5 million not formed for the specific purpose of acquiring Units, whose purchase is directed by a person with such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Units.

(E)        An entity, including a grantor trust, in which all of the equity owners are accredited investors (for this purpose, a beneficiary of a trust is not an equity owner, but the grantor of a grantor trust may be an equity owner).

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EX-10.7

Exhibit 10.7

SUBSCRIPTION MATERIALS

AMPHASTAR CAYMAN

a Cayman Islands limited liability company

These subscription materials (the “Subscription Materials”) set out representations, warranties and undertakings required to be made in connection with an investment in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”).  Any investment in the Company may be approved or disapproved in the reasonable discretion of Jason Shandell and William Peters, as the initial managers of the Company (the “Managers”).

To complete these Subscription Materials, please complete the steps as follows:

1. Investor Undertakings. Carefully review the “Investor Undertakings” provided as Exhibit A.

2. Investor Status. Mark where appropriate to confirm status as an “Accredited Investor” on Exhibit B.

3. Tax Form. Complete and return an IRS Form W-9, available at:https://www.irs.gov/pub/irs-pdf/fw9.pdf

4. Complete, Sign and Return.  Complete all “Investor” information in these Subscription Materials, sign the signature page hereto and return, completed and signed, to the Company.

SUBSCRIPTION MATERIALS

The undersigned investor (the “Investor”) subscribes for and agrees to purchase interests designated as units (each, a “Unit” and collectively, the “Units”) in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”), with one or more capital contributions as set forth below. The Investor agrees to be bound by all the terms and provisions of these Subscription Materials and the Amended and Restated Limited Liability Company Agreement of the Company (as amended and/or restated from time to time, the “Company Agreement”) in the final form provided to the Investor. Capitalized terms not defined herein are used as defined in the Company Agreement.

The Investor further confirms that he has carefully read and completed the Investor Undertakings at Exhibit A hereto and the Investor Status confirmation at Exhibit B hereto, each of which comprise part of these Subscription Materials, and hereby expressly makes each representation, warranty, covenant and other undertaking set forth therein.

Investor Information

Full Legal Name of Investor
For Entities	For Natural Persons
	Yu-Chieh  W. Lee
Type of Entity:	First Name, Middle Initial, Last Name
For Entities	For Natural Persons
Date of Organization:	Date of Birth:
State of Organization:
Mailing Address	Telephone Number:
Address – Line 1:
Address – Line 2:	E-Mail Address:
City and State:
Postal Code:
Social Security Number or Tax Identification Number:

If investment is accepted, distributions made to Investor may be wired to:

Bank Name:

ABA Routing Number:

Bank Address:

Account Name:

Account Number:

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned Investor has executed and delivered these Subscription Materials and agrees to be bound by these Subscription Materials and the Company Agreement.

Capital Contribution		For Natural Persons:
		/s/ Yu-Chieh W. Lee
		Name:	Yu-Chieh W. Lee
US$	510,000
Date:	June 28, 2018	For Entities:
		By:
		Name:
		Title:

ACCEPTANCE OF SUBSCRIPTION

(to be filled out only by the Managers of the Company)

The Managers hereby accept the above application for subscription for Units on behalf of the Company.

Name of Investor:	Yu-Chieh W. Lee
Amount of Capital Contribution Accepted: US$	510,000

Managers:
/s/Jason Shandell
Jason Shandell
/s/William Peters
William Peters
	Date:	June 28, 2018
	Accepted for	June 28, 2018
	Admission as of:

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Exhibit A

Investor Undertakings

Pursuant to its signature on the foregoing Subscription Materials, the Investor represents, warrants and agrees as follows:

1.          General.

(a)         The Investor has been furnished and has carefully read in its entirety the Company Agreement.  Without limiting the foregoing, the Investor understands that investment in the Company is subject to various risks and uncertainties, which may lead to the complete loss of any investment the Investor makes in the Company.

(b)         The Investor has no contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or pledge to such person or entity or to anyone else any of the Units that the Investor hereby subscribes to purchase, or any part thereof, and the Investor has no present plans to enter into any such contract, undertaking, agreement or arrangement. The Investor will not transfer or deliver any interest in the Company other than pursuant to the terms and restrictions set forth in the Company Agreement.

(c)         The Investor understands that the Units have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), the securities laws of any state or the securities laws of any other jurisdiction, nor is any such registration contemplated. The Investor will not assign, transfer, offer, sell, pledge, hypothecate or otherwise dispose of all or any part of its Units (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of all or any part of its Units), or otherwise seek to withdraw from the Company, except in accordance with:  (i) the registration provisions of the 1933 Act or an exemption from such registration provisions, (ii) the securities and similar laws of each applicable jurisdiction, and (iii) the terms of the Company Agreement. The Investor is able to bear the risks of holding the Units as an illiquid investment for an indefinite period of time and can afford to suffer a loss of its entire investment in the Units.

(d)         Other than pursuant to the Company Agreement, the Investor is not relying, and will not rely, upon any information, representation or warranty by the Company, the Managers, or any Affiliate of the foregoing or any agent of them, written or otherwise, in determining to invest in the Company. The Investor has consulted, to the extent deemed appropriate by the Investor, with the Investor’s own advisers as to the financial, tax, regulatory, legal, accounting and related matters concerning an investment in Units and on that basis understands such matters and related consequences of an investment in the Units, and believes that an investment in the Units is suitable and appropriate for the Investor.

(e)         If the Investor is not an individual, (i) the Investor is duly organized, formed or incorporated, as the case may be, and validly existing and in good standing under the laws of the Investor’s jurisdiction of organization, formation, or incorporation, and (ii) the Investor has the power and authority to enter into the Company Agreement, and to perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby.

(f)         These Subscription Materials have been duly executed by the Investor and constitute, and the Company Agreement will constitute, a valid and legally binding agreement of the Investor, enforceable against him in accordance with its terms. The execution and delivery by the Investor of, and compliance by the Investor with, these Subscription Materials and the Company Agreement do not violate, represent a breach of, or constitute a default under, any instruments governing the Investor, any law, regulation or order, or any agreement to which the Investor is a party or by which the Investor is bound.

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2.          Status.  The Investor is an “accredited investor” within the meaning of Regulation D under the 1933 Act. The Investor has indicated the basis for such status, as applicable, on Exhibit B hereto.

3.          No Disqualifying Event.  Neither the Investor nor, in the case of an Investor that is not an individual, any of its directors, officers, general partners, managers, managing members or any person whose interest in, or relationship to, the Investor is deemed to make that person a beneficial owner of the Investor’s voting securities within the meaning of Rule 506(d) of the 1933 Act, is subject to any of the “bad actor” disqualifications described in Rule 506(d)(1) under the 1933 Act (each event, a “Disqualifying Event”), except for Disqualifying Events covered by Rule 506(d)(2)(ii) or (iii) or (d)(3) under the 1933 Act and disclosed reasonably in advance of the Investor’s investment in writing in reasonable detail to the Company.   The Investor will promptly notify the Company in writing to the extent that any person listed above becomes, or is reasonably likely to become, subject to a Disqualifying Event.

4.          Anti-Money Laundering, Source of Funds, etc. Neither the Investor, nor any of its Affiliates or beneficial owners, appears on the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”), nor are they otherwise a party with which the Company is prohibited to deal under the laws of the United States. The Investor further represents that the monies used to fund the investment in the Units are not derived from, invested for the benefit of, or related in any way to, the governments of, or Persons within, (i) any country under a U.S. embargo enforced by OFAC, (ii) that has been designated as a “non-cooperative country or territory” by the Financial Action Task Force on Money Laundering or (iii) that has been designated by the U.S. Secretary of the Treasury as a “primary money laundering concern.”  The Investor further represents and warrants that the Investor: (a) has conducted thorough due diligence with respect to all of its beneficial owners, (b) has established the identities of all beneficial owners and the source of each of the beneficial owner’s funds and (c) will retain evidence of any such identities, any such source of funds and any such due diligence. The Investor further represents that it does not know or have any reason to suspect that (x) the monies used to fund the Investor’s investment in the Units have been or will be derived from or related to any illegal activities, including but not limited to, money laundering activities and (y) the proceeds from the Investor’s investment in the Units will be used to finance any illegal activities. The Investor further agrees and acknowledges that, among other remedial measures, (i) the Managers, on their own behalf and on behalf of the Company, may be obligated to “freeze the account” of such Investor, either by prohibiting additional investments by the Investor and/or segregating assets of the Investor in compliance with governmental regulations and/or if the Managers determine in good faith that such action is in the best interests of the Company, and (ii) the Managers, on their own behalf and on behalf of the Company, may be required to report such action or confidential information relating to the Investor (including, without limitation, disclosing the Investor’s identity) to the regulatory authorities.

5.          Further Advice and Assurances. All information that the Investor has provided to the Company, including the information in these Subscription Materials, is true, correct and complete as of the date hereof, and the Investor agrees to notify the Managers immediately if any representation or warranty contained in these Subscription Materials or any of the information in the exhibits hereto, becomes untrue at any time. The Investor will provide such information and execute and deliver such documents with respect to itself and its direct and indirect beneficial owners as the Managers may require to verify the accuracy of the Investor’s representations and warranties herein, establish the identity of the Investor and any direct and indirect participants in its investment in Units, to the extent applicable, and/or to comply with any law, rule or regulation to which the Company may be subject, including, without limitation, compliance with anti-money laundering laws and regulations.

6.          Power of Attorney.  The Investor, by executing these Subscription Materials, hereby appoints the Managers, with full power of substitution, as the Investor’s true and lawful representative and attorney-in-fact, and agent of the Investor, with full power and authority to make, execute, acknowledge,

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verify, swear to, deliver, record and file, in the Investor’s name, place and stead, the Company Agreement (thereby causing the Investor to be admitted as a Member in the Company), or any other agreement or instrument that the Managers deem appropriate to admit the Investor as a Member of the Company.  To the maximum extent permitted by law, this power of attorney is coupled with an interest, is irrevocable and will survive, and will not be affected by, the subsequent death, disability, incapacity, incompetency, termination, bankruptcy, insolvency or dissolution of the Investor.  The Investor represents and warrants that the power of attorney granted by the Investor has been executed by it in compliance with the laws of the state or jurisdiction in which these Subscription Materials were executed and to which the Investor is subject.

7.          Governing Law; Consent to Jurisdiction; Venue and Service of Process.  These Subscription Materials shall be construed in accordance with and governed by the laws of the Cayman Islands without regard to its conflicts of law rules, notwithstanding the place where these Subscription Materials may be executed by any party.  Except as otherwise specifically provided in these Subscription Materials, as otherwise required by a non-waivable provision of applicable law, or as otherwise agreed by the Managers, any controversy, claim or other dispute arising out of or relating to these Subscription Materials shall be resolved exclusively through binding arbitration in accordance with the Expedited Procedures and Commercial Arbitration Rules of the American Arbitration Association (www.adr.com), and judgment upon an award arising in connection therewith may be entered in any court of competent jurisdiction.  THE INVESTORS EXPRESSLY ACKNOWLEDGE THAT, UNDER THE PRECEDING SENTENCE, THEY ARE, TO THE FULLEST EXTENT PERMITTED BY LAW AND EXCEPT AS OTHERWISE AGREED TO IN WRITING WITH THE MANAGERS, WAIVING THEIR RIGHT TO A JURY TRIAL WITH REGARD TO ALL MATTERS FOR WHICH ARBITRATION IS REQUIRED.  Any arbitration, mediation, court action, or other adjudicative proceeding arising out of or relating to these Subscription Materials shall be held in Orange County, California or, if such proceeding cannot be lawfully held in such location, as near thereto as applicable law permits.  The arbitrator(s) shall apply the substantive law of the Cayman Islands.  To the maximum extent permitted by applicable law, in any dispute relating to the obligation of a party to make indemnification payments, the burden of proof shall be upon the party seeking to avoid making such payments.  The resolution of any controversy or claim described in this Section 7 shall be conducted in the English language and, to the maximum extent reasonably practicable, in a manner that preserves the confidentiality of Confidential Information and otherwise minimizes disruption to the operations of the Company.

8.          Entire Agreement. These Subscription Materials along with the Company Agreement and any other agreement between the Investor and the Managers and/or the Company constitute the entire agreement between the parties hereto with respect to the subject matter of these Subscription Materials and may be amended only in writing, executed by all parties hereto.

9.          Severability. Each provision of these Subscription Materials shall be considered severable.  If it is determined by a court of competent jurisdiction that any provision of these Subscription Materials is invalid or unenforceable under any applicable law, then that provision shall (i) be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with applicable law; and (ii) not affect the validity or enforceability of any other provisions of these Subscription Materials, and to this extent the provisions of these Subscription Materials shall be severable.

10.        Successors and Assigns. These Subscription Materials (i) shall be binding upon the Investor and the heirs, legal representatives, successors and permitted assigns of the Investor and shall inure to the benefit of the Company and its successors and assigns, (ii) shall survive the acceptance of the Investor as a Member of the Company, (iii) shall, if the Investor consists of more than one person, be the joint and several obligation of each, and (iv) may be executed in counterparts, all of which when taken together, shall be deemed one original.

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11.        Survival. The representations and warranties of the Investor in, and the other provisions of, these Subscription Materials shall survive the execution and delivery of these Subscription Materials and the admission of the Investor to the Company.

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Exhibit B

Investor Status

Accredited Investor. The Investor is an “accredited investor” within the meaning of Rule 501 of Regulation D under the U.S. Securities Act of 1933, as amended, and has circled the letter(s) below that are next to the category or categories under which the Investor qualifies as an “accredited investor.”  The Investor agrees to provide such further information and execute and deliver such documents as the Managers or the Company may reasonably request from time to time to verify that the Investor qualifies as an “accredited investor.”

Circle the items applicable to the Investor:

(A)       A natural person with individual net worth (or joint net worth with spouse) at the time of his or her purchase in excess of $1 million. For purposes of this item, “net worth” means the excess of total assets at fair market value (and including property owned by a spouse) over total liabilities, excluding the value of a person’s primary residence. The related amount of indebtedness secured by the primary residence up to its fair market value should be subtracted from the value of a person’s primary residence for purposes of the foregoing (except that if the amount of such indebtedness outstanding at the time of the Investor’s investment in the Company exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability). Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from the person’s net worth.

(B)        A natural person with an individual income (without including any income of my spouse) in excess of $200,000, in each of the two most recent years, or a joint income with his or her spouse in excess of $300,000, in each of the two most recent years, and a reasonable expectation to reach the same income level in the current year.

(C)        A corporation, limited liability company or partnership, an organization described in Section 501(c)(3) of the Internal Revenue Code, Massachusetts or similar business trust, or a trust whose purchase is directed by a person with knowledge and expertise in business matters as to be capable of evaluating the merits and risks of an investment in the Units, in each case not formed for the specific purpose of acquiring any Units, with total assets in excess of $5 million.

(D)        A trust with total assets in excess of $5 million not formed for the specific purpose of acquiring Units, whose purchase is directed by a person with such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Units.

(E)        An entity, including a grantor trust, in which all of the equity owners are accredited investors (for this purpose, a beneficiary of a trust is not an equity owner, but the grantor of a grantor trust may be an equity owner).

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EX-10.8

Exhibit 10.8

SUBSCRIPTION MATERIALS

AMPHASTAR CAYMAN

a Cayman Islands limited liability company

These subscription materials (the “Subscription Materials”) set out representations, warranties and undertakings required to be made in connection with an investment in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”).  Any investment in the Company may be approved or disapproved in the reasonable discretion of Jason Shandell and William Peters, as the initial managers of the Company (the “Managers”).

To complete these Subscription Materials, please complete the steps as follows:

1. Investor Undertakings. Carefully review the “Investor Undertakings” provided as Exhibit A.

2. Investor Status. Mark where appropriate to confirm status as an “Accredited Investor” on Exhibit B.

3. Tax Form. Complete and return an IRS Form W-9, available at:https://www.irs.gov/pub/irs-pdf/fw9.pdf

4. Complete, Sign and Return.  Complete all “Investor” information in these Subscription Materials, sign the signature page hereto and return, completed and signed, to the Company.

SUBSCRIPTION MATERIALS

The undersigned investor (the “Investor”) subscribes for and agrees to purchase interests designated as units (each, a “Unit” and collectively, the “Units”) in Amphastar Cayman, a Cayman Islands limited liability company (the “Company”), with one or more capital contributions as set forth below. The Investor agrees to be bound by all the terms and provisions of these Subscription Materials and the Amended and Restated Limited Liability Company Agreement of the Company (as amended and/or restated from time to time, the “Company Agreement”) in the final form provided to the Investor. Capitalized terms not defined herein are used as defined in the Company Agreement.

The Investor further confirms that he has carefully read and completed the Investor Undertakings at Exhibit A hereto and the Investor Status confirmation at Exhibit B hereto, each of which comprise part of these Subscription Materials, and hereby expressly makes each representation, warranty, covenant and other undertaking set forth therein.

Investor Information

Full Legal Name of Investor
For Entities		For Natural Persons
KYW Investment Partnership
Type of Entity:Partnership		First Name, Middle Initial, Last Name
For Entities		For Natural Persons
Date of Organization:	6/9/2014	Date of Birth:
State of Organization:	California
Mailing Address		Telephone Number:
Address – Line 1:
Address – Line 2:		E-Mail Address:
City and State:
Postal Code:
Social Security Number or Tax Identification Number:

If investment is accepted, distributions made to Investor may be wired to:

Bank Name:

ABA Routing Number:

Bank Address:

Account Name:

Account Number:

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned Investor has executed and delivered these Subscription Materials and agrees to be bound by these Subscription Materials and the Company Agreement.

Capital Contribution		For Natural Persons:
		Name:
US$	816,000
Date:	June 27, 2018	For Entities:
		KYW Investment Partnership
		By:	/s/Yvette Koo
		Name:	Yvette Koo
		Title:	Gen. Partner

ACCEPTANCE OF SUBSCRIPTION

(to be filled out only by the Managers of the Company)

The Managers hereby accept the above application for subscription for Units on behalf of the Company.

Name of Investor:	KYW Investment Partnership
Amount of Capital Contribution Accepted: US$	816,000

Managers:
/s/Jason Shandell
Jason Shandell
/s/William Peters
William Peters
	Date:	June 28, 2018
	Accepted for	June 28, 2018
	Admission as of:

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Exhibit A

Investor Undertakings

Pursuant to its signature on the foregoing Subscription Materials, the Investor represents, warrants and agrees as follows:

1.          General.

(a)         The Investor has been furnished and has carefully read in its entirety the Company Agreement.  Without limiting the foregoing, the Investor understands that investment in the Company is subject to various risks and uncertainties, which may lead to the complete loss of any investment the Investor makes in the Company.

(b)         The Investor has no contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or pledge to such person or entity or to anyone else any of the Units that the Investor hereby subscribes to purchase, or any part thereof, and the Investor has no present plans to enter into any such contract, undertaking, agreement or arrangement. The Investor will not transfer or deliver any interest in the Company other than pursuant to the terms and restrictions set forth in the Company Agreement.

(c)         The Investor understands that the Units have not been registered under the Securities Act of 1933, as amended (the “1933 Act”), the securities laws of any state or the securities laws of any other jurisdiction, nor is any such registration contemplated. The Investor will not assign, transfer, offer, sell, pledge, hypothecate or otherwise dispose of all or any part of its Units (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of all or any part of its Units), or otherwise seek to withdraw from the Company, except in accordance with:  (i) the registration provisions of the 1933 Act or an exemption from such registration provisions, (ii) the securities and similar laws of each applicable jurisdiction, and (iii) the terms of the Company Agreement. The Investor is able to bear the risks of holding the Units as an illiquid investment for an indefinite period of time and can afford to suffer a loss of its entire investment in the Units.

(d)         Other than pursuant to the Company Agreement, the Investor is not relying, and will not rely, upon any information, representation or warranty by the Company, the Managers, or any Affiliate of the foregoing or any agent of them, written or otherwise, in determining to invest in the Company. The Investor has consulted, to the extent deemed appropriate by the Investor, with the Investor’s own advisers as to the financial, tax, regulatory, legal, accounting and related matters concerning an investment in Units and on that basis understands such matters and related consequences of an investment in the Units, and believes that an investment in the Units is suitable and appropriate for the Investor.

(e)         If the Investor is not an individual, (i) the Investor is duly organized, formed or incorporated, as the case may be, and validly existing and in good standing under the laws of the Investor’s jurisdiction of organization, formation, or incorporation, and (ii) the Investor has the power and authority to enter into the Company Agreement, and to perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby.

(f)         These Subscription Materials have been duly executed by the Investor and constitute, and the Company Agreement will constitute, a valid and legally binding agreement of the Investor, enforceable against him in accordance with its terms. The execution and delivery by the Investor of, and compliance by the Investor with, these Subscription Materials and the Company Agreement do not violate, represent a breach of, or constitute a default under, any instruments governing the Investor, any law, regulation or order, or any agreement to which the Investor is a party or by which the Investor is bound.

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2.          Status.  The Investor is an “accredited investor” within the meaning of Regulation D under the 1933 Act. The Investor has indicated the basis for such status, as applicable, on Exhibit B hereto.

3.          No Disqualifying Event.  Neither the Investor nor, in the case of an Investor that is not an individual, any of its directors, officers, general partners, managers, managing members or any person whose interest in, or relationship to, the Investor is deemed to make that person a beneficial owner of the Investor’s voting securities within the meaning of Rule 506(d) of the 1933 Act, is subject to any of the “bad actor” disqualifications described in Rule 506(d)(1) under the 1933 Act (each event, a “Disqualifying Event”), except for Disqualifying Events covered by Rule 506(d)(2)(ii) or (iii) or (d)(3) under the 1933 Act and disclosed reasonably in advance of the Investor’s investment in writing in reasonable detail to the Company.   The Investor will promptly notify the Company in writing to the extent that any person listed above becomes, or is reasonably likely to become, subject to a Disqualifying Event.

4.          Anti-Money Laundering, Source of Funds, etc. Neither the Investor, nor any of its Affiliates or beneficial owners, appears on the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”), nor are they otherwise a party with which the Company is prohibited to deal under the laws of the United States. The Investor further represents that the monies used to fund the investment in the Units are not derived from, invested for the benefit of, or related in any way to, the governments of, or Persons within, (i) any country under a U.S. embargo enforced by OFAC, (ii) that has been designated as a “non-cooperative country or territory” by the Financial Action Task Force on Money Laundering or (iii) that has been designated by the U.S. Secretary of the Treasury as a “primary money laundering concern.”  The Investor further represents and warrants that the Investor: (a) has conducted thorough due diligence with respect to all of its beneficial owners, (b) has established the identities of all beneficial owners and the source of each of the beneficial owner’s funds and (c) will retain evidence of any such identities, any such source of funds and any such due diligence. The Investor further represents that it does not know or have any reason to suspect that (x) the monies used to fund the Investor’s investment in the Units have been or will be derived from or related to any illegal activities, including but not limited to, money laundering activities and (y) the proceeds from the Investor’s investment in the Units will be used to finance any illegal activities. The Investor further agrees and acknowledges that, among other remedial measures, (i) the Managers, on their own behalf and on behalf of the Company, may be obligated to “freeze the account” of such Investor, either by prohibiting additional investments by the Investor and/or segregating assets of the Investor in compliance with governmental regulations and/or if the Managers determine in good faith that such action is in the best interests of the Company, and (ii) the Managers, on their own behalf and on behalf of the Company, may be required to report such action or confidential information relating to the Investor (including, without limitation, disclosing the Investor’s identity) to the regulatory authorities.

5.          Further Advice and Assurances. All information that the Investor has provided to the Company, including the information in these Subscription Materials, is true, correct and complete as of the date hereof, and the Investor agrees to notify the Managers immediately if any representation or warranty contained in these Subscription Materials or any of the information in the exhibits hereto, becomes untrue at any time. The Investor will provide such information and execute and deliver such documents with respect to itself and its direct and indirect beneficial owners as the Managers may require to verify the accuracy of the Investor’s representations and warranties herein, establish the identity of the Investor and any direct and indirect participants in its investment in Units, to the extent applicable, and/or to comply with any law, rule or regulation to which the Company may be subject, including, without limitation, compliance with anti-money laundering laws and regulations.

6.          Power of Attorney.  The Investor, by executing these Subscription Materials, hereby appoints the Managers, with full power of substitution, as the Investor’s true and lawful representative and attorney-in-fact, and agent of the Investor, with full power and authority to make, execute, acknowledge,

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verify, swear to, deliver, record and file, in the Investor’s name, place and stead, the Company Agreement (thereby causing the Investor to be admitted as a Member in the Company), or any other agreement or instrument that the Managers deem appropriate to admit the Investor as a Member of the Company.  To the maximum extent permitted by law, this power of attorney is coupled with an interest, is irrevocable and will survive, and will not be affected by, the subsequent death, disability, incapacity, incompetency, termination, bankruptcy, insolvency or dissolution of the Investor.  The Investor represents and warrants that the power of attorney granted by the Investor has been executed by it in compliance with the laws of the state or jurisdiction in which these Subscription Materials were executed and to which the Investor is subject.

7.          Governing Law; Consent to Jurisdiction; Venue and Service of Process.  These Subscription Materials shall be construed in accordance with and governed by the laws of the Cayman Islands without regard to its conflicts of law rules, notwithstanding the place where these Subscription Materials may be executed by any party.  Except as otherwise specifically provided in these Subscription Materials, as otherwise required by a non-waivable provision of applicable law, or as otherwise agreed by the Managers, any controversy, claim or other dispute arising out of or relating to these Subscription Materials shall be resolved exclusively through binding arbitration in accordance with the Expedited Procedures and Commercial Arbitration Rules of the American Arbitration Association (www.adr.com), and judgment upon an award arising in connection therewith may be entered in any court of competent jurisdiction.  THE INVESTORS EXPRESSLY ACKNOWLEDGE THAT, UNDER THE PRECEDING SENTENCE, THEY ARE, TO THE FULLEST EXTENT PERMITTED BY LAW AND EXCEPT AS OTHERWISE AGREED TO IN WRITING WITH THE MANAGERS, WAIVING THEIR RIGHT TO A JURY TRIAL WITH REGARD TO ALL MATTERS FOR WHICH ARBITRATION IS REQUIRED.  Any arbitration, mediation, court action, or other adjudicative proceeding arising out of or relating to these Subscription Materials shall be held in Orange County, California or, if such proceeding cannot be lawfully held in such location, as near thereto as applicable law permits.  The arbitrator(s) shall apply the substantive law of the Cayman Islands.  To the maximum extent permitted by applicable law, in any dispute relating to the obligation of a party to make indemnification payments, the burden of proof shall be upon the party seeking to avoid making such payments.  The resolution of any controversy or claim described in this Section 7 shall be conducted in the English language and, to the maximum extent reasonably practicable, in a manner that preserves the confidentiality of Confidential Information and otherwise minimizes disruption to the operations of the Company.

8.          Entire Agreement. These Subscription Materials along with the Company Agreement and any other agreement between the Investor and the Managers and/or the Company constitute the entire agreement between the parties hereto with respect to the subject matter of these Subscription Materials and may be amended only in writing, executed by all parties hereto.

9.          Severability. Each provision of these Subscription Materials shall be considered severable.  If it is determined by a court of competent jurisdiction that any provision of these Subscription Materials is invalid or unenforceable under any applicable law, then that provision shall (i) be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with applicable law; and (ii) not affect the validity or enforceability of any other provisions of these Subscription Materials, and to this extent the provisions of these Subscription Materials shall be severable.

10.        Successors and Assigns. These Subscription Materials (i) shall be binding upon the Investor and the heirs, legal representatives, successors and permitted assigns of the Investor and shall inure to the benefit of the Company and its successors and assigns, (ii) shall survive the acceptance of the Investor as a Member of the Company, (iii) shall, if the Investor consists of more than one person, be the joint and several obligation of each, and (iv) may be executed in counterparts, all of which when taken together, shall be deemed one original.

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11.        Survival. The representations and warranties of the Investor in, and the other provisions of, these Subscription Materials shall survive the execution and delivery of these Subscription Materials and the admission of the Investor to the Company.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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Exhibit B

Investor Status

Accredited Investor. The Investor is an “accredited investor” within the meaning of Rule 501 of Regulation D under the U.S. Securities Act of 1933, as amended, and has circled the letter(s) below that are next to the category or categories under which the Investor qualifies as an “accredited investor.”  The Investor agrees to provide such further information and execute and deliver such documents as the Managers or the Company may reasonably request from time to time to verify that the Investor qualifies as an “accredited investor.”

Circle the items applicable to the Investor:

(A) A natural person with individual net worth (or joint net worth with spouse) at the time of his or her purchase in excess of $1 million. For purposes of this item, “net worth” means the excess of total assets at fair market value (and including property owned by a spouse) over total liabilities, excluding the value of a person’s primary residence. The related amount of indebtedness secured by the primary residence up to its fair market value should be subtracted from the value of a person’s primary residence for purposes of the foregoing (except that if the amount of such indebtedness outstanding at the time of the Investor’s investment in the Company exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability). Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from the person’s net worth.

(B)        A natural person with an individual income (without including any income of my spouse) in excess of $200,000, in each of the two most recent years, or a joint income with his or her spouse in excess of $300,000, in each of the two most recent years, and a reasonable expectation to reach the same income level in the current year.

(C)        A corporation, limited liability company or partnership, an organization described in Section 501(c)(3) of the Internal Revenue Code, Massachusetts or similar business trust, or a trust whose purchase is directed by a person with knowledge and expertise in business matters as to be capable of evaluating the merits and risks of an investment in the Units, in each case not formed for the specific purpose of acquiring any Units, with total assets in excess of $5 million.

(D)        A trust with total assets in excess of $5 million not formed for the specific purpose of acquiring Units, whose purchase is directed by a person with such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Units.

(E)        An entity, including a grantor trust, in which all of the equity owners are accredited investors (for this purpose, a beneficiary of a trust is not an equity owner, but the grantor of a grantor trust may be an equity owner).

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EX-10.9

Exhibit 10.9

Nanjing Qianqia Enterprise Management Consulting Center (Limited Partnership)

Partnership Agreement

After a consensus has been reached through negotiation, the Partnership Agreement (hereinafter referred to as "the Agreement") is hereby concluded by the general partner and limited partners of the Partnership Enterprise (Limited Partnership) for abidance.

Chapter IGeneral

Article 1 In light of PartnershipEnterprise Law of the People's Republic of China,  Administrative Measures on Establishment of Partnerships by Foreign Enterprises or Individuals in China, as well as other relevant laws, administrative regulations and rules of the People's Republic of China (hereinafter referred to as "China"), all partners, after a consensus has been reached, hereby conclude the Agreement.

Article 2As a limited partnership enterprise with foreign investment, the entity is a joint venture incorporated by all partners according to the Agreement. All partners are willing to follow the related laws, codes and regulations of China, and paying tax and manage business lawfully.

Article 3Matters uncovered in the Agreement shall be subject to China's laws and administrative regulations.

Article 4The Agreement is valid with the signatures and seals of all partners. The partners will enjoy rights and fulfill obligations in light of the Agreement.

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Chapter IIDescription and Address of Partnership Enterprise

Article 5Description of Partnership Enterprise: Nanjing qianqia Enterprise Management Consulting Center (Limited Partnership) (hereafter referred to as "the Partnership Enterprise" or "Partnership Enterprise").

Article 6Address of the Partnership Enterprise: Suite 611, Building 19, 9 Weidi Road, Xianlin University Town, Qixia District, Nanjing City.

Chapter III Purpose, Business Scope and Duration of Partnership

Article 7Purpose of the Partnership Enterprise: To subscribe for equities / shares of Amphastar (Nanjing) Pharmaceuticals Inc. and its restructured shareholding limited liability company (hereafter referred to as "the Company").

Article 8Business Scope of the Partnership Enterprise: enterprise management consulting, enterprise management service; equity investment in encouraged and permitted industries in the guidance catalog of foreign investment industries.

Article 9Duration of the Partnership Enterprise is 20 years, which starts from the issuing date of the Business License of the Partnership Enterprise, and can be extended or shorten with the agreement of all partners.

Chapter IV Partner

Article 10There are 3 partners in the Partnership Enterprise, including 1 general partner and 2 limited partners. Name/description, address and other basic information of each partner are listed as follows:

(I) General Partner

Zhang Chongqing  (natural person, ID Card No.                  )

Address:  

  (II)Limited Partner

BILL ZHANG (Zhang Luobei) (natural person, Passport No.         )

Address:

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(III)Limited Partner

APPLIED PHYSICS & CHEMISTRY LABS INC (American corporation, Registered Certificate No.           )

Address: APPLIED PHYSICS & CHEMISTRY LABS INC 13760 MAGNOLIA AVE CHINO CA 91710

Article 11The general partner assumes unlimited joint and several liability for debts of the Partnership Enterprise, while limited partner takes liability for debts of the Partnership Enterprise according to the amount of investment subscribed by him/her/it.

Chapter VInvestment Method, Amount and Deadline of Partners

Article 12Total amount of investment of the Partnership Enterprise is USD 21.4 million.

Article 13Information of investment method, amount and deadline of partners are listed as follows:

1.Investment information of general partner

General partner: Zhang Chongqing (natural person)

Investment method: currency

Amount of investment subscribed: USD 0.2 million;paid-in amount of investment: 0

Deadline of investment: January 31, 2019

2.Investment information of limited partner 

Limited partner: BILL ZHANG (Zhang Luobei) (natural person)

Investment method: currency

Amount of investment subscribed: USD 3.2 million; paid-in amount of investment: 0

Deadline of investment: January 31, 2019

3.Investment information of limited partner 

Limited partner: APPLIED PHYSICS & CHEMISTRY LABS INC (American corporation)

Investment method: currency

Amount of investment subscribed: USD 18 million; paid-in amount of investment: 0

Deadline of investment: January 31, 2019

Article 14In case any partner fails to make full payment for investment in the Partnership Enterprise before the deadline of investment, the Partnership Enterprise will grant such partner a grace period for investment, which shall not exceed 180 days

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and start from the next day of the expiration date of investment. Any partner making payment for investment within the grace period shall assume the liability for breach of contract, and the liquidated damages shall be calculated according to the annual interest 6% of the amount of investment that shall be subscribed by such partner. Such liquidated damages received by the Partnership Enterprise can exclusively be used as the special fund of the Partnership Enterprise. Where the partner still fails to make payment for investment within the grace period, the general partner shall have the right to remove such partner's name from the list.

Chapter VIProfit Distribution and Loss Sharing Method

Article 15Profit of the Partnership Enterprise shall be distributed according to the following method:

1.Distribution method: Profit distribution and loss sharing of the Partnership Enterprise shall be subject to the investment ratio.

2.Do not distribute all profits to certain partners.

Article 16Expenses that shall be directly borne by the Partnership Enterprise include but are not limited to the following expenses on the establishment, operation, termination, dissolution and liquidation of the Partner Enterprise:

1.Start-up expense;

2.Expense of the meeting of partners;

3.Audit fee incurred in the annual audit of the Partnership Enterprise;

4.Management expense of executive partner; and

5.Attorney fee, consulting fee, etc.

Expenses incurred to the Partnership Enterprise shall be paid by Partnership Enterprise. In case the Partnership Enterprise is not founded, expenses concerning the establishment of the Partnership Enterprise shall be shared by all partners according to their respective investment ratios.

The Partnership Enterprise shall, within ten working days from the date on which

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the partners make investment, set aside 2% of the amount of investment of each partner as the special fund of the Partnership Enterprise, that is, partner's amount of investment in the Partnership Enterprise1 = the partner's planned final amount of investment in the Company + 2% of the partner's planned final amount of investment in the Company

Partners who has been admitted to the Partnership Enterprise through accepting the transfer of the property shares held by the former partner in the Partnership Enterprise or subscribing the increased amount of investment shall obey the said agreement on paying the expenses incurred to the Partnership Enterprise, that is, the partner's amount of investment in the Partnership Enterprise2 = the partner's planned final amount of investment in the Company + 2% of the partner's planned final amount of investment in the Company. Where such shares are sold out in the secondary security market of capital later, the Partnership Enterprise shall also deduct 2% of the special fund. In case the special fund of the Partnership Enterprise is ran out during the existence of the Partnership Enterprise, all partners shall pay another 2% of their amounts of investment.

Article 17Debts arising from the losses of the Partnership Enterprise shall be borne in the following methods:

1.General partner assumes unlimited joint and several liability for the debts of the Partnership Enterprise;

2.Limited partner takes liability for debts of the Partnership Enterprise according to the amount of investment subscribed by him/her/it;

3.In case the property of the Partnership Enterprise is insufficient to settle the debts, the creditor can request the general partner to settle the debts with all property owned by him/her.

1  Remind all partners that such amount of investment shall only be subject to the amount actually received by the Partnership Enterprise, the telegraphic transfer service charge for the amount of investment in the Partnership Enterprise shall be regarded as extra charge.

2 Remind all partners that such amount of investment shall only be subject to the amount actually received by the Partnership Enterprise, the telegraphic transfer service charge for the amount of investment in the Partnership Enterprise shall be regarded as extra charge.

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Chapter VII  Execution of Partnership Affairs

Article 18Partnership affairs of the Partnership Enterprise shall be executed by the general partner. Partner executing the partnership affairs (hereinafter referred to as "the Executive Partner") represents the Partnership Enterprise. All partners agree that Zhang Chongqing shall act as the Executive Partner of the Partnership Enterprise.

Article 19Permissions of the Executive Partner:

1.To execute daily affairs of the Partnership Enterprise and go through relevant formalities concerning approval and registration in the course of operating the Partnership Enterprise;

2.To be responsible for signing and performing agreement on behalf of the Partnership Enterprise;

3.To handle and resolve all disputes involving the Partnership Enterprise on its behalf;

4.To change the description of the Partnership Enterprise;

5.To change the main business premise of the Partnership Enterprise;

6.To employ employees of the Company as the management personnel of the Partnership Enterprise;

7.To determine the financial audit organization of the Partnership Enterprise;

8.To determine the admission or withdrawal of general partner;

9.To transfer or dispose the intellectual property right and other property rights of the Partnership Enterprise; and

10.Other permissions granted by the Partnership Agreement and meeting of partners.

Article 20A partner who does not execute the partnership affairs shall have the right to supervise and check the execution of the partnership affairs by the Executive Partner.

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Where the Executive Partner fails to execute the partnership affairs according to the Agreement or resolutions made at the meeting of partners, other partners have the right to urge the Executive Partner to make correction.

Article 21The Executive Partner shall, on a regular basis, report to other partners the execution of the partnership affairs as well as the financial status and operating results of the Partnership Enterprise. The profits generated by the execution of the partnership affairs shall belong to the Partnership Enterprise, and the expenses and losses incurred thereby shall also be borne by the Partnership Enterprise.

Article 22A limited partner does not execute the partnership affairs and shall not represent the Partnership Enterprise externally. The following acts of the limited partner shall not be deemed as executing the partnership affairs:

1.To participate in determining the admission or withdrawal of general partner;

2.To make suggestions on the operation and management of the Partnership Enterprise;

3.To participate in selecting accounting firm that undertakes the audit business of the Partnership Enterprise;

4.To obtain the audited financial accounting report of the Partnership Enterprise;

5.To review financial accounting books and other financial data of the Partnership Enterprise for situations involving its own interests;

6.To claim rights or file a lawsuit against the Executive Partner when his/her/its interests in the limited partnership enterprise are damaged;

7.To urge the Executive Partner to exercise the rights or file a lawsuit against the Executive Partner in his/her/its own name for the interests of the Partnership Enterprise when the Executive Partner is idle of exercising rights; and

8.To provide guarantee for the Partnership Enterprise according to law.

Article 23The Partnership Enterprise has meetings of partners, which can be divided into regular meeting and temporary meeting, and shall be convened and presided over by the Executive Partner. In case of convening of the meeting of partners, a notice on the agenda and voting matters shall be given to all partners 5 days in advance. The regular meeting shall be convened at least once every year and

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the temporary meeting shall be convened under the proposal of general partner or limited partners actually paying more than 30% of total amount of investment on behalf of limited partners.

Article 24The meeting of partners is composed of all partners and shall exercise the following powers:

1.To decide that the general partner becomes the limited partner or the limited partner becomes the general partner;

2.To determine the modification of the partnership agreement concluded by the Partnership Enterprise;

3.To change the business scope of the Partnership Enterprise;

4.To dispose the real estate of the Partnership Enterprise;

5.To provide guarantee for others in the name of the Partnership Enterprise;

6.To determine the dissolution and liquidation schemes of the Partnership Enterprise; and

7.Other matters that shall be determined by the meeting of partners according to laws, regulations or the provisions of the Agreement.

Article 25The partners shall make resolutions on matters pertinent to the Partnership Enterprise according to relevant provisions of the meeting of partners. At the meeting, all partners shall exercise the voting right according to their respective actual investment ratios at the time of voting. Resolutions made on matters as specified in Item 1 to Item 4 of Article 24 hereunder at the meeting of partners can be valid only after all partners agree on such resolutions. Unless otherwise agreed in the Agreement, resolutions made on matters as specified in Item 5 to Item 7 of Article 24 hereunder at the meeting of partners shall be approved by partners representing over the half of the voting rights.

Article 26The amount of investment made by the partner in the Partnership Enterprise can be increased or decreased with the consent of the Executive Partner.

Article 27The general partner shall not, by himself/herself or together with others, operate the business that competes with the Partnership Enterprise, while the limited partner shall not be subject to such provision.

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Unless otherwise agreed by all partners, the general partner shall not trade with the Partnership Enterprise, but the limited partner can do so.

Article 28Matters of the Partnership Enterprise uncovered herein shall be decided separately by all partners.

Article 29Settlement method of breach of contract by the Executive Partner: In case of the Executive Partner fails to execute affairs according to the Agreement or the decisions of all partners and thus causing the breach of contract, or the Executive Partner infringes on the interests of the Partnership Enterprise and other partners, the Executive Partner shall make compensation for losses incurred to other partners.

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Chapter VIIILimited Partner

Article 30Obligations of the limited partner include:

1.To make full payment for investment according to the conditions and methods as agreed in the Agreement;

2.Do not participate in the normal operation and management of the Partnership Enterprise, except for exercising the rights and fulfilling the obligations as specified herein;

3.To fulfill the confidentiality obligation: The limited partner shall only have the right to apply all information and data provided by the general partner for the limited partner to matters relating to the Partnership Enterprise, and shall not disclose such information and data to the third party or apply them to business activities not related to the Partnership Enterprise (including but not limited to those with conflict of interest with the general partner). The general partner shall, in his/her/its own name or in the name of the Partnership Enterprise, have the right to investigate and affix the legal responsibility of the limited partner who violates the confidentiality obligation; and

4.Other obligations as specified in laws or the Agreement.

Article 31In case the limited partner, without approval of the general partner, trades with others in the name of the Partnership Enterprise, which causes losses to the Partnership Enterprise or other partners, such limited partner shall be liable for the compensation.

Chapter IX Transformation between Limited Partner and General Partner

Article 32If a general partner is considered as a person without or with limited capacity of civil conduct, the general partner may be transferred to a limited partner according to law with the unanimous consent of the other partners. However, the Partnership Enterprise shall be dissolved when there are only limited partners left.

Article 33Where a general partner becomes a limited partner or vice versa, the unanimous consent of all partners shall be obtained.

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Article 34Where a limited partner becomes a general partner, such partner shall bear the unlimited joint and several liability for the debts of the Partnership Enterprise during the period when such partner acts as a limited partner.

Article 35Where a general partner becomes a limited partner, such partner shall bear the unlimited joint and several liability for the debts of the Partnership Enterprise during the period when such partner acts as a general partner.

Chapter XAdmission to and Withdrawal from Partnership Enterprise and Transfer of Property Shares

Article 36New partners admitted to the Partnership Enterprise shall be approved by the Executive Partner and a written partnership admission agreement shall be concluded according to law. When concluding the agreement, the former partners shall inform the newcomers of the financial status and operating results of the Partnership Enterprise. The newcomers have the same rights and bear the same liabilities with the former partners. The new limited partner shall assume liability for debts of the Partnership Enterprise incurred before admission according to the amount of investment subscribed, while the new general partner shall assume unlimited joint and several liability for debts of the Partnership Enterprise incurred before admission.

Article 37The limited partner can, on the premise of not adversely affecting the execution of partnership affairs, transfer the partnership shares to other partners, but shall complete the transaction according to the Agreement.

Unless otherwise as specified in the Agreement, the general partner has no need to refund the amount of investment paid by the limited partner. Only available assets of the Partnership Enterprise, if any, can be used to return the amount of investment. All limited partners hereby waive any and all possible claims for rights against the general partner in terms of the matters as specified herein.

Article 38The general partner can, in whole or in part, transfer the property shares held by him/her in the Partnership Enterprise to others at any time without consent of other partners, but shall not affect the limited partnership nature of the

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Partnership Enterprise and shall notify other partners at the time of transfer. On that occasion, no other partner has the preemptive right under the same conditions.

Article 39Provisions on the restricted stock trade period and withdrawal mechanism for the limited partner of the Partnership Enterprise are as follows:

 (I)The restricted stock trade period specified herein refers that the limited partner shall not withdraw from the Partnership Enterprise, sell or transfer the property shares held by him/her/it in the Partnership Enterprise, provide guarantee or offset debts with such property shares or pledge them within one year from the date on which the limited partner obtains the property shares of the Partnership Enterprise, completes the industrial & commercial registration and opens the account; and from the date on which the Company submits the application for initial public offering and listing to China Securities Regulatory Commission to the date on which the Company receives the approval on public offering of shares from the China Securities Regulatory Commission.

 (II)After the Company's stocks are approved by China Securities Regulatory Commission for initial public offering (hereinafter referred to as "IPO") and listing on the stock exchange, the restricted stock trade period for the partner shall be subject to relevant provisions of competent authority at that time. 

 (III)After the Company submits the application for IPO and listing to China Securities regulatory Commission, in case of the IPO or listing fails for the reason that the Company withdraws the application materials, the said application for listing is not approved, or for other reasons, the partner can transfer the property shares held by him/her/it and the general partner has the priority to choose accept the transfer or not. As to the property shares not accepted by the Executive Partner, the following method shall be applied:

A.Disposal of property shares by such partner: The partner can dispose the property shares held by him/her/it in the Partnership Enterprise at his/her/its discretion, including transferring such property shares to the internal partners of the Partnership Enterprise or any other third party.

12

B.Withdrawal from the Partnership Enterprise: The partner can choose to withdraw from the Partnership Enterprise in case of any of the following circumstances:

a)The third party designated by the Partnership Enterprise or Executive Partner is willing to accept the transfer of property shares held by the partner in the Partnership Enterprise;

b)In case the Partnership Enterprise has transferred the Company's equities corresponding to the property shares held by such partner in the Partnership Enterprise (namely, property shares held by such partner in the Partnership Enterprise / total amount of investment of the Partnership Enterprise x amount of equities or shares of the Company held by the Partnership Enterprise) to other third party with the consent of such partner, the property shares returned to such partner by the Partnership Enterprise are the abovementioned equity transfer fund obtained by the Partnership Enterprise, and the Executive Partner has the right to deduct relevant taxes, fees and service charges from the returned property shares, if necessary;

 (c)In case the Company's shareholders agree to dispose the Company's equities corresponding to the property shares held by such partner in the Partnership Enterprise (namely, property shares held by such partner in the Partnership Enterprise / total amount of investment of the Partnership Enterprise x amount of equities or shares of the Company held by the Partnership Enterprise) by decreasing the registered capital, property shares returned to such partner by the Partnership Enterprise are the abovementioned equity transfer fund which is returned to the Partnership Enterprise by the Company for the decrease of relevant registered capital, and the Executive Partner has the right to deduct relevant taxes and fees from the returned property shares, if necessary.

 (IV)During the restricted stock trade period specified in Item (I) and Item (II), in case the partner subject dies or disappears, for example, the natural partner dies or is announced dead according to law, or the corporation partner is disqualified as a subject for the reason that it is canceled or declared dissolved, such partner shall

13

withdraw from the Partnership Enterprise. With the consent of the Executive Partner, successor who has the legitimate right of inheritance to the property shares held by such partner in the Partnership Enterprise or the person who receives the rights and obligations of such partner according to law after the partner’s death or disappearance (hereinafter collectively referred to as "the Heir") can obtain the qualification as a partner of the Partnership Enterprise. In addition, the Partnership Enterprise shall, according to the following method and within 30 days from the occurrence of the abovementioned circumstances, return the property shares held by the deceased or disappeared partner to the Heir of such partner, and the specific methods of withdrawal from the Partnership Enterprise are as follows: 

 (1)If the Partnership Enterprise handles formalities concerning withdrawal from the Partnership Enterprise for such partner before the Company's IPO, the returned property shares shall be property shares held by such partner in the Partnership Enterprise / total amount of investment of the Partnership Enterprise x amount of equities or shares of the Company held by the Partnership Enterprise x the appraisal value of each equity/share of net asset determined in the Company's latest appraisal report. The relevant taxes and fees (including but not limited to individual income tax, stamp duty, etc.) shall be borne by the Heir concerned, and the Executive Partner has the right to deduct relevant taxes and fees from the returned property shares, if necessary. Meanwhile, the Executive Partner or the third party designated by the Executive Partner shall increase the amount of investment in the Partnership Enterprise / property shares held by him/her in the Partnership Enterprise to ensure that the investment ratio of each partner remains unchanged;

 (2)If the Partnership Enterprise handles formalities concerning withdrawal from the Partnership Enterprise for such partner after the Company's IPO, the returned property shares shall be property shares held by such partner in the Partnership Enterprise / total amount of investment of the Partnership Enterprise x the amount of shares of the Company held by the Partnership Enterprise x the Company's stock price per share (the specific price shall be determined by the Executive Partner of the Partnership Enterprise based on the transfer price in the secondary security market; where the price cannot be determined, it shall be subject to the appraisal value of each share of net asset determined in the Company's latest appraisal report. The relevant

14

taxes and fees (including but not limited to individual income tax, stamp duty, etc.) shall be borne by the Heir concerned, and the Partnership Enterprise has the right to deduct relevant taxes and fees on behalf of the taxation authority from the actual transfer proceeds mentioned above, if necessary). Meanwhile, the Executive Partner or the third party designated by the Executive Partner shall increase the amount of investment in the Partnership Enterprise / property shares held by him/her in the Partnership Enterprise to ensure that the investment ratio of each partner remains unchanged.

 (V)After the expiration of the restricted stock trade period, where the partner transfers the property shares held by him/her/it, the general partner has the priority to choose accept the transfer or not. As to the property shares not accepted by the general partner, the following method shall be applied:

A.Internal transfer: The partner can, within the Partnership Enterprise, transfer the partnership shares to other partners or staff designated by the Company at the negotiated price.

B.According to the partner's application, the Partnership Enterprise transfers the amount of stocks corresponding to the amount of investment paid by such partner at the appropriate market price in the secondary security market, and pays the transfer proceeds to such partner after deducting relevant taxes and fees. Meanwhile, the Partnership Enterprise handles relevant formalities concerning decrease of total amount of investment.

 (VI)Partner transferring the property shares held by him/her/it in the Partnership Enterprise or withdrawing from the Partnership Enterprise shall cooperate with the Partnership Enterprise to complete the formalities concerning industrial & commercial registration modification. In case the withdrawing partner is liable for compensating for the losses incurred to the Partnership Enterprise, the Executive Partner has the right to directly deduct the corresponding compensation from the property shares returned by such withdrawing partner.

15

(VII)Where there are special provisions in law, such provisions shall be applied according to law.

Article 40For the general partner's withdrawal from the Partnership Enterprise, if no new general partner is admitted to the Partnership Enterprise, or no limited partner is transferred into general partner, the Partnership Enterprise shall be dissolved.

Chapter XIDissolution and Liquidation of Partnership Enterprise

Article 41The Partnership Enterprise shall be dissolved and liquidated in cases where:

1.Duration of partnership expires, and the partners decide not to operate the Partnership Enterprise any longer;

2.The causes for dissolution as specified in the Partnership Enterprise occur;

3.All partners decide to dissolve the Partnership Enterprise;

4.The number of partners does not reach the quorum, and the status has been lasted for 30 days;

5.Partnership purpose as agreed in the Agreement has been realized or is impossible to be realized.

6.The Partnership Enterprise's business license is lawfully revoked by competent authority, or the Partnership Enterprise is ordered to close down or canceled; and

7.Other reasons as stipulated by laws and administrative regulations.

Article 42The liquidation methods of the Partnership Enterprise shall be subject to the provisions of Partnership Enterprise Law.

In the course of liquidation, the Partnership Enterprise maintains its existence but cannot develop any business activities not relating to the liquidation.

After being used for paying the liquidation fees, employees' salaries, social insurances, statutory compensation as well as unpaid taxes and debts owed by the Partnership Enterprise, the residual property shall be distributed in light of Article 15 hereof.

16

Article 43After being used for paying the liquidation fees, employees' salaries, social insurances, statutory compensation as well as unpaid taxes and debts owed by the Partnership Enterprise, the residual property shall be distributed according to the actual investment ratio of each partner.

Article 44After liquidation, the liquidators shall prepare the liquidation report. After the report is signed or stamped by all partners, it shall be submitted to the enterprise registry within 15 days for registering the cancellation of the Partnership Enterprise.

Chapter XIIConfidentiality Provisions

Article 45All documents related to the Partnership Enterprise, including but not limited to the agreement, financial accounting report, etc. signed by the Partnership Enterprise and others, are confidential information of the Partnership Enterprise. No person is allowed to make such documents public or use such documents for a purpose not relating to the execution of affairs.

Article 46Except for the information that shall be publicized according to law or provided for relevant authority according to judicial process, no person is allowed to disclose any information relating to the Partnership Enterprise or information of projects invested by the Partnership Enterprise to others by formal or informal means. Information planned to be publicized shall be kept confidential before the disclosure and shall not be disclosed to others.

Chapter XIIILiabilities for Breach of Contract

Article 47The partner who violates the Agreement shall assume the liabilities for breach of contract according to law.

Article 48Where the Executive Partner violates the provisions of the Agreement and causes losses to other partners, the Executive Partner shall compensate for the losses incurred thereby.

17

Chapter XIVApplicable Laws and Dispute Settlement

Article 49The Agreement is governed by laws of the People's Republic of China.

Article 50Any dispute arising from or relating to the Agreement shall be settled by all partners through negotiation. Where the partners are not willing to or fail to reach an agreement through negotiation, all partners shall have the right to file a lawsuit with the people's court whose jurisdiction the Partnership Enterprise is subject to.

Chapter XVMiscellaneous

Article 51The Agreement shall come into force with signatures of all partners.

Article 52The Agreement is written in Chinese.

Article 53The Agreement is made in 6 copies with one share held by each partner, one share submitted to the registry where the Partnership Enterprise was registered, and other shares kept by the Partnership Enterprise. Each share shall enjoy the same legal effect.

Article 54The attachment hereto shall be an integral part of the Agreement and has the same legal effect as the Agreement.

Article 55Matters not promised or defined clearly in the Agreement shall be determined by all partners through negotiation. After the negotiation, the partners can sign the supplementary agreement which shall enjoy the same legal effect as the Agreement.

18

（Signature page of the partnership agreement）

All partners

/s/ Zhang Chongqing

Zhang Chongqing

19

（Signature page of the partnership agreement）

/s/ Jack Y. Zhang

APPLIED PHYSICS & CHEMISTRY LABS INC

20

（Signature page of the partnership agreement）

/s/ Bill Zhang
BILL ZHANG
	July 27, 2018
	YYYY/MM/DD

21

EX-31.1

Exhibit 31.1

Certification

I, Jack Y. Zhang, Ph.D., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Amphastar Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August  9, 2018	By:	/s/ JACK Y. ZHANG
		Jack Y. Zhang
		Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification

I, William J. Peters, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Amphastar Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August  9, 2018	By:	/s/ WILLIAM J. PETERS
		William J. Peters
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted

pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned officer of Amphastar Pharmaceuticals, Inc. (the “Company”), hereby certifies, to the best of such officer’s knowledge, that:

(i) the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: August 9, 2018	By:	/s/ JACK Y. ZHANG
		Jack Y. Zhang
		Chief Executive Officer
		(Principal Executive Officer)

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. §1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted

pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned officer of Amphastar Pharmaceuticals, Inc. (the “Company”), hereby certifies, to the best of such officer’s knowledge, that:

(i) the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: August  9, 2018	By:	/s/ WILLIAM J. PETERS
		William J. Peters
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. §1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 02, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	Amphastar Pharmaceuticals, Inc.
Trading Symbol	amph
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Amendment Flag	false
Entity Central Index Key	0001297184
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Jun. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Entity Common Stock, Shares Outstanding		46,256,454

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Current Assets:
Cash and cash equivalents	$ 48,070	$ 65,594
Short-term investments	2,818	2,635
Restricted short-term investments	4,155	4,155
Accounts receivable, net	41,279	35,996
Inventories	61,678	63,609
Income tax refunds and deposits	7,542	6,036
Prepaid expenses and other assets	4,404	9,753
Total current assets	169,946	187,778
Property, plant, and equipment, net	198,241	185,339
Goodwill and intangible assets, net	43,450	45,140
Other assets	11,752	8,663
Deferred tax assets	28,257	27,745
Total assets	451,646	454,665
Current Liabilities:
Accounts payable and accrued liabilities	67,092	57,555
Income taxes payable	1,607	3,325
Current portion of long-term debt and capital leases	18,891	6,312
Total current liabilities	87,590	67,192
Long-term reserve for income tax liabilities	879	879
Long-term debt and capital leases, net of current portion	33,695	40,844
Deferred tax liabilities	1,325	1,361
Other long-term liabilities	7,631	7,060
Total liabilities	131,120	117,336
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; 50,661,676 and 46,416,789 shares issued and outstanding as of June 30, 2018 and 50,039,212 and 46,623,581 shares issued and outstanding as of December 31, 2017, respectively	5	5
Additional paid-in capital	322,357	313,891
Retained earnings	66,780	76,235
Accumulated other comprehensive loss	(3,166)	(2,100)
Treasury stock	(65,450)	(50,702)
Total stockholders’ equity	320,526	337,329
Total liabilities and stockholders’ equity	$ 451,646	$ 454,665

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
CONDENSED CONSOLIDATED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock; shares authorized	300,000,000	300,000,000
Common stock; shares issued	50,661,676	50,039,212
Common stock; shares outstanding	46,416,789	46,623,581

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Net revenues	$ 71,040	$ 65,187	$ 129,433	$ 121,857
Cost of revenues	44,884	38,440	86,216	72,282
Gross profit	26,156	26,747	43,217	49,575
Operating (income) expenses:
Selling, distribution, and marketing	1,876	1,596	3,597	3,075
General and administrative	11,669	12,234	22,667	23,572
Research and development	15,468	10,732	29,728	21,982
Gain on sale of intangible assets				(2,643)
Total operating expenses	29,013	24,562	55,992	45,986
Income (loss) from operations	(2,857)	2,185	(12,775)	3,589
Non-operating income (expenses):
Interest income	106	87	230	178
Interest expense	(100)	(237)	(118)	(428)
Other income (expenses), net	(1,265)	1,138	(483)	1,338
Total non-operating income (expenses), net	(1,259)	988	(371)	1,088
Income (loss) before income taxes	(4,116)	3,173	(13,146)	4,677
Income tax expense (benefit)	(1,326)	1,201	(3,110)	1,812
Net income (loss)	$ (2,790)	$ 1,972	$ (10,036)	$ 2,865
Net income (loss) per share:
Basic (in Dollars per share)	$ (0.06)	$ 0.04	$ (0.22)	$ 0.06
Diluted (in Dollars per share)	$ (0.06)	$ 0.04	$ (0.22)	$ 0.06
Weighted-average shares used to compute net income (loss) per share:
Basic (in Shares)	46,557	46,025	46,535	46,047
Diluted (in Shares)	46,557	47,866	46,535	47,962

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$ (2,790)	$ 1,972	$ (10,036)	$ 2,865
Other comprehensive income (loss), net of income taxes
Foreign currency translation adjustment	(2,256)	1,010	(1,066)	1,476
Total other comprehensive income (loss)	(2,256)	1,010	(1,066)	1,476
Total comprehensive income (loss)	$ (5,046)	$ 2,982	$ (11,102)	$ 4,341

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash Flows From Operating Activities:
Net income (loss)	$ (10,036)	$ 2,865
Reconciliation to net cash provided by operating activities:
Loss (gain) on disposal and impairment of long-lived assets	743	(2,561)
Depreciation of property, plant, and equipment	6,570	6,235
Amortization of product rights, trademarks, and patents	1,451	1,426
Share-based compensation	8,862	8,749
Changes in operating assets and liabilities:
Accounts receivable, net	(5,221)	2,820
Inventories	1,625	6,965
Prepaid expenses and other assets	1,715	(1,106)
Income tax refund, deposits, and payable	(3,224)	(2,758)
Accounts payable and accrued liabilities	10,408	4,337
Net cash provided by operating activities	12,893	26,972
Cash Flows From Investing Activities:
Purchases and construction of property, plant, and equipment	(24,591)	(13,568)
Proceeds from sale of intangible assets	4,400	2,000
Purchase of short-term investments	(204)	(1,261)
Maturity of short-term investments		1,061
Changes in short-term investments		(900)
Payment of deposits and other assets	(114)	(1,123)
Net cash used in investing activities	(20,509)	(13,791)
Cash Flows From Financing Activities:
Net proceeds from equity plans	(294)	7,278
Purchase of treasury stock	(14,851)	(17,181)
Proceeds from borrowing under lines of credit	261
Proceeds from issuance of long-term debt	8,000	11,118
Principal payments on long-term debt	(2,834)	(2,618)
Net cash provided by (used in) financing activities	(9,718)	(1,403)
Effect of exchange rate changes on cash	(190)	277
Net increase (decrease) in cash, cash equivalents and restricted cash	(17,524)	12,055
Cash, cash equivalents, and restricted cash at beginning of period	67,459	72,354
Cash, cash equivalents, and restricted cash at end of period	49,935	84,409
Noncash Investing and Financing Activities:
Equipment acquired under capital leases	14
Supplemental Disclosures of Cash Flow Information:
Interest paid, net of capitalized interest	1,078	792
Income taxes paid	$ 149	$ 4,569

XML

General

6 Months Ended

Jun. 30, 2018

General

General

Note 1.  General

Amphastar Pharmaceuticals, Inc., a California corporation, was incorporated in February 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 if they are approved and 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, 2017, 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, 2017. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles, or GAAP, have been condensed or omitted from the accompanying condensed consolidated financial statements. The accompanying year-end condensed consolidated balance sheet was derived from the audited financial statements. The accompanying interim financial statements are unaudited, but reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the Company’s consolidated financial position, results of operations, comprehensive income (loss) and cash flows for the periods presented. Unless otherwise noted, all such adjustments are of a normal, recurring nature. The Company’s results of operations, comprehensive income (loss) and cash flows for the interim periods are not necessarily indicative of the results of operations and cash flows that it may achieve in future periods.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2018

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 2.  Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and are prepared in accordance with the requirements of the SEC for interim reporting. Effective January 1, 2018, the Company retrospectively adopted Accounting Standard Update, or ASU, No. 2016-15 Classification of Certain Cash Receipts and Cash Payments. Certain amounts in the prior year’s condensed consolidated statement of cash flows have been reclassified to conform to the current quarter presentation. This reclassification has no impact on net income or cash flows. All significant 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 (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows of the Company.

The Company’s subsidiaries include: (1) International Medication Systems, Limited, or IMS, (2) Armstrong Pharmaceuticals, Inc., or Armstrong, (3) Amphastar Nanjing Pharmaceuticals Inc., or ANP, (4) Nanjing Letop Fine Chemistry Co., Ltd., or Letop, (5) Nanjing Hanxin Medical Technology Co., Ltd, or Hanxin, (6) Nanjing Baixin Trading Co. Ltd., or Baixin, (7) Amphastar France Pharmaceuticals, S.A.S., or AFP, (8) Amphastar UK Ltd., or AUK, and (9) International Medication Systems (UK) Limited, or IMS UK.

In July 2018, ANP completed a private placement of its equity for aggregate gross proceeds of approximately $57.2 million. The Company has retained approximately 58% of the equity interest of ANP immediately after the private placement and continues to consolidate the financial results of ANP with the Company’s results of operations.  (See Note 18 for additional information)

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

Foreign Currency

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

The Company’s French subsidiary, AFP, maintains its book of record in Euros. Its other Chinese subsidiaries maintain their books of record in Chinese Yuan. Its U.K. subsidiary, IMS UK, maintains its book of record in Great Britain Pounds. These local currencies have been determined to be the subsidiaries’ respective functional currencies. These books of record are translated into USD using average exchange rates during the period. Assets and liabilities are translated at the rate of exchange prevailing on the balance sheet date. Equity is translated at the prevailing rate of exchange at the date of the equity transactions. Translation adjustments are reflected in stockholders’ equity and are included as a component of other accumulated comprehensive income (loss). The unrealized gains or losses of intercompany foreign currency transactions that are of a long-term investment nature are reported in other accumulated comprehensive income (loss). The unrealized gains and losses of intercompany foreign currency transactions that are of a long-term investment nature for the three and six months ended June 30, 2018 were $1.7 million loss and $0.8 million loss, respectively, and for the three and six months ended June 30, 2017 were $2.2 million gain and $2.7 million gain, respectively.

The Company does not undertake hedging transactions to cover its foreign currency exposure.

Comprehensive Income (loss)

For the three and six months ended June 30, 2018 and 2017, the Company included its foreign currency translation gain or loss as part of its comprehensive income (loss).

Restricted Cash and Short-term Investments

Restricted cash and short-term investments are collateral required for the Company to effect a standby letter of credit and to qualify for workers’ compensation self-insurance and are available to meet the Company’s workers’ compensation obligations on a current basis, as needed. As of June 30, 2018 and December 31, 2017, restricted cash and short-term investments include $1.9 million in cash and $2.3 million in certificates of deposit, respectively. The certificates of deposit have original maturities greater than three months and are classified as short-term investments.

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 fixed interest rate swap contracts to exchange the variable interest rates for fixed interest rates without the exchange of the underlying notional debt amounts. Such interest rate swap contracts are recorded at their fair values.

Deferred Income Taxes

The Company utilizes the liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statements and the tax basis of assets and liabilities using enacted tax rates. A valuation allowance is recorded when it is more likely than not that the deferred tax assets will not be realized. At June 30, 2018, the Company had not completed its accounting for the tax effects of the enactment of the Tax Cuts and Jobs Act of 2017, or the Tax Act.

Business Combinations

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

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

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board, or FASB, issued ASU No. 2016-02, Leases, that is aimed at making leasing activities more transparent and comparable, and which requires substantially all leases be recognized by lessees on their balance sheets as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. The ASU and the related clarifications subsequently issued by the FASB will become effective for the Company’s interim and annual reporting periods during the year ending December 31, 2019, and all annual and interim reporting periods thereafter. Early adoption is permitted. The Company is required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements for the reporting periods in which the guidance is adopted. While the Company continues to evaluate the provisions of ASC 842 to determine how it will be affected, the primary effect of adopting the new standard will be to record right-to-use assets and obligations for current operating leases on its consolidated financial statements. Note 16 provides details on the Company’s current operating lease arrangements. The adoption of ASC 842 is not expected to have a material impact on the Company’s results of operations or cash flows.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses, which is aimed at providing financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit. The standard update changes the impairment model for financial assets measured at amortized cost, requiring presentation at the net amount expected to be collected. The measurement of expected credit losses requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Available-for-sale debt securities with unrealized losses will be recorded through an allowance for credit losses. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. Early adoption is permitted for interim or annual periods after December 31, 2019. The Company will be required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company does not believe the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

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

In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends the hedge accounting model in ASC 815 to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. The amendments also simplify the application of hedge accounting in certain situations. The new guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2019. Early adoption is permitted. The Company does not believe that the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows entities to reclassify from accumulated other comprehensive income to retained earnings stranded tax effects resulting from the Tax Act. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2019. Early adoption is permitted. The Company does not believe that the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees. The Company will early-adopt the guidance on July 1, 2018. The adoption will not have a material impact on its consolidated financial statements and related disclosures.

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Revenue Recognition

6 Months Ended

Jun. 30, 2018

Revenue Recognition

Revenue Recognition

Note 3.  Revenue Recognition

In 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, or ASC 606, using the modified retrospective transition method. The adoption of ASC 606 did not have a material impact on the Company’s revenue recognition or on the condensed consolidated financial statements and related disclosures. Subsequent to the adoption of ASC 606 revenue is recognized at the time that the Company’s customers obtain control of the promised goods. 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 results for the reporting period beginning after January 1, 2018, are presented in accordance with the new standard, although comparative information continues to be reported under the accounting standards and policies in effect for those periods. For the accounting policy related to revenue recognition for the years ended prior to and on December 31, 2017, see Note 4, Revenue Recognition, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2017.

The Company only records revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved, by estimating and recording reductions to revenue for discounts, product returns, and pricing adjustments, such as wholesaler chargebacks and retailer rebates, in the same period that the related revenue is recorded.

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 in net revenues. The following table is an analysis of the chargeback and rebate provision:

	Six Months Ended
	June 30,
	2018		2017
	(in thousands)
Beginning balance	$	18,470	$	39,709
Provision for chargebacks and rebates		55,372		86,935
Credits and payments issued to third parties		(55,999)		(116,429)
Ending balance	$	17,843	$	10,215

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 wholesaler’s 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 30 days to 60 dates 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 June 30, 2018 and December 31, 2017, $6.4 million and $6.8 million were included in accounts receivable, net, on the condensed consolidated balance sheets, respectively. The remaining provision of $11.4 million and $11.7 million were included in accounts payable and accrued liabilities, respectively.

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 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.As of June 30, 2018 and December 31, 2017, cumulative sales of approximately $0.7 million and $1.2 million, respectively, for one of the Company’s products were not recognized in revenues, due to insufficient information available to determine that a significant reversal of such amount will not occur when the uncertainty associated with the return refund is subsequently resolved.

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

	Six Months Ended
	June 30,
	2018		2017
	(in thousands)
Beginning balance	$	6,522	$	3,143
Provision for product returns		917		2,979
Credits issued to third parties		(865)		(966)
Ending balance	$	6,574	$	5,156

Of the provision of product returns as of June 30, 2018 and December 31, 2017, $4.6 million and $4.1 million were included in accounts payable and accrued liabilities on the condensed consolidated balance sheets, respectively. The remaining provision of $1.9 million and $2.4 million were included in other long-term liabilities, respectively. For the six months ended June 30, 2018 and 2017,  the Company’s aggregate product return rate was 1.3% and 1.2% of qualified sales, respectively.

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Income (Loss) per Share

6 Months Ended

Jun. 30, 2018

Income (Loss) per Share

Income (Loss) per Share

Note 4.  Income (loss) per Share

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

As the Company reported a net loss for the three and six months ended June 30, 2018, the diluted net loss per share, as reported, equals the basic net loss per share since the effect of the assumed exercise of stock options, vesting of non-vested RSUs, and issuance of common shares under the Company’s ESPP are anti-dilutive. Total stock options, non-vested RSUs, and shares issuable under the Company’s ESPP excluded from the three and six months ended June 30, 2018 net loss per share were 11,649,241 stock options; 1,232,237 non-vested RSUs, and 60,854 shares issuable under the ESPP.

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

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands, except per share data)
Basic and dilutive numerator:
Net income (loss)	$	(2,790)	$	1,972	$	(10,036)	$	2,865
Denominator:
Weighted-average shares outstanding — basic		46,557		46,025		46,535		46,047
Net effect of dilutive securities:
Incremental shares from equity awards		—		1,841		—		1,915
Weighted-average shares outstanding — diluted		46,557		47,866		46,535		47,962
Net income (loss) per share — basic	$	(0.06)	$	0.04	$	(0.22)	$	0.06
Net income (loss) per share — diluted	$	(0.06)	$	0.04	$	(0.22)	$	0.06

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Segment Reporting

6 Months Ended

Jun. 30, 2018

Segment Reporting

Segment Reporting

Note 5.  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, naloxone, phytonadione, lidocaine, medroxyprogesterone acetate, as well as various other critical and non-critical care drugs. The API segment manufactures and distributes recombinant human insulin API and porcine insulin API for external customers and internal product development.

Selected financial information by reporting segment is presented below:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands)
Net revenues:
Finished pharmaceutical products	$	63,241	$	63,765	$	116,358	$	119,699
API		7,799		1,422		13,075		2,158
Total net revenues		71,040		65,187		129,433		121,857
Gross profit:
Finished pharmaceutical products		27,741		28,866		47,466		53,176
API		(1,585)		(2,119)		(4,249)		(3,601)
Total gross profit		26,156		26,747		43,217		49,575
Operating expenses		29,013		24,562		55,992		45,986
Income (loss) from operations		(2,857)		2,185		(12,775)		3,589
Non-operating income		(1,259)		988		(371)		1,088
Income (loss) before income taxes	$	(4,116)	$	3,173	$	(13,146)	$	4,677

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.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands)
Finished pharmaceutical products net revenues:
Naloxone	$	11,133	$	10,261	$	20,060	$	21,200
Phytonadione		10,806		10,003		19,987		17,890
Lidocaine		10,010		9,334		19,792		17,622
Enoxaparin		8,715		8,288		15,722		18,698
Medroxyprogesterone		6,365		—		9,071		—
Epinephrine		3,687		10,648		6,910		20,222
Other finished pharmaceutical products		12,525		15,231		24,816		24,067
Total finished pharmaceutical products net revenues	$	63,241	$	63,765	$	116,358	$	119,699

Discontinuation of epinephrine injection, USP vial product

In February 2017, the U.S. Food and Drug Administration, or FDA, requested the Company to discontinue the manufacturing and distribution of its epinephrine injection, USP vial product, which had been marketed under the “grandfather” exception to the FDA’s “Prescription Drug Wrap-Up” program. The Company discontinued selling this product in the second quarter of 2017. For the year ended December 31, 2017, the Company recognized $17.8 million in net revenues for the sale of this product.

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

	Net Revenue								Long-Lived Assets
	Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,		December 31,
	2018		2017		2018		2017		2018		2017
	(in thousands)
United States	$	68,560	$	63,799	$	121,664	$	119,729	$	113,554	$	110,235
China		—		—		—		—		47,068		41,078
France		2,480		1,388		7,769		2,128		37,619		34,026
United Kingdom		—		—		—		—		—		—
Total	$	71,040	$	65,187	$	129,433	$	121,857	$	198,241	$	185,339

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Customer and Supplier Concentration

6 Months Ended

Jun. 30, 2018

Customer and Supplier Concentration

Customer and Supplier Concentration

Note 6.  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. The Company considers these three 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 three and six months ended June 30, 2018 and 2017, and accounts receivable as of June 30, 2018 and December 31, 2017, respectively. The following table provides accounts receivable and net revenue information for these major customers:

	% of Total Accounts				% of Net
	Receivable				Revenue
					Three Months Ended				Six Months Ended
	June 30,		December 31,		June 30,				June 30,
	2018		2017		2018		2017		2018		2017
McKesson	23	%	22	%	25	%	27	%	26	%	27	%
AmerisourceBergen	25	%	33	%	27	%	29	%	26	%	29	%
Cardinal Health	20	%	12	%	20	%	26	%	21	%	25	%

Supplier Concentrations

The Company depends on suppliers for raw materials, active pharmaceutical ingredients, and other components that are subject to stringent 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.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2018

Fair Value Measurements

Fair Value Measurements

Note 7.  Fair Value Measurements

The accounting standards of the 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.

As of June 30, 2018, cash equivalents include money market accounts. Short-term investments consist of certificates of deposit with original expiration dates within 12 months. These certificates of deposit are carried at amortized cost in the Company’s consolidated balance sheet, which approximates their fair value determined based on Level 2 inputs. The restrictions on restricted cash and short-term investments have a negligible effect on the fair value of these financial assets.

The Company does not hold any Level 2 or Level 3 instruments that are measured for fair value on a recurring basis.

Nonfinancial 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 June 30, 2018 and December 31, 2017, there were no significant adjustments to fair value for nonfinancial assets or liabilities.

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Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2018

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Note 8.  Goodwill and Intangible Assets

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
Cortrosyn® product rights	12	$	27,134	$	27,134	$	—
IMS (UK) international product rights	10		9,239		1,771		7,468
Patents	12		486		191		295
Land-use rights	39		2,540		453		2,087
Other intangible assets	4		69		55		14
Subtotal	12		39,468		29,604		9,864
Indefinite-lived intangible assets
Trademark	*		29,225		—		29,225
Goodwill - Finished pharmaceutical products	*		4,361		—		4,361
Subtotal	*		33,586		—		33,586
As of June 30, 2018	*	$	73,054	$	29,604	$	43,450

	Weighted-Average			Accumulated
	Life (Years)	Original Cost		Amortization		Net Book Value
	(in thousands)
Definite-lived intangible assets
Cortrosyn® product rights	12	$	27,134	$	26,243	$	891
IMS (UK) international product rights	10		9,440		1,337		8,103
Patents	12		486		170		316
Land-use rights	39		2,540		419		2,121
Other intangible assets	4		69		46		23
Subtotal	12		39,669		28,215		11,454
Indefinite-lived intangible assets
Trademark	*		29,225		—		29,225
Goodwill - Finished pharmaceutical products	*		4,461		—		4,461
Subtotal	*		33,686		—		33,686
As of December 31, 2017	*	$	73,355	$	28,215	$	45,140

*Intangible assets with indefinite lives have an indeterminable average life.

Sale of Fourteen Injectable ANDAs

In March 2016, the Company acquired 14 abbreviated new drug applications, or ANDAs, representing 11 different injectable chemical entities from Hikma Pharmaceuticals PLC, or Hikma. In February 2017, the Company sold the 14 ANDAs to an unrelated party. The consideration included a purchase price of $6.4 million of which the amount of $1.0 million was received upon closing, $1.0 million was received in the second quarter of 2017 and the remaining $4.4 million was received in January 2018. In addition to the purchase price, the purchaser agreed to pay the Company a royalty fee equal to 2% of net sales derived from purchaser’s sales of the products for the period from February 2017 through February 2027. The Company has not recognized any royalty fee revenue. The Company recognized a gain of $2.6 million within operating (income) expenses on its condensed consolidated statement of operations for the six months ended June 30, 2017.

Goodwill

The changes in the carrying amounts of goodwill were as follows:

	June 30,		December 31,
	2018		2017
	(in thousands)
Beginning balance	$	4,461	$	3,976
Currency translation		(100)		485
Ending balance	$	4,361	$	4,461

Primatene® Trademark

In January 2009, the Company acquired the exclusive rights to the trademark, domain name, website and domestic marketing, distribution and selling rights related to Primatene® Mist, an over-the-counter bronchodilator product, which are recorded at the allocated fair value of $29.2 million, its carrying value as of June 30, 2018.

The trademark was determined to have an indefinite life. In determining its indefinite life, the Company considered the following: the expected use of the intangible; the longevity of the brand; the legal, regulatory and contractual provisions that affect their maximum useful life; the Company’s ability to renew or extend the asset’s legal or contractual life without substantial costs; effects of the regulatory environment; expected changes in distribution channels; maintenance expenditures required to obtain the expected future cash flows from the asset; and considerations for obsolescence, demand, competition and other economic factors.

As a result of environmental concerns about Chlorofluorocarbons, or CFCs, the FDA issued a final ruling on January 16, 2009 that required the CFC formulation of its Primatene® Mist product to be phased out by December 31, 2011. The former formulation of Primatene® Mist contained CFCs as a propellant; however, the Company intends to use the trademark for a future version of Primatene® that utilizes hydrofluoroalkane, or HFA, as a propellant.

In 2013, the Company filed a new drug application, or NDA, for Primatene® Mist and received a Prescription Drug User Fee Act date set for May 2014. In May 2014, the Company received a complete response letter, or CRL, from the FDA, which required additional non-clinical information, label revisions and follow-up studies (label comprehension, behavioral/human factors and actual use) to assess consumers’ ability to use the device correctly to support approval of the product in the over-the-counter setting. The Company submitted a responsive NDA amendment in June 2016 and received a second CRL from the FDA in December 2016, which requires additional packaging and label revisions and follow-up studies to assess consumers’ ability to use the product correctly to support approval in the over-the-counter setting. After several meetings with the FDA in 2017, the Company further revised its packaging and label and plans to perform another human factors study based on such revisions. In November 2017, the Company submitted its proposed protocol to the FDA. In March 2018, the Company received as Advice Letter from the FDA regarding its proposed protocol. Based on that feedback, the Company has conducted an additional human factors study. The Company believes it has received acceptable results from the study, and the Company has resubmitted the NDA. The Company intends to continue to work with the FDA to address their concerns in the CRL and bring Primatene® Mist back to the over-the-counter market. However, there can be no guarantee that any future amendment to the Company’s NDA will result in timely approval of Primatene® Mist or approval at all.

Based on the Company’s filed version of Primatene® Mist, the long history of the Primatene® trademark (marketed since 1963), the Company’s perpetual rights to the trademark, the nature of the CRL received in December 2016, the plan that the HFA version will be marketed under the same trademark if approved by the FDA, and other factors previously considered, the trademark continues to have an indefinite useful life, and an impairment charge is not required based on the Company’s qualitative assessment as of June 30, 2018.

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Inventories

6 Months Ended

Jun. 30, 2018

Inventories

Inventories

Note  9.  Inventories

Inventories consist of the following:

	June 30,		December 31,
	2018		2017
	(in thousands)
Raw materials and supplies	$	27,640	$	19,973
Work in process		22,298		22,469
Finished goods		11,740		21,167
Total inventories	$	61,678	$	63,609

Charges totaling $1.2 million and $3.1 million were included in the cost of revenues in the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2018, respectively, to adjust the Company’s inventory and related firm inventory purchase commitments to their net realizable value. For the three and six months ended June 30, 2017, charges totaling $4.7 million and $5.1 million were included in the cost of revenues, respectively, to adjust the Company’s inventory and related firm inventory purchase commitments to their net realizable value.

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Property, Plant, and Equipment

6 Months Ended

Jun. 30, 2018

Property, Plant, and Equipment

Property, Plant, and Equipment

Note 10.  Property, Plant, and Equipment

Property, plant, and equipment consist of the following:

	June 30,		December 31,
	2018		2017
	(in thousands)
Buildings	$	90,844	$	89,124
Leasehold improvements		30,050		29,847
Land		7,654		7,110
Machinery and equipment		136,716		118,056
Furniture, fixtures, and automobiles		17,561		16,385
Construction in progress		55,126		58,145
Total property, plant, and equipment		337,951		318,667
Less accumulated depreciation		(139,710)		(133,328)
Total property, plant, and equipment, net	$	198,241	$	185,339

As of June 30, 2018 and December 31, 2017, the Company had $2.1 million and $2.3 million, respectively, in capitalized manufacturing equipment that is intended to be used specifically for the manufacture of Primatene® Mist. The Company will continue to monitor developments with the FDA as it relates to its Primatene® indefinite lived intangible assets in determining if there is an impairment of these related fixed assets (see Note 8).

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Accounts Payable and Accrued Liabilities

6 Months Ended

Jun. 30, 2018

Accounts Payable and Accrued Liabilities

Accounts Payable and Accrued Liabilities

Note 11.  Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following:

	June 30,		December 31,
	2018		2017
	(in thousands)
Accrued customer fees and rebates	$	15,664	$	15,981
Accrued payroll and related benefits		18,190		15,680
Accrued product returns, current portion		4,627		4,133
Other accrued liabilities		6,948		5,132
Total accrued liabilities		45,429		40,926
Accounts payable		21,663		16,629
Total accounts payable and accrued liabilities	$	67,092	$	57,555

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Debt

6 Months Ended

Jun. 30, 2018

Debt

Debt

Note  12.  Debt

Debt consists of the following:

	June 30,		December 31,
	2018		2017
	(in thousands)
Loans with East West Bank
Line of credit facility due December 2018	$	—	$	—
Equipment loan due January 2019		898		1,668
Mortgage payable due February 2021		3,535		3,577
Equipment loan due June 2021		3,673		4,286
Equipment line of credit due December 2022		8,000		—
Mortgage payable due October 2026		3,494		3,524
Mortgage payable due June 2027		8,871		8,936
Loans with Cathay Bank
Line of credit facility due May 2020		—		—
Acquisition loan due April 2019		14,053		15,073
Mortgage payable due August 2027		7,712		7,795
Loans with Bank of Nanjing
Working capital loan due June 2019		260		—
Loans with Seine-Normandie Water Agency
French government loan 1 paid March 2018		—		17
French government loan 2 due June 2020		54		85
French government loan 3 due July 2021		238		239
Payment Obligation to Merck		573		599
Equipment under Capital Leases		1,225		1,357
Total debt and capital leases		52,586		47,156
Less current portion of long-term debt and capital leases		18,891		6,312
Long-term debt and capital leases, net of current portion	$	33,695	$	40,844

As of June 30, 2018, the fair value of the loans approximates their carrying amount. The interest rate used in the fair value estimation was determined to be a Level 2 input. For certain loans with East West Bank, the Company has entered into fixed interest rate swap contracts to exchange the variable interest rates for fixed interest rates over the life of certain debt instruments without the exchange of the underlying notional debt amount. The interest rate swap contracts do not qualify for hedge accounting and are recorded at fair value based on Level 2 inputs. These swap contacts have an aggregate fair value of $0.5 million and $0.1 million as of June 30, 2018 and December 31, 2017, respectively.  The change in fair value is recorded in other income (expense) in the Company’s condensed consolidated statement of operations.

Loans with East West Bank

Equipment Credit Line—Due December 2022

In June 2018, the Company drew down $8.0 million on the equipment credit line from East West Bank, which is due in December 2022. The loan bears a variable interest rate at the Prime Rate as published by The Wall Street Journal. Subsequent to the quarter end, the Company entered into a fixed interest rate swap contract on this facility to exchange the variable interest rate for a fixed interest rate of 5.87% over the life of the facility without the exchange of the underlying notional debt amount. The interest rate swap contract does not qualify for hedge accounting and will be recorded at fair value based on Level 2 inputs. As of June 30, 2018, the Company had $8.0 million outstanding under this facility.

Covenants

At June 30, 2018 and December 31, 2017, the Company was in compliance with its debt covenants, which include a minimum current ratio, minimum debt service coverage, minimum tangible net worth, maximum debt-to-effective-tangible-net-worth ratio, and minimum deposit requirements, computed on a consolidated basis. 

Equipment under Capital Leases

The Company entered into leases for certain equipment under capital leasing arrangements which will expire at various times through 2022. The cost of equipment under capital leases was $1.6 million and $1.6 million at June 30, 2018 and December 31, 2017, respectively.

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Income Taxes

6 Months Ended

Jun. 30, 2018

Income Taxes

Income Taxes

Note 13.  Income Taxes

The following table sets forth the Company’s income tax provision for the periods indicated:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
	(in thousands)
Income (loss) before taxes	$	(4,116)		$	3,173		$	(13,146)		$	4,677
Income tax expense (benefit)		(1,326)			1,201			(3,110)			1,812
Net income (loss)	$	(2,790)		$	1,972		$	(10,036)		$	2,865
Income tax provision as a percentage of income before income taxes		32.2	%		37.9	%		23.7	%		38.7	%

The decrease in the Company’s effective tax rate for the three and six months ended June 30, 2018 was primarily due to the Tax Act, which was enacted on December 22, 2017. The Tax Act, among other things, reduces the statutory U.S. federal corporate income tax rate from 35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. In March 2018, the FASB issued ASU No. 2018-05 to incorporate Staff Accounting Bulletin, or SAB 118, pursuant to which the Company’s final analysis will be completed over a one-year measurement period ending December 22, 2018, and any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined. During the three and six months ended June 30, 2018, the Company has made no changes to the provisional amounts recorded at December 31, 2017. The Company will continue to refine its calculations as additional analysis and changes to certain amounts and estimates are completed and tax returns are filed. The Company’s estimates may also be affected as it gains a more thorough understanding of the tax law.

During the three months ended June 30, 2018, the Company recognized a discrete tax benefit of $1.3 million for previously unrecognized tax benefits upon a favorable state audit resolution.

Effective January 1, 2018, the Company adopted ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, pursuant to which the income tax consequences of intra-entity transfer of an asset other than inventory is required to be recognized in the period in which the transfer occurs. The Company adopted the standard on a modified retrospective basis resulting in an increase of deferred tax assets and the beginning balance of retained earnings by $0.5 million, respectively.

Valuation Allowance

In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. Ultimately, the realization of deferred tax assets depends on the existence of future taxable income. Management considers sources of taxable income such as income in prior carryback periods, future reversal of existing deferred taxable temporary differences, tax-planning strategies, and projected future taxable income.

The Company has discontinued recognizing AFP income tax benefits by recording a full valuation allowance until it is determined that it is more likely than not that AFP will generate sufficient taxable income to realize its deferred income tax assets.

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Stockholders' Equity

6 Months Ended

Jun. 30, 2018

Stockholders' Equity

Stockholders' Equity

Note 14.  Stockholders’ Equity

The changes in stockholders’ equity for the six months ended June 30, 2018, consisted of the following:

	Six Months Ended
	June 30,
	2018
	(in thousands)
Stockholders’ equity as of December 31, 2017	$	337,329
Beginning balance adjustment as a result of the adoption of new accounting standards		582
Net loss		(10,036)
Other comprehensive loss		(1,066)
Net proceeds from equity plans, net of withholding tax payments		(294)
Share-based compensation expense		8,862
Purchase of treasury stock		(14,851)
Stockholders’ equity as of June 30, 2018	$	320,526

Share Buyback Program

Pursuant to the Company’s share buyback program, the Company purchased 430,137 and 837,741 shares of its common stock during the three and six months ended June 30, 2018, for total consideration of $7.2 million and $14.8 million, respectively. The Company purchased 579,388 and 1,112,282 shares of its common stock during the three and six months ended June 30, 2017, for total consideration of $9.0 million and $17.2 million, respectively.

On May 7, 2018, the Company’s Board of Directors authorized an increase of $20.0 million to the Company’s share buyback program, which is expected to continue for an indefinite period of time. The primary goal of the program is to offset dilution created by the Company’s equity compensation programs.

Purchases are made through open market and private block transactions pursuant to Rule 10b5-1 plans, privately negotiated transactions or other means as determined by the Company’s management and in accordance with the requirements of the SEC. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, and other conditions. These repurchased shares are accounted for under the cost method and are included as a component of treasury stock in the Company’s consolidated balance sheets. 

The 2015 Equity Incentive Plan

As of June 30, 2018, the Company reserved an aggregate of 4,659,989 shares of common stock for future issuance under the 2015 Equity Incentive Plan, or the 2015 Plan. In January 2018, an additional 1,165,590 shares were reserved under the 2015 Plan pursuant to the evergreen provision.

Share-Based Award Activity and Balances

The Company accounts for share-based compensation payments in accordance with ASC 718, which requires measurement and recognition of compensation expense at fair value for all share-based payment awards made to employees and directors. Under these standards, the fair value of option awards and the option components of the Employee Stock Purchase Plan awards are estimated at the grant date using the Black-Scholes option-pricing model. The fair value of RSUs is estimated at the grant date using the Company’s common share price. Non-vested stock options held by non-employees are revalued at each balance sheet date. The portion that is ultimately expected to vest is amortized and recognized in compensation expense on a straight-line basis over the requisite service period, generally from the grant date to the vesting date.

The weighted-averages for key assumptions used in determining the fair value of options granted during the three and six months ended June 30, 2018 and 2017, are as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Average volatility	41.7	%	40.2	%	39.9	%	37.0	%
Risk-free interest rate	2.8	%	1.5	%	2.7	%	2.1	%
Weighted-average expected life in years	4.9		3.0		5.7		5.4
Dividend yield rate	—	%	—	%	—	%	—	%

A summary of option activity under all plans for the six months ended June 30, 2018, is presented below:

				Weighted-Average
		Weighted-Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Options	Price		Term (Years)	Value(1)
					(in thousands)
Outstanding as of December 31, 2017	10,898,701	$	14.65
Options granted	1,086,414		20.16
Options exercised	(200,120)		12.55
Options cancelled	(124,129)		13.21
Options expired	(11,625)		31.60
Outstanding as of June 30, 2018	11,649,241	$	15.20	4.80	$	17,152
Exercisable as of June 30, 2018	8,343,518	$	15.09	3.58	$	12,499

⁽¹⁾ The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the estimated fair value of the Company’s common stock for those awards that have an exercise price below the estimated fair value at June 30, 2018.

For the three and six months ended June 30, 2018,  the Company recorded expenses of $1.9 million and $4.3 million, respectively, related to stock options granted to employees under all plans and expenses of $0.2 million and $0.3 million, respectively, related to stock options granted to the Board of Directors under all plans. For the three and six months ended June 30, 2017,  the Company recorded expenses of $2.0 million and $4.0 million, respectively, related to stock options granted to employees under all plans and expenses of $0.2 million and $0.3 million, respectively, related to stock options granted to the Board of Directors under all plans.

Information relating to option grants and exercises is as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands, except per share data)
Weighted-average grant date fair value per option share	$	6.53	$	5.01	$	7.79	$	4.92
Intrinsic value of options exercised		277		3,037		1,338		3,062
Cash received from options exercised		650		8,643		2,511		8,739
Total fair value of the options vested during the year		1,383		1,424		7,790		6,205

A summary of the status of the Company’s non-vested options as of June 30, 2018, and changes during the six months ended June 30, 2018, is presented below:

		Weighted-Average
		Grant Date
	Options	Fair Value
Non-vested as of December 31, 2017	4,310,241	$	4.21
Options granted	1,086,414		7.79
Options vested	(1,966,803)		3.96
Options forfeited	(124,129)		4.82
Non-vested as of June 30, 2018	3,305,723		5.47

As of June 30, 2018, there was $14.5 million of total unrecognized compensation cost, net of forfeitures, related to non-vested stock option based compensation arrangements granted under all plans. The cost is expected to be recognized over a weighted-average period of 2.5 years and will be adjusted for future changes in estimated forfeitures. 

Restricted Stock Units

The Company grants restricted stock units, or RSUs, to certain employees and members of the Board of Directors with a vesting period of up to five years. The grantee receives one share of common stock at a specified future date for each RSU awarded. The RSUs may not be sold or otherwise transferred until certificates of common stock have been issued, recorded, and delivered to the participant. The RSUs do not have any voting or dividend rights prior to the issuance of certificates of the underlying common stock. The share-based expense associated with these grants was based on the Company’s common stock fair value at the time of grant and is amortized over the requisite service period, which generally is the vesting period using the straight-line method. During the three and six months ended June 30, 2018, the Company recorded expenses of $1.9 million and $3.6 million, respectively, related to RSU awards granted to employees under all plans and expenses of $0.2 million and $0.3 million, respectively, related to RSU awards granted to the Board of Directors. During the three and six months ended June 30, 2017, the Company recorded expenses of $1.7 million and $3.7 million, respectively, related to RSU awards granted to employees under all plans and expenses of $0.2 million and $0.3 million, respectively, related to RSU awards granted to the Board of Directors.

As of June 30, 2018, there was $16.0 million of total unrecognized compensation cost, net of forfeitures, related to non-vested RSU-based compensation arrangements granted under all plans. The cost is expected to be recognized over a weighted-average period of 2.6 years and will be adjusted for future changes in estimated forfeitures.

Information relating to RSU grants and deliveries is as follows:

		Total Fair Market
		Value of RSUs
		Issued
	Total RSUs	as
	Issued	Compensation(1)
		(in thousands)
RSUs outstanding at December 31, 2017	1,392,781
RSUs granted	435,474	$	8,469
RSUs forfeited	(45,431)
RSUs vested(2)	(550,587)
RSUs outstanding at June 30, 2018	1,232,237

⁽¹⁾ The total fair market value is derived from the number of RSUs granted times the current stock price on the date of grant.

⁽²⁾ Of the vested RSUs, 199,868 shares of common stock were surrendered to fulfill tax withholding obligations.

The Company recorded share-based compensation expense under all plans and it is included in the Company’s consolidated statement of operations as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands)
Cost of revenues	$	981	$	897	$	2,141	$	2,028
Operating expenses:
Selling, distribution, and marketing		104		65		211		149
General and administrative		2,743		2,985		5,636		5,768
Research and development		368		351		874		804
Total share-based compensation	$	4,196	$	4,298	$	8,862	$	8,749

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Employee Benefits

6 Months Ended

Jun. 30, 2018

Employee Benefits

Employee Benefits

Note 15.  Employee Benefits

401(k) Plan

The Company has a defined contribution 401(k) plan, or the Plan, whereby eligible employees voluntarily contribute up to a defined percentage of their annual compensation. The Company matches contributions at a rate of 50% on the first 6% of employee contributions, and pays the administrative costs of the Plan. Total employer contributions for the three and six months ended June 30, 2018 were approximately $0.3 million and $0.6 million, respectively, compared to the prior year expense of $0.2 million and $0.5 million for the three and six months ended June 30, 2017, respectively.

Defined Benefit Pension Plan

In connection with the Merck API Transaction, the Company assumed an obligation associated with a defined-benefit plan for eligible employees of AFP. This plan provides benefits to the employees from the date of retirement and is based on the employee’s length of time employed by the Company. The calculation is based on a statistical calculation combining a number of factors that include the employee’s age, length of service, and AFP employee turnover rate.

The liability under the plan is based on a discount rate of 1.60% as of June 30, 2018 and December 31, 2017, respectively. The liability is included in accrued liabilities in the accompanying consolidated balance sheets. The plan is currently unfunded, and the benefit obligation under the plan was $2.1 million and $2.1 million at June 30, 2018 and December 31, 2017, respectively. The Company recorded an immaterial amount of expense under the plan for the three months ended June 30, 2018, and $0.1 million for the six months ended June 30, 2018. The Company recorded an immaterial amount of expense under the plan for the three months ended June 30, 2017, and $0.1 million for the six months ended June 30, 2017. 

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2018

Commitments and Contingencies

Commitments and Contingencies

Note 16.  Commitments and Contingencies

Supply Agreement with MannKind Corporation

On July 31, 2014, the Company entered into a supply agreement with MannKind Corporation, or MannKind, or the Supply Agreement, pursuant to which the Company agreed to manufacture for and supply to MannKind certain quantities of recombinant human insulin, or RHI API for use in MannKind’s product Afrezza®. In January 2015, the Company entered into a supply option agreement with MannKind, or the Option Agreement, pursuant to which MannKind has the option to purchase additional RHI API. The Supply Agreement and the Option Agreement were subsequently amended in November 2016. For the year ended December 31, 2017, sales of RHI API to MannKind totaled $3.2 million, which fulfilled the 2017 commitment of RHI API under the amended Supply Agreement. Under the Option Agreement, the Company recognized the cancellation fee for 2018 of $0.9 million in net revenues in its consolidated statement of operations for the year ended December 31, 2017. For the three and six months ended June 30, 2018, sales of RHI API to MannKind totaled $5.3 million. The Company did not have any sales of RHI API to MannKind for the three and six months ended June 30, 2017.

Collaboration Agreements with Medical Device Manufacturers

In August 2014, the Company entered into a collaboration agreement with a medical device manufacturer to develop a drug delivery system to be used by the Company for one of its pipeline products. As of June 30, 2018, the Company has paid an upfront payment of $0.5 million and $1.5 million in milestone payments under this agreement, which were classified as research and development expense as the milestones were met. The Company is obligated to pay up to an additional $0.5 million if certain research and development milestones are met. As of June 30, 2018, no such obligation existed. Pursuant to the collaboration agreement, if the medical device manufacturer is successful in the development of this drug delivery system and the Company’s pipeline products receive appropriate regulatory approval, the Company intends to enter into a commercial supply agreement with such medical device manufacturer for a minimum purchase of 1.0 million units during the first 12 months.

In October 2017, the Company entered into a collaboration agreement with a medical device manufacturer to develop a drug delivery system to be used by the Company for one of its pipeline products for a total of $1.6 million. As of June 30, 2018, the Company has paid and expensed an upfront payment of $0.4 million, and is obligated to pay up to an additional $1.2 million, if certain research and development milestones are met. As of June 30, 2018, no such obligation existed for the milestones. In addition, pursuant to the collaboration agreement, if the medical device manufacturer is successful in the development of this drug delivery system and the Company’s pipeline products receive appropriate regulatory approval, the Company intends to enter into a commercial supply agreement with such medical device manufacturer under which the Company is obligated to pay an additional $1.0 million if certain commercial development milestones are met and to purchase a minimum of 100,000 units per year for three years.

Operating Lease Agreements

The Company leases real and personal property in the normal course of business under various non-cancelable operating leases. The Company, at its option, can renew a substantial portion of its leases, at the market rate, for various renewal periods ranging from one to six years. Rental expense under these leases for the three and six months ended June 30, 2018, was approximately $1.0 million and $2.1 million, respectively, compared to $0.9 million and $1.7 million for the three and six months ended June 30, 2017, respectively. 

Purchase Commitments

As of June 30, 2018, the Company has entered into commitments to purchase equipment and raw materials for an aggregate amount of approximately $44.1 million. The Company anticipates that most of these commitments with remaining terms in excess of one year will be fulfilled by 2019. In addition, the Company is obligated to pay a supplier certain payments up to $1.5 million based on the sale of one of the Company’s products.

The Company entered into agreements with a Chinese governmental entity to acquire land-use rights to real property in Nanjing, China. Under the terms of these agreements, the Company committed to invest capital in its wholly-owned subsidiary, ANP, and to develop these properties as an API manufacturing facility for the Company’s pipeline products. In conjunction with these agreements, ANP modified its business license on July 3, 2012 to increase its authorized capital. As of December 31, 2016, the Company had completed its investment of total registered capital commitment of $61.0 million to ANP. This investment in ANP resulted in cash being transferred from the U.S. parent company to ANP.

Per these agreements, in January 2010, the Company acquired certain land-use rights with a carrying value of $1.2 million. In addition, the Company purchased additional land-use rights in November 2012 for $1.3 million. The Company committed to spend approximately $15.0 million in land development. The agreements require the construction of fixed assets on the property and specified a timetable for the construction of these fixed assets. The current pace of development of the property is behind the schedules described in the purchase agreements and, per the purchase agreements, potential monetary penalties could result if the development is delayed or not completed in accordance with the guidelines stated in the purchase agreements. The Company is in discussions with the Chinese government regarding the development and believes that the likelihood of incurring any penalty is remote.

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Litigation

6 Months Ended

Jun. 30, 2018

Litigation

Litigation

Note 17.  Litigation

Enoxaparin Patent Litigation

In September 2011, Momenta Pharmaceuticals, Inc., or Momenta, a Boston‑based pharmaceutical company, and Sandoz Inc., or Sandoz, the generic division of Novartis, initiated litigation against the Company for alleged patent infringement of two patents related to testing methods for batch release of enoxaparin, which the Company refers to as the “’886 patent” and the “’466 patent.” The lawsuit was filed in the United States District Court for the District of Massachusetts, or the Massachusetts District Court. In October 2011, the Massachusetts District Court issued a preliminary injunction barring the Company from selling its generic enoxaparin product and also requiring Momenta and Sandoz to post a $100.1 million bond. The preliminary injunction was stayed by the United States Court of Appeals for the Federal Circuit, or the Federal Circuit, in January 2012, and reversed by the Federal Circuit in August 2012.

In January 2013, the Company moved for summary judgment of non‑infringement of both patents. Momenta and Sandoz withdrew their allegations as to the ’466 patent, and in July 2013, the Massachusetts District Court granted the Company’s motion for summary judgment of non‑infringement of the ’886 patent and denied Momenta and Sandoz’s motion for leave to amend their infringement contentions. On January 24, 2014, the Massachusetts District Court judge entered final judgment in the Company’s favor on both patents. Momenta and Sandoz also filed a motion to collect attorneys’ fees and costs relating to a discovery motion, which the Massachusetts District Court granted. On May 9, 2016, the Massachusetts District Court issued an order imposing fees and costs of approximately $0.4 million in relation to this discovery motion. This amount has been accrued in the general and administrative expense for the quarter ended March 31, 2016.  On January 30, 2014, Momenta and Sandoz filed a notice of appeal to the Federal Circuit appealing the court’s final judgment including summary judgment denying Momenta and Sandoz’s motion for leave to amend their infringement contentions.

Following appeal briefing filed by the parties, the Federal Circuit held oral argument on May 4, 2015. On November 10, 2015, the Federal Circuit panel affirmed-in-part and vacated-in-part the decision of the Massachusetts District Court granting summary judgment of non-infringement as to the Company, and it remanded the case to the Massachusetts District Court for further proceedings consistent with its opinion. The Federal Circuit panel affirmed the Massachusetts District Court’s holding in the Company’s favor that the Company does not infringe under 35 U.S.C. 271(g), and the panel vacated the grant of summary judgment to the extent it was based on the determination that the Company’s activities fall within the 35 U.S.C. 271(e)(1) safe harbor. The Federal Circuit panel also left to the Massachusetts District Court’s discretion whether to reconsider on remand its denial of leave for Momenta and Sandoz to amend their infringement contentions. On January 11, 2016, the Company filed a Petition for Rehearing En Banc with the Federal Circuit. On February 17, 2016, the Federal Circuit denied the Company’s Petition, and the Federal Circuit issued its mandate on February 24, 2016, whereby the case returned to the Massachusetts District Court for further proceedings. 

On March 18, 2016, the parties filed a joint status report with the Massachusetts District Court. On June 21, 2016, the Massachusetts District Court granted Momenta and Sandoz’s Motion for Leave to Amend its Infringement Contentions. In light of Momenta and Sandoz’s Amended Infringement Contentions and recent changes in Supreme Court precedent since the case was stayed in 2012, the Company sought to amend its Non-Infringement and Invalidity Contentions.

On July 18, 2016, the Company submitted its Motion for Leave to Amend Its Non-Infringement and Invalidity Contentions and Momenta and Sandoz responded on July 25, 2016. In light of the new arguments made in their response, the Company further filed a Motion For Leave to Reply in Further Support of Defendants’ Motion for Leave to Amend Non-Infringement and Invalidity Contentions, which was granted. A hearing was held on August 23, 2016, where the Magistrate Judge ordered the Company to file its proposed amended contentions, which it filed on August 31, 2016. On February 4, 2017, the Magistrate Judge issued an order denying the Company leave to amend its contentions. The Company filed objections to this order with the District Court on February 21, 2017. On April 13, 2017, the District Court rejected the determination of the Magistrate Judge with respect to the Company’s amended non-infringement contentions, and allowed the Company to amend its non-infringement contentions. With respect to the Company’s amended invalidity contentions, the District Court accepted the Magistrate Judge’s determination; however, the District Court specifically stated that the Company can argue changes in law at the summary judgment stage or at trial.

In parallel with the Massachusetts District Court proceedings, the Company appealed the Federal Circuit’s decision to vacate the grant of the Company’s summary judgment to the extent it was based on the determination that the Company’s activities are protected under the Safe Harbor. The Company filed a Petition for a Writ of Certiorari with the Supreme Court on May 17, 2016. Momenta and Sandoz initially waived their right to respond to the petition; however, on May 31, 2016, the Supreme Court requested a response from Momenta and Sandoz. The response from Momenta and Sandoz was initially due on June 30, 2016, but they requested an extension. Momenta and Sandoz filed their response on August 1, 2016. On October 3, 2016, the Supreme Court declined the Petition for a Writ of Certiorari.

Fact discovery in the Massachusetts District Court proceedings closed on November 22, 2016, and the parties proceeded with expert discovery and exchanged opening and rebuttal expert reports. Expert discovery closed on March 24, 2017. On April 14, 2017, Plaintiffs filed a Motion for Summary Judgment seeking to dismiss the Company’s equitable defenses. On April 14, 2017, the Company filed Defendants’ Motion for Summary Judgment of Invalidity and Noninfringement. In the Motion, the Company moved for the District Court to grant summary judgment in favor of the Company on the following issues: (1) the ’886 patent is invalid under 35 U.S.C. § 101 as claiming non-patentable subject matter; (2) the ’886 patent is invalid under 35 U.S.C. § 112 because the claims are indefinite; and (3) the Company’s tests do not infringe the claims of the ’886 patent. Oppositions to the motions for summary judgment were filed on May 5, 2017. Replies in support of the motions for summary judgment were filed on May 19, 2017.On June 16, 2017, the District Court issued an order denying the summary judgment motions. The District Court also denied Plaintiffs’ motion for summary judgment dismissing the Company’s defenses of implied waiver and equitable estoppel, and denied Plaintiffs’ alternative request for a separate hearing on the implied waiver and equitable estoppel defenses holding that the defenses would be submitted to the jury for an advisory verdict.

Trial in the Massachusetts District Court on all claims and defenses began on July 10, 2017. On July 21, 2017, the jury returned a unanimous verdict finding that although the Company’s tests infringed the asserted patent, the patent was invalid for lack of enablement and lack of written description and the jury further found that Plaintiffs are entitled to zero ($0) damages. As for the Company’s defenses of implied waiver and equitable estoppel, the jury found that Plaintiffs waived their right to recover for infringement of the asserted patent and that Plaintiffs are estopped from enforcing the asserted patent against the Company. The verdict on these equitable defenses was briefed by the parties and submitted to the Court.In the post-trial briefing, the Company requested the Court to adopt the findings of the jury on the equitable defenses, and to set aside the jury’s finding of infringement. In Plaintiffs’ post-trial briefing, Plaintiffs requested a new trial, and requested the Court to set aside the jury’s finding that the asserted patent was invalid for lack of enablement and lack of written description. In a February 7, 2018 Memorandum and Order and with respect to the equitable defenses, the Court found that Plaintiffs waived their right to enforce the ’866 patent against the Company for its use of one of its test, and are equitably estopped from enforcing the ’866 patent against the Company for its use of that same test. The Court also found that Plaintiffs have not waived their right to enforce the ’866 patent against the Company for its use of a second test, and are not equitable estopped from enforcing the ’866 patent against the Company for its use of that same second test. On February 7, 2018, the Court also denied all other post-trial motions. On March 20, 2018, the Court entered final judgment in this matter reflecting the jury’s verdict and the Court’s February 7, 2018 Memorandum and Order.

On March 23, 2018, the Company filed a motion to enforce liability on the bonds related to the preliminary injunction issued in October 2011, stayed in January 2012, and reversed by the Federal Circuit in August 2012. On March 27, 2018, Plaintiffs filed a notice of appeal with the Federal Circuit. On April 3, 2018, Plaintiffs filed a motion with the District Court to defer decision on the Company’s motion to enforce liability on the bonds pending their appeal. On July 13, 2018, the District Court allowed Momenta’s motion to defer consideration of the Company’s motion to enforce liability on the bonds until the appeal is resolved. The appeal is ongoing.

The Company will continue to vigorously defend the jury’s verdict, including against any potential appeal by the Plaintiffs. The Company intends to continue to pursue its attempt to collect the $100.1 million bond posted by Momenta and Sandoz.

False Claims Act Litigation

In January 2009, the Company filed a qui tam complaint in the U.S. District Court for the Central District of California, or the California District Court, alleging that Aventis Pharma S.A., or Aventis, through its acquisition of a patent through false and misleading statements to the U.S. Patent and Trademark Office, as well as through false and misleading statements to the FDA, overcharged the federal and state governments for its Lovenox® product. If the Company is successful in this litigation, it could be entitled to a portion of any damage award that the government ultimately may recover from Aventis. In October 2011, the California District Court unsealed the Company’s complaint.

On February 28, 2014, Aventis filed a motion for summary judgment on the issue of the adequacy of the Company’s notice letter to the government, and the California District Court denied Aventis’ motion for summary judgment in a final order it issued on May 12, 2014. On June 9, 2014, at Aventis’ request, the California District Court issued an order certifying for appeal its order denying Aventis’ motion for summary judgment. On June 9, 2014, Aventis filed with the United States Court of Appeals for the Ninth Circuit, or the Ninth Circuit, a petition for permission to appeal the California District Court’s denial of Aventis’ motion for summary judgment, and the Company filed an opposition to Aventis’ petition on June 19, 2014. On August 22, 2014, the Ninth Circuit granted Aventis’ petition. The parties filed their respective appeal briefs with the Ninth Circuit. On November 10, 2016, the Ninth Circuit heard oral argument on the appeal.

The California District Court set an evidentiary hearing for July 7, 2014 on the “original source” issue, a key element under the False Claims Act. The evidentiary hearing was conducted as scheduled, from July 7, 2014 through July 10, 2014. On July 13, 2015, the California District Court issued a ruling concluding that the Company is not an original source under the False Claims Act, and entered final judgment dismissing the case for lack of subject matter jurisdiction.

On July 20, 2015, the Company filed with the Ninth Circuit a notice of appeal of the California District Court’s dismissal of the case, and Aventis filed a notice of cross-appeal on August 5, 2015. On November 12, 2015, Aventis filed a pleading asking that the California District Court impose various monetary penalties and fines against the Company, including disgorgement of enoxaparin revenues and attorneys’ fees expended by Aventis in this action, based on Aventis’s allegations that the Company engaged in sanctionable conduct. On November 23, 2015, the California District Court issued an order setting forth a procedure for sanctions proceedings as to the Company as well as its outside counsel. On December 24, 2015, the Company filed a pleading with the California District Court opposing the imposition of sanctions, and on January 20, 2016, Aventis filed a response pleading further pressing for the imposition of sanctions. On May 4, 2016, the California District Court issued three orders requesting that the Company and its outside counsel file a document showing cause as to why sanctions should not be imposed and to set up a conference call with the partiers and the court to discuss whether any discovery and/or a hearing is necessary. On June 13, 2016, the Company and its outside counsel each filed responses to the court’s order to show cause as to why sanctions should not be imposed. On July 21, 2016, Aventis filed a response contending that the court should impose sanctions. On February 10, 2017, the Court held a show cause hearing regarding the potential imposition of sanctions and took the matter under submission. On September 18, 2017, the District Court issued its decision that no sanctions will be imposed on either the Company or its counsel.

On March 28, 2016, the Company filed its opening brief with the Ninth Circuit Court of Appeals setting forth detailed arguments as to why the False Claims Act litigation should not have been dismissed by the California District Court. On June 20, 2016, Aventis filed its principal brief in the appeal, responding to the Company’s arguments regarding dismissal of the False Claims Act litigation, and setting forth Aventis’s argument that it should be awarded attorneys’ fees and expenses. On September 19, 2016, the Company filed its reply brief to Aventis’s principal brief. On October 3, 2016, Aventis filed its reply brief in support of its cross-appeal of the District Court’s denial of attorneys’ fees. On November 10, 2016, the Ninth Circuit heard oral argument on the appeals.

On May 11, 2017, the Ninth Circuit issued an opinion affirming the California District Court’s dismissal of the action for lack of subject matter jurisdiction; dismissing as moot Aventis’s appeal from the District Court’s denial of its motion for summary judgment on the issue of the adequacy of the Company’s notice letter to the government; reversing the District Court’s denial of Aventis’s motion for attorneys’ fees; and remanding the case to the District Court for resolution of the attorneys’ fees issue. On July 14, 2017, Aventis filed an application with the District Court for entitlement to attorneys’ fees and expenses. The Company intends to continue to vigorously defend against any such imposition of attorneys’ fees or sanctions.

Momenta/Sandoz Antitrust Litigation

On September 17, 2015, the Company initiated a lawsuit by filing a complaint in the California District Court against Momenta and Sandoz, or the Defendants. The Company’s complaint generally asserts that Defendants have engaged in certain types of illegal, monopolistic, and anticompetitive conduct giving rise to various causes of action against them. On December 9, 2015, Defendants filed a motion to dismiss and a motion to transfer the case to the District of Massachusetts. On January 4, 2016, the Company filed oppositions to both motions. On January 26, 2016, the California District Court granted Defendants’ motion to transfer and did not rule on Defendants’ motion to dismiss. Accordingly, the case was transferred to the District of Massachusetts. On February 9, 2016, the Company filed a writ of mandamus with the Ninth Circuit to attempt to appeal the California District Court’s granting of Defendants’ motion to transfer to the District of Massachusetts. The Ninth Circuit denied this petition on May 20, 2016, and as such the case will remain before the District of Massachusetts. On July 27, 2016, the Massachusetts District Court granted Defendants’ motion to dismiss based on antitrust immunity doctrine, without addressing the substantive merits of the claims.

On August 25, 2016, the Company filed with the First Circuit Court of Appeals a notice of appeal of the Massachusetts District Court’s dismissal of the antitrust case. On October 31, 2016, the Company filed its appeal brief with the First Circuit. On December 5, 2016, Defendants filed their response brief with the First Circuit Court of Appeals. On December 19, 2016, the Company filed its rely brief with the First Circuit Court of Appeals, which concluded the briefing on this appeal. On February 9, 2017, the First Circuit Court of Appeals heard oral arguments. On March 6, 2017, the First Circuit Court of Appeals issued its decision, in which it held 3 to 0 that the District Court of Massachusetts erred in dismissing the Company’s antitrust case and sent the case back to the District Court to consider additional arguments.

On April 20, 2017, Defendants filed their supplemental motion to dismiss and the Company filed its opposition on May 4, 2017. On March 19, 2018, the District Court entirely denied the Defendants’ motion to dismiss. On April 19, 2018, the Defendants filed a motion to seek interlocutory appeal of the District Court’s motion to dismiss opinion. The Company filed its opposition to interlocutory appeal on May 1, 2018.

On March 19, 2018, the District Court granted the parties’ joint motion to extend the case schedule and accepted their proposed dates with a few modifications. Under the schedule, fact discovery will close on October 1, 2018. Summary judgment arguments are due on April 26, 2019, oppositions are due on June 14, 2019, and replies are due on July 10, 2019. Trial is scheduled for September 9, 2019.

Epinephrine Injection, 0.1 mg/mL Litigation

On June 28, 2018, Belcher Pharmaceuticals, LLC, or Belcher initiated a lawsuit by filing a complaint against IMS for infringement of U.S. Patent No. 9,283,197 with regard to IMS’s New Drug Application No. 211363, filed under 21 U.S.C. § 355(b)(2) of the Hatch-Waxman Act, for FDA approval to manufacture and sell 0.1 mg/mL epinephrine injections. On July 20, 2018, the Company filed a motion to dismiss Belcher’s complaint for patent infringement under Federal Rule of Civil Procedure 12(b)(6). Belcher’s opposition to the Company’s motion to dismiss is currently due on August 17, 2018.

Other Litigation

The Company is also subject to various other claims and lawsuits from time-to-time arising in the ordinary course of business.

The Company records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In the opinion of management, the ultimate resolution of any such matters is not expected to have a material adverse effect on its financial position, results of operations, or cash flows; however, the results of litigation and claims are inherently unpredictable and the Company’s view of these matters may change in the future. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.

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Subsequent Events

6 Months Ended

Jun. 30, 2018

Subsequent Events

Subsequent Events

Note 18.  Subsequent Events and Related-Party Transactions

ANP Private Placement

In July 2018, ANP completed a private placement of its equity for aggregate gross proceeds of approximately $57.2 million. In connection with the private placement, all of the executive officers of the Company and Stephen Shohet, Howard Lee, and Richard Koo, directors of the Company, entered into subscription agreements (each, a “Subscription Agreement”) for the indirect investment in ANP. These Subscription Agreements were transacted either through an investment in Amphastar Cayman, a Cayman Islands limited liability company, or Qianqia, a Chinese partnership. The total aggregate gross proceeds from such executive officers and directors were approximately $23.5 million. The Company has retained approximately 58% of the equity interest of ANP immediately after the private placement.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2018

Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and are prepared in accordance with the requirements of the SEC for interim reporting. Effective January 1, 2018, the Company retrospectively adopted Accounting Standard Update, or ASU, No. 2016-15 Classification of Certain Cash Receipts and Cash Payments. Certain amounts in the prior year’s condensed consolidated statement of cash flows have been reclassified to conform to the current quarter presentation. This reclassification has no impact on net income or cash flows. All significant 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 (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations, and cash flows of the Company.

The Company’s subsidiaries include: (1) International Medication Systems, Limited, or IMS, (2) Armstrong Pharmaceuticals, Inc., or Armstrong, (3) Amphastar Nanjing Pharmaceuticals Inc., or ANP, (4) Nanjing Letop Fine Chemistry Co., Ltd., or Letop, (5) Nanjing Hanxin Medical Technology Co., Ltd, or Hanxin, (6) Nanjing Baixin Trading Co. Ltd., or Baixin, (7) Amphastar France Pharmaceuticals, S.A.S., or AFP, (8) Amphastar UK Ltd., or AUK, and (9) International Medication Systems (UK) Limited, or IMS UK.

In July 2018, ANP completed a private placement of its equity for aggregate gross proceeds of approximately $57.2 million. The Company has retained approximately 58% of the equity interest of ANP immediately after the private placement and continues to consolidate the financial results of ANP with the Company’s results of operations.  (See Note 18 for additional information)

Use of Estimates

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

Foreign Currency

Foreign Currency

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

The Company’s French subsidiary, AFP, maintains its book of record in Euros. Its other Chinese subsidiaries maintain their books of record in Chinese Yuan. Its U.K. subsidiary, IMS UK, maintains its book of record in Great Britain Pounds. These local currencies have been determined to be the subsidiaries’ respective functional currencies. These books of record are translated into USD using average exchange rates during the period. Assets and liabilities are translated at the rate of exchange prevailing on the balance sheet date. Equity is translated at the prevailing rate of exchange at the date of the equity transactions. Translation adjustments are reflected in stockholders’ equity and are included as a component of other accumulated comprehensive income (loss). The unrealized gains or losses of intercompany foreign currency transactions that are of a long-term investment nature are reported in other accumulated comprehensive income (loss). The unrealized gains and losses of intercompany foreign currency transactions that are of a long-term investment nature for the three and six months ended June 30, 2018 were $1.7 million loss and $0.8 million loss, respectively, and for the three and six months ended June 30, 2017 were $2.2 million gain and $2.7 million gain, respectively.

The Company does not undertake hedging transactions to cover its foreign currency exposure.

Comprehensive Income (Loss)

Comprehensive Income (loss)

For the three and six months ended June 30, 2018 and 2017, the Company included its foreign currency translation gain or loss as part of its comprehensive income (loss).

Restricted Cash and Short-term Investments

Restricted Cash and Short-term Investments

Restricted cash and short-term investments are collateral required for the Company to effect a standby letter of credit and to qualify for workers’ compensation self-insurance and are available to meet the Company’s workers’ compensation obligations on a current basis, as needed. As of June 30, 2018 and December 31, 2017, restricted cash and short-term investments include $1.9 million in cash and $2.3 million in certificates of deposit, respectively. The certificates of deposit have original maturities greater than three months and are classified as short-term investments.

Financial Instruments

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 fixed interest rate swap contracts to exchange the variable interest rates for fixed interest rates without the exchange of the underlying notional debt amounts. Such interest rate swap contracts are recorded at their fair values.

Deferred Income Taxes

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. At June 30, 2018, the Company had not completed its accounting for the tax effects of the enactment of the Tax Cuts and Jobs Act of 2017, or the Tax Act.

Business Combinations

Business Combinations

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

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

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board, or FASB, issued ASU No. 2016-02, Leases, that is aimed at making leasing activities more transparent and comparable, and which requires substantially all leases be recognized by lessees on their balance sheets as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. The ASU and the related clarifications subsequently issued by the FASB will become effective for the Company’s interim and annual reporting periods during the year ending December 31, 2019, and all annual and interim reporting periods thereafter. Early adoption is permitted. The Company is required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements for the reporting periods in which the guidance is adopted. While the Company continues to evaluate the provisions of ASC 842 to determine how it will be affected, the primary effect of adopting the new standard will be to record right-to-use assets and obligations for current operating leases on its consolidated financial statements. Note 16 provides details on the Company’s current operating lease arrangements. The adoption of ASC 842 is not expected to have a material impact on the Company’s results of operations or cash flows.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses, which is aimed at providing financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit. The standard update changes the impairment model for financial assets measured at amortized cost, requiring presentation at the net amount expected to be collected. The measurement of expected credit losses requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Available-for-sale debt securities with unrealized losses will be recorded through an allowance for credit losses. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020. Early adoption is permitted for interim or annual periods after December 31, 2019. The Company will be required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company does not believe the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

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

In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends the hedge accounting model in ASC 815 to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. The amendments also simplify the application of hedge accounting in certain situations. The new guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2019. Early adoption is permitted. The Company does not believe that the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows entities to reclassify from accumulated other comprehensive income to retained earnings stranded tax effects resulting from the Tax Act. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2019. Early adoption is permitted. The Company does not believe that the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees. The Company will early-adopt the guidance on July 1, 2018. The adoption will not have a material impact on its consolidated financial statements and related disclosures

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Revenue Recognition (Tables)

6 Months Ended

Jun. 30, 2018

Revenue Recognition

Schedule of chargeback provision analysis

	Six Months Ended
	June 30,
	2018		2017
	(in thousands)
Beginning balance	$	18,470	$	39,709
Provision for chargebacks and rebates		55,372		86,935
Credits and payments issued to third parties		(55,999)		(116,429)
Ending balance	$	17,843	$	10,215

Schedule of product return liability analysis

	Six Months Ended
	June 30,
	2018		2017
	(in thousands)
Beginning balance	$	6,522	$	3,143
Provision for product returns		917		2,979
Credits issued to third parties		(865)		(966)
Ending balance	$	6,574	$	5,156

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Income (Loss) per Share (Tables)

6 Months Ended

Jun. 30, 2018

Income (Loss) per Share

Schedule of basic and diluted net income (loss) per share calculation

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands, except per share data)
Basic and dilutive numerator:
Net income (loss)	$	(2,790)	$	1,972	$	(10,036)	$	2,865
Denominator:
Weighted-average shares outstanding — basic		46,557		46,025		46,535		46,047
Net effect of dilutive securities:
Incremental shares from equity awards		—		1,841		—		1,915
Weighted-average shares outstanding — diluted		46,557		47,866		46,535		47,962
Net income (loss) per share — basic	$	(0.06)	$	0.04	$	(0.22)	$	0.06
Net income (loss) per share — diluted	$	(0.06)	$	0.04	$	(0.22)	$	0.06

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Segment Reporting (Tables)

6 Months Ended

Jun. 30, 2018

Segment Reporting

Schedule of financial information by reporting segment

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands)
Net revenues:
Finished pharmaceutical products	$	63,241	$	63,765	$	116,358	$	119,699
API		7,799		1,422		13,075		2,158
Total net revenues		71,040		65,187		129,433		121,857
Gross profit:
Finished pharmaceutical products		27,741		28,866		47,466		53,176
API		(1,585)		(2,119)		(4,249)		(3,601)
Total gross profit		26,156		26,747		43,217		49,575
Operating expenses		29,013		24,562		55,992		45,986
Income (loss) from operations		(2,857)		2,185		(12,775)		3,589
Non-operating income		(1,259)		988		(371)		1,088
Income (loss) before income taxes	$	(4,116)	$	3,173	$	(13,146)	$	4,677

Schedule of net revenues in the finished pharmaceutical products segment

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands)
Finished pharmaceutical products net revenues:
Naloxone	$	11,133	$	10,261	$	20,060	$	21,200
Phytonadione		10,806		10,003		19,987		17,890
Lidocaine		10,010		9,334		19,792		17,622
Enoxaparin		8,715		8,288		15,722		18,698
Medroxyprogesterone		6,365		—		9,071		—
Epinephrine		3,687		10,648		6,910		20,222
Other finished pharmaceutical products		12,525		15,231		24,816		24,067
Total finished pharmaceutical products net revenues	$	63,241	$	63,765	$	116,358	$	119,699

Schedule of net revenues and carrying values of long-lived assets by geographic region

	Net Revenue								Long-Lived Assets
	Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,		December 31,
	2018		2017		2018		2017		2018		2017
	(in thousands)
United States	$	68,560	$	63,799	$	121,664	$	119,729	$	113,554	$	110,235
China		—		—		—		—		47,068		41,078
France		2,480		1,388		7,769		2,128		37,619		34,026
United Kingdom		—		—		—		—		—		—
Total	$	71,040	$	65,187	$	129,433	$	121,857	$	198,241	$	185,339

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Customer and Supplier Concentration (Tables)

6 Months Ended

Jun. 30, 2018

Customer and Supplier Concentration

Schedule of accounts receivable and net revenues by major customer

	% of Total Accounts				% of Net
	Receivable				Revenue
					Three Months Ended				Six Months Ended
	June 30,		December 31,		June 30,				June 30,
	2018		2017		2018		2017		2018		2017
McKesson	23	%	22	%	25	%	27	%	26	%	27	%
AmerisourceBergen	25	%	33	%	27	%	29	%	26	%	29	%
Cardinal Health	20	%	12	%	20	%	26	%	21	%	25	%

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Goodwill and Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2018

Goodwill and Intangible Assets

Schedule of weighted-average life, original cost, accumulated amortization and net book value by major class

	Weighted-Average			Accumulated
	Life (Years)	Original Cost		Amortization		Net Book Value
	(in thousands)
Definite-lived intangible assets
Cortrosyn® product rights	12	$	27,134	$	27,134	$	—
IMS (UK) international product rights	10		9,239		1,771		7,468
Patents	12		486		191		295
Land-use rights	39		2,540		453		2,087
Other intangible assets	4		69		55		14
Subtotal	12		39,468		29,604		9,864
Indefinite-lived intangible assets
Trademark	*		29,225		—		29,225
Goodwill - Finished pharmaceutical products	*		4,361		—		4,361
Subtotal	*		33,586		—		33,586
As of June 30, 2018	*	$	73,054	$	29,604	$	43,450

	Weighted-Average			Accumulated
	Life (Years)	Original Cost		Amortization		Net Book Value
	(in thousands)
Definite-lived intangible assets
Cortrosyn® product rights	12	$	27,134	$	26,243	$	891
IMS (UK) international product rights	10		9,440		1,337		8,103
Patents	12		486		170		316
Land-use rights	39		2,540		419		2,121
Other intangible assets	4		69		46		23
Subtotal	12		39,669		28,215		11,454
Indefinite-lived intangible assets
Trademark	*		29,225		—		29,225
Goodwill - Finished pharmaceutical products	*		4,461		—		4,461
Subtotal	*		33,686		—		33,686
As of December 31, 2017	*	$	73,355	$	28,215	$	45,140

*Intangible assets with indefinite lives have an indeterminable average life.

Schedule of changes in carrying amounts of goodwill

	June 30,		December 31,
	2018		2017
	(in thousands)
Beginning balance	$	4,461	$	3,976
Currency translation		(100)		485
Ending balance	$	4,361	$	4,461

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Inventories (Tables)

6 Months Ended

Jun. 30, 2018

Inventories

Schedule of inventories

	June 30,		December 31,
	2018		2017
	(in thousands)
Raw materials and supplies	$	27,640	$	19,973
Work in process		22,298		22,469
Finished goods		11,740		21,167
Total inventories	$	61,678	$	63,609

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Property, Plant, and Equipment (Tables)

6 Months Ended

Jun. 30, 2018

Property, Plant, and Equipment

Schedule of property, plant, and equipment

	June 30,		December 31,
	2018		2017
	(in thousands)
Buildings	$	90,844	$	89,124
Leasehold improvements		30,050		29,847
Land		7,654		7,110
Machinery and equipment		136,716		118,056
Furniture, fixtures, and automobiles		17,561		16,385
Construction in progress		55,126		58,145
Total property, plant, and equipment		337,951		318,667
Less accumulated depreciation		(139,710)		(133,328)
Total property, plant, and equipment, net	$	198,241	$	185,339

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Accounts Payable and Accrued Liabilities (Tables)

6 Months Ended

Jun. 30, 2018

Accounts Payable and Accrued Liabilities

Schedule of accounts payable and accrued liabilities

	June 30,		December 31,
	2018		2017
	(in thousands)
Accrued customer fees and rebates	$	15,664	$	15,981
Accrued payroll and related benefits		18,190		15,680
Accrued product returns, current portion		4,627		4,133
Other accrued liabilities		6,948		5,132
Total accrued liabilities		45,429		40,926
Accounts payable		21,663		16,629
Total accounts payable and accrued liabilities	$	67,092	$	57,555

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Debt (Tables)

6 Months Ended

Jun. 30, 2018

Debt

Schedule of debt

	June 30,		December 31,
	2018		2017
	(in thousands)
Loans with East West Bank
Line of credit facility due December 2018	$	—	$	—
Equipment loan due January 2019		898		1,668
Mortgage payable due February 2021		3,535		3,577
Equipment loan due June 2021		3,673		4,286
Equipment line of credit due December 2022		8,000		—
Mortgage payable due October 2026		3,494		3,524
Mortgage payable due June 2027		8,871		8,936
Loans with Cathay Bank
Line of credit facility due May 2020		—		—
Acquisition loan due April 2019		14,053		15,073
Mortgage payable due August 2027		7,712		7,795
Loans with Bank of Nanjing
Working capital loan due June 2019		260		—
Loans with Seine-Normandie Water Agency
French government loan 1 paid March 2018		—		17
French government loan 2 due June 2020		54		85
French government loan 3 due July 2021		238		239
Payment Obligation to Merck		573		599
Equipment under Capital Leases		1,225		1,357
Total debt and capital leases		52,586		47,156
Less current portion of long-term debt and capital leases		18,891		6,312
Long-term debt and capital leases, net of current portion	$	33,695	$	40,844

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Income Taxes (Tables)

6 Months Ended

Jun. 30, 2018

Income Taxes

Summary of provision (benefit) for income taxes

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
	(in thousands)
Income (loss) before taxes	$	(4,116)		$	3,173		$	(13,146)		$	4,677
Income tax expense (benefit)		(1,326)			1,201			(3,110)			1,812
Net income (loss)	$	(2,790)		$	1,972		$	(10,036)		$	2,865
Income tax provision as a percentage of income before income taxes		32.2	%		37.9	%		23.7	%		38.7	%

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Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2018

Stockholders' Equity

Summary of changes in stockholders' equity

	Six Months Ended
	June 30,
	2018
	(in thousands)
Stockholders’ equity as of December 31, 2017	$	337,329
Beginning balance adjustment as a result of the adoption of new accounting standards		582
Net loss		(10,036)
Other comprehensive loss		(1,066)
Net proceeds from equity plans, net of withholding tax payments		(294)
Share-based compensation expense		8,862
Purchase of treasury stock		(14,851)
Stockholders’ equity as of June 30, 2018	$	320,526

Schedule of key assumptions to determine fair value of options

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Average volatility	41.7	%	40.2	%	39.9	%	37.0	%
Risk-free interest rate	2.8	%	1.5	%	2.7	%	2.1	%
Weighted-average expected life in years	4.9		3.0		5.7		5.4
Dividend yield rate	—	%	—	%	—	%	—	%

Schedule of the summary of option activity under all plans

				Weighted-Average
		Weighted-Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Options	Price		Term (Years)	Value(1)
					(in thousands)
Outstanding as of December 31, 2017	10,898,701	$	14.65
Options granted	1,086,414		20.16
Options exercised	(200,120)		12.55
Options cancelled	(124,129)		13.21
Options expired	(11,625)		31.60
Outstanding as of June 30, 2018	11,649,241	$	15.20	4.80	$	17,152
Exercisable as of June 30, 2018	8,343,518	$	15.09	3.58	$	12,499

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the estimated fair value of the Company’s common stock for those awards that have an exercise price below the estimated fair value at June 30, 2018.

Schedule of information relating to options grants

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands, except per share data)
Weighted-average grant date fair value per option share	$	6.53	$	5.01	$	7.79	$	4.92
Intrinsic value of options exercised		277		3,037		1,338		3,062
Cash received from options exercised		650		8,643		2,511		8,739
Total fair value of the options vested during the year		1,383		1,424		7,790		6,205

Schedule of the summary of nonvested options status

		Weighted-Average
		Grant Date
	Options	Fair Value
Non-vested as of December 31, 2017	4,310,241	$	4.21
Options granted	1,086,414		7.79
Options vested	(1,966,803)		3.96
Options forfeited	(124,129)		4.82
Non-vested as of June 30, 2018	3,305,723		5.47

Schedule of information relating to RSU grants and deliveries

		Total Fair Market
		Value of RSUs
		Issued
	Total RSUs	as
	Issued	Compensation(1)
		(in thousands)
RSUs outstanding at December 31, 2017	1,392,781
RSUs granted	435,474	$	8,469
RSUs forfeited	(45,431)
RSUs vested(2)	(550,587)
RSUs outstanding at June 30, 2018	1,232,237

⁽¹⁾ The total fair market value is derived from the number of RSUs granted times the current stock price on the date of grant.

⁽²⁾ Of the vested RSUs, 199,868 shares of common stock were surrendered to fulfill tax withholding obligations.

Schedule of recorded share-based compensation expense under all plans

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(in thousands)
Cost of revenues	$	981	$	897	$	2,141	$	2,028
Operating expenses:
Selling, distribution, and marketing		104		65		211		149
General and administrative		2,743		2,985		5,636		5,768
Research and development		368		351		874		804
Total share-based compensation	$	4,196	$	4,298	$	8,862	$	8,749

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Summary of Significant Accounting Policies (Details) - USD ($) $ in Millions		3 Months Ended		6 Months Ended
	Jul. 02, 2018	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Gains and losses of intercompany foreign currency transactions		$ (1.7)	$ 2.2	$ (0.8)	$ 2.7
Restricted Cash, Current		1.9		1.9		$ 1.9
Certificates of deposit		2.3		2.3		$ 2.3
Inventory adjustment to reflect net realizable value		$ 1.2	$ 4.7	$ 3.1	$ 5.1
Subsequent Event | ANP
Proceeds from private placement	$ 57.2
Equity interest retained post private placement	58.00%

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Revenue Recognition (Analysis of the Chargeback Provision) (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Beginning balance	$ 18,470	$ 39,709	$ 39,709
Provision for chargebacks and rebates	55,372	86,935
Credits and payments issued to third parties	(55,999)	(116,429)
Ending balance	17,843	$ 10,215	18,470
Accounts Receivable, Net
Provision for chargebacks and rebates	6,400		6,800
Accounts Payable and Accrued Liabilities [Member]
Provision for chargebacks and rebates	$ 11,400		$ 11,700

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Revenue Recognition (Analysis of Product Return Liability) (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Revenue Recognition
Beginning balance	$ 6,522	$ 3,143	$ 3,143
Provision for product returns	917	2,979
Credits issued to third parties	(865)	(966)
Ending balance	6,574	$ 5,156	6,522
Sales not recognized in revenues due to insufficient information available to estimate a reasonable product return accrual	$ 700		1,200
Aggregate product return rate	1.30%	1.20%
Return accrual included in accounts payable and accrued liabilities	$ 4,627		4,133
Return accrual included in other long-term liabilities	$ 1,900		$ 2,400

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Income (Loss) per Share (Narrative) (Details) - $ / shares	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Stock Options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Shares	11,649,241	3,170,200	11,649,241	3,170,200
Antidilutive Securities Excluded from Computation of Earnings Per Share, Exercise Price of Excluded Securities		$ 20.52		$ 20.52
Restricted Stock Units (RSUs)
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Shares	1,232,237		1,232,237
Employee Stock Purchase Plan (ESPP)
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Shares	60,854		60,854

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Income (Loss) per Share (Calculation of Basic and Diluted Net Income (Loss) Per Share) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Basic and dilutive numerator:
Net loss	$ (2,790)	$ 1,972	$ (10,036)	$ 2,865
Denominator:
Shares outstanding	46,557	46,025	46,535	46,047
Weighted-average shares outstanding—basic	46,557	46,025	46,535	46,047
Net effect of dilutive securities:
Incremental shares from equity awards		1,841		1,915
Weighted-average shares outstanding — diluted	46,557	47,866	46,535	47,962
Net income (loss) per share — basic	$ (0.06)	$ 0.04	$ (0.22)	$ 0.06
Net income (loss) per share — diluted	$ (0.06)	$ 0.04	$ (0.22)	$ 0.06

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Segment Reporting (Selected Financial Information by Reporting Segment) (Details) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($) segment	Jun. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Segment Reporting Information [Line Items]
Number of Reportable Segments | segment			2
Net revenues:
Net Revenue	$ 71,040	$ 65,187	$ 129,433	$ 121,857
Gross Profit:
Gross Profit	26,156	26,747	43,217	49,575
Operating expenses	29,013	24,562	55,992	45,986
Income (loss) from operations	(2,857)	2,185	(12,775)	3,589
Non-operating income (expenses)	(1,259)	988	(371)	1,088
Income (loss) before income taxes	(4,116)	3,173	(13,146)	4,677
Finished Pharmaceutical Products
Net revenues:
Net Revenue	63,241	63,765	116,358	119,699
Gross Profit:
Gross Profit	27,741	28,866	47,466	53,176
Epinephrine
Segment Reporting Information [Line Items]
Net revenues recognized					$ 17,800
API
Net revenues:
Net Revenue	7,799	1,422	13,075	2,158
Gross Profit:
Gross Profit	$ (1,585)	$ (2,119)	$ (4,249)	$ (3,601)

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Segment Reporting (Summary of Net Revenues by Product Segment) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Segment Reporting Information, Revenue for Reportable Segment [Abstract]
Net Revenue	$ 71,040	$ 65,187	$ 129,433	$ 121,857
Finished Pharmaceutical Products
Segment Reporting Information, Revenue for Reportable Segment [Abstract]
Net Revenue	63,241	63,765	116,358	119,699
Finished Pharmaceutical Products | Enoxaparin
Segment Reporting Information, Revenue for Reportable Segment [Abstract]
Net Revenue	8,715	8,288	15,722	18,698
Finished Pharmaceutical Products | Naloxone
Segment Reporting Information, Revenue for Reportable Segment [Abstract]
Net Revenue	11,133	10,261	20,060	21,200
Finished Pharmaceutical Products | Lidocaine
Segment Reporting Information, Revenue for Reportable Segment [Abstract]
Net Revenue	10,010	9,334	19,792	17,622
Finished Pharmaceutical Products | Phytonadione
Segment Reporting Information, Revenue for Reportable Segment [Abstract]
Net Revenue	10,806	10,003	19,987	17,890
Finished Pharmaceutical Products | Epinephrine
Segment Reporting Information, Revenue for Reportable Segment [Abstract]
Net Revenue	3,687	10,648	6,910	20,222
Finished Pharmaceutical Products | Medroxyprogesterone
Segment Reporting Information, Revenue for Reportable Segment [Abstract]
Net Revenue	6,365		9,071
Finished Pharmaceutical Products | Other Finished Pharmaceutical Products
Segment Reporting Information, Revenue for Reportable Segment [Abstract]
Net Revenue	$ 12,525	$ 15,231	$ 24,816	$ 24,067

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Segment Reporting (Summary of Revenues and Long-Lived Assets by Geographic Region) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Revenues from External Customers and Long-Lived Assets [Line Items]
Net Revenue	$ 71,040	$ 65,187	$ 129,433	$ 121,857
Long-Lived Assets	198,241		198,241		$ 185,339
UNITED STATES
Revenues from External Customers and Long-Lived Assets [Line Items]
Net Revenue	68,560	63,799	121,664	119,729
Long-Lived Assets	113,554		113,554		110,235
CHINA
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-Lived Assets	47,068		47,068		41,078
FRANCE
Revenues from External Customers and Long-Lived Assets [Line Items]
Net Revenue	2,480	$ 1,388	7,769	$ 2,128
Long-Lived Assets	$ 37,619		$ 37,619		$ 34,026

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Customer and Supplier Concentration (Details) - Customer Concentration Risk [Member] - item	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Revenue, Major Customer [Line Items]
Number of major customers that are wholesale distributors			3
Accounts Receivable, Net
Revenue, Major Customer [Line Items]
Number of major customers			3		3
Net Revenues
Revenue, Major Customer [Line Items]
Number of major customers	3	3	3	3
AmerisourceBergen | Accounts Receivable, Net
Revenue, Major Customer [Line Items]
Major Customers			25.00%		33.00%
AmerisourceBergen | Net Revenues
Revenue, Major Customer [Line Items]
Major Customers	27.00%	29.00%	26.00%	29.00%
Cardinal Health | Accounts Receivable, Net
Revenue, Major Customer [Line Items]
Major Customers			20.00%		12.00%
Cardinal Health | Net Revenues
Revenue, Major Customer [Line Items]
Major Customers	20.00%	26.00%	21.00%	25.00%
McKesson | Accounts Receivable, Net
Revenue, Major Customer [Line Items]
Major Customers			23.00%		22.00%
McKesson | Net Revenues
Revenue, Major Customer [Line Items]
Major Customers	25.00%	27.00%	26.00%	27.00%

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Goodwill and Intangible Assets (Summary of Intangible Assets) (Details) $ in Thousands	1 Months Ended		3 Months Ended	6 Months Ended		12 Months Ended
	Feb. 28, 2017 USD ($)	Mar. 31, 2016 USD ($) item	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
Definite-lived intangible assets
Weighted-Average Life (Years)				12 years		12 years
Finite-Lived Intangible Assets, Gross				$ 39,468		$ 39,669
Accumulated Amortization				29,604		28,215
Finite-Lived Intangible Assets, Net				9,864		11,454
Indefinite-lived intangible assets
Goodwill recognized				4,361		4,461	$ 3,976
Subtotal, Original Cost				33,586		33,686
Subtotal, Net Book Value				33,586		33,686
Balance, Original Cost				73,054		73,355
Balance, Net Book Value				43,450		45,140
Proceeds from sale of intangible assets				4,400	$ 2,000
Hikma Pharmaceuticals PLC
Indefinite-lived intangible assets
Number of Injectable Products Acquired | item		14
Number of Different Injectable Chemical Entities | item		11
Sale price of intangible assets		$ 6,400
Proceeds from sale of intangible assets	$ 1,000		$ 1,000
Royalty Fee Percentage	2.00%
Gain recognized within operating (income) expenses					$ 2,600
Finished Pharmaceutical Products
Indefinite-lived intangible assets
Goodwill recognized				4,361		4,461
Trademarks
Indefinite-lived intangible assets
Indefinite-lived intangible assets				$ 29,225		$ 29,225
Product rights
Definite-lived intangible assets
Weighted-Average Life (Years)				12 years		12 years
Finite-Lived Intangible Assets, Gross				$ 27,134		$ 27,134
Accumulated Amortization				$ 27,134		26,243
Finite-Lived Intangible Assets, Net						$ 891
Acquired international product rights
Definite-lived intangible assets
Weighted-Average Life (Years)				10 years
Finite-Lived Intangible Assets, Gross				$ 9,239
Accumulated Amortization				1,771
Finite-Lived Intangible Assets, Net				$ 7,468
Patents
Definite-lived intangible assets
Weighted-Average Life (Years)				12 years		12 years
Finite-Lived Intangible Assets, Gross				$ 486		$ 486
Accumulated Amortization				191		170
Finite-Lived Intangible Assets, Net				$ 295		$ 316
Land-use rights
Definite-lived intangible assets
Weighted-Average Life (Years)				39 years		39 years
Finite-Lived Intangible Assets, Gross				$ 2,540		$ 2,540
Accumulated Amortization				453		419
Finite-Lived Intangible Assets, Net				$ 2,087		$ 2,121
Other intangible assets
Definite-lived intangible assets
Weighted-Average Life (Years)				4 years		4 years
Finite-Lived Intangible Assets, Gross				$ 69		$ 69
Accumulated Amortization				55		46
Finite-Lived Intangible Assets, Net				$ 14		$ 23
International Medication Systems (UK) Limited | Acquired international product rights
Definite-lived intangible assets
Weighted-Average Life (Years)						10 years
Finite-Lived Intangible Assets, Gross						$ 9,440
Accumulated Amortization						1,337
Finite-Lived Intangible Assets, Net						$ 8,103

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Goodwill and Intangible Assets (Summary of Changes in the Carrying Amount of Goodwill) (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Goodwill and Intangible Assets
Beginning balance	$ 4,461	$ 3,976
Currency translation and other adjustments	(100)	485
Ending balance	$ 4,361	$ 4,461

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Inventories (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Inventories
Raw materials and supplies	$ 27,640		$ 27,640		$ 19,973
Work in process	22,298		22,298		22,469
Finished goods	11,740		11,740		21,167
Total inventory, net	61,678		61,678		$ 63,609
Inventory adjustment to reflect net realizable value	$ 1,200	$ 4,700	$ 3,100	$ 5,100

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Property, Plant, and Equipment (Summary of Property, Plant, and Equipment) (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Property, Plant and Equipment [Line Items]
Total property, plant, and equipment	$ 337,951	$ 318,667
Less accumulated depreciation and amortization	(139,710)	(133,328)
Total property, plant, and equipment, net	198,241	185,339
Buildings
Property, Plant and Equipment [Line Items]
Total property, plant, and equipment	90,844	89,124
Leasehold improvement
Property, Plant and Equipment [Line Items]
Total property, plant, and equipment	30,050	29,847
Land
Property, Plant and Equipment [Line Items]
Total property, plant, and equipment	7,654	7,110
Machinery and equipment
Property, Plant and Equipment [Line Items]
Total property, plant, and equipment	136,716	118,056
Furniture, fixtures, and automobiles
Property, Plant and Equipment [Line Items]
Total property, plant, and equipment	17,561	16,385
Construction in progress
Property, Plant and Equipment [Line Items]
Total property, plant, and equipment	55,126	58,145
Equipment | Primatene Mist
Property, Plant and Equipment [Line Items]
Total property, plant, and equipment	$ 2,100	$ 2,300

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Accounts Payable and Accrued Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Accounts Payable and Accrued Liabilities
Accrued customer fees and rebates	$ 15,664	$ 15,981
Accrued payroll and related benefits	18,190	15,680
Accrued product returns, current portion	4,627	4,133
Other accrued liabilities	6,948	5,132
Total accrued liabilities	45,429	40,926
Accounts payable	21,663	16,629
Total accounts payable and accrued liabilities	$ 67,092	$ 57,555

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Debt (Schedule of Debt) (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Debt Instrument
Equipment under Capital Leases	$ 1,225	$ 1,357
Total debt and capital leases	52,586	47,156
Less current portion of long-term debt and capital leases	18,891	6,312
Long-term debt and capital leases, net of current portion	33,695	40,844
Equipment Loan - Due January 2019 | East West Bank
Debt Instrument
Long Term Debt	898	1,668
Mortgage Payable - Due February 2021 | East West Bank
Debt Instrument
Long Term Debt	3,535	3,577
Equipment Loan - Due June 2021 | East West Bank
Debt Instrument
Long Term Debt	3,673	4,286
Equipment Line of Credit - Due December 2022 | East West Bank
Debt Instrument
Long Term Debt	8,000
Mortgage Payable - Due October 2026 | East West Bank
Debt Instrument
Long Term Debt	3,494	3,524
Mortgage Payable - Due June 2027 | East West Bank
Debt Instrument
Long Term Debt	8,871	8,936
Acquisition Loan - Due April 2019 | Cathay Bank
Debt Instrument
Long Term Debt	14,053	15,073
Mortgage Payable - Due August 2027 | Cathay Bank
Debt Instrument
Long Term Debt	7,712	7,795
Working Capital Loan - Due June 2019 | Bank of Nanjing
Debt Instrument
Long Term Debt	260
French Government Loan - Due March 2018 | Seine-Normandie Water Agency
Debt Instrument
Long Term Debt		17
French Government Loan - Due June 2020 | Seine-Normandie Water Agency
Debt Instrument
Long Term Debt	54	85
French Government Loan - Due July 2021 | Seine-Normandie Water Agency
Debt Instrument
Long Term Debt	238	239
Note Payable To Merck
Debt Instrument
Long Term Debt	$ 573	$ 599

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Debt (Narrative) (Details) - USD ($) $ in Thousands	1 Months Ended	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Debt
Proceeds from borrowing under lines of credit		$ 261
Long-term Debt and Capital Lease Obligations	$ 33,695	33,695	$ 40,844
East West Bank
Debt
Interest rate swap, fair value	$ 500	$ 500	100
Equipment Line of Credit - Due December 2022 | East West Bank
Debt
Debt Instrument, Interest Rate, Stated Percentage	5.87%	5.87%
Line of Credit outstanding	$ 8,000	$ 8,000
Proceeds from borrowing under lines of credit	8,000
Long Term Debt	8,000	8,000
Equipment under Capital Leases
Debt
Capital Leased Assets, Gross	$ 1,600	$ 1,600	$ 1,600

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Income Taxes (Narrative) (Details) - Federal	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Tax Credit Carryforward [Line Items]
Federal income tax rate		35.00%
Forecast
Tax Credit Carryforward [Line Items]
Federal income tax rate	21.00%

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Income Taxes (Summary of Income Before Taxes) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Income (loss) before income taxes:
Income (loss) before income taxes	$ (4,116)	$ 3,173	$ (13,146)	$ 4,677
Income tax expense (benefit)	(1,326)	1,201	(3,110)	1,812
Net income (loss)	$ (2,790)	$ 1,972	$ (10,036)	$ 2,865
Income tax provision as a percentage of income before income taxes	32.20%	37.90%	23.70%	38.70%

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Income Taxes (ASU 2016-16) (Details) $ in Millions	Jun. 30, 2018 USD ($)
Accounting Standards Update 2016-16
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Deferred income tax assets	$ 0.5

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Stockholders' Equity (Summary of the Changes in Stockholders' Equity) (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
	Jan. 01, 2018	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Stockholders' Equity
Balance	$ 337,329			$ 337,329
Beginning balance adjustment as a result of new accounting standards	$ 582
Net loss		$ (2,790)	$ 1,972	(10,036)	$ 2,865
Other comprehensive income (loss)				(1,066)
Net proceeds from equity plans, net of withholding tax payments				(294)
Share-based compensation expense				8,862
Treasury stock repurchase				(14,851)
Balance		$ 320,526		$ 320,526

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Stockholders' Equity (2014 Employee Stock Purchase Plan) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Stockholders' Equity
Allocated share based compensation	$ 4,196	$ 4,298	$ 8,862	$ 8,749

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Stockholders' Equity (Share Buyback Program) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	May 07, 2018
Equity, Class of Treasury Stock [Line Items]
Treasury Stock, Value, Acquired, Cost Method			$ 14,851
November 2014 Share Repurchase Plan
Equity, Class of Treasury Stock [Line Items]
Increase authorized for share buyback program					$ 20,000
Treasury Stock, Shares, Acquired (in Shares)	430,137	579,388	837,741	1,112,282
Treasury Stock, Value, Acquired, Cost Method	$ 7,200	$ 9,000	$ 14,800	$ 17,200

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Stockholders' Equity (The 2015 Equity Incentive Plan) (Details) - The 2015 Equity Incentive Plan - shares	Jan. 01, 2018	Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in Shares)		4,659,989
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized	1,165,590

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Stockholders' Equity (Key Assumptions Used in Determining Fair Value of Options Granted) (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Stockholders' Equity
Average volatility	41.70%	40.20%	39.90%	37.00%
Risk-free interest rate	2.80%	1.50%	2.70%	2.10%
Weighted-average expected life in years	4 years 10 months 24 days	3 years	5 years 8 months 12 days	5 years 4 months 24 days
Dividend yield rate	0.00%	0.00%	0.00%	0.00%

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Stockholders' Equity (Summary of Option Activity) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Options
Outstanding Options, Beginning of period			10,898,701
Options granted			1,086,414
Options exercised			(200,120)
Options cancelled			(124,129)
Options expired			(11,625)
Outstanding Options, End of period	11,649,241		11,649,241
Exercisable at the end of period	8,343,518		8,343,518
Weighted-Average Exercise Price
Outstanding Exercise Price (in dollars per share)			$ 14.65
Options granted (in dollars per share)			20.16
Options exercised (in dollars per share)			12.55
Options cancelled (in dollars per share)			13.21
Options expired (in dollars per share)			31.60
Outstanding Exercise Price (in dollars per share)	$ 15.20		15.20
Exercisable at the end of period (in dollars per share)	$ 15.09		$ 15.09
Additional Disclosures
Outstanding Contractual Term (in Years)			4 years 9 months 18 days
Outstanding Intrinsic Value	$ 17,152		$ 17,152
Exercisable at the end of period (in Years)			3 years 6 months 29 days
Exercisable aggregate intrinsic value	12,499		$ 12,499
Allocated share based compensation	4,196	$ 4,298	8,862	$ 8,749
Employee Stock Option
Additional Disclosures
Allocated share based compensation	1,900	2,000	4,300	4,000
Employee Stock Option | Board of Directors
Additional Disclosures
Allocated share based compensation	$ 200	$ 200	$ 300	$ 300

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Stockholders' Equity (Information Relating to Option Grants and Exercises) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Stockholders' Equity
Weighted-average grant date fair value (in Dollars per share)	$ 6.53	$ 5.01	$ 7.79	$ 4.92
Intrinsic value of options exercised	$ 277	$ 3,037	$ 1,338	$ 3,062
Cash received	650	8,643	2,511	8,739
Total fair value of the options vested during the year	$ 1,383	$ 1,424	$ 7,790	$ 6,205

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Stockholders' Equity (Summary of Nonvested Options) (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Options
Nonvested at beginning of period			4,310,241
Options granted			1,086,414
Options vested			(1,966,803)
Options forfeited			(124,129)
Nonvested at end of period	3,305,723		3,305,723
Weighted-Average Grant Date Fair Value
Nonvested at beginning of period (in dollars per share)			$ 4.21
Options granted (in dollars per share)	$ 6.53	$ 5.01	7.79	$ 4.92
Options vested (in dollars per share)			3.96
Options forfeited (in dollars per share)			4.82
Nonvested at end of period (in dollars per share)	$ 5.47		$ 5.47
Employee Consultant And Directors Stock Options
Weighted-Average Grant Date Fair Value
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options	$ 14.5		$ 14.5
Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			2 years 6 months

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Stockholders' Equity (Restricted Stock Units) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding Contractual Term (in Years)			4 years 9 months 18 days
Allocated share based compensation	$ 4,196	$ 4,298	$ 8,862	$ 8,749
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			5 years
Allocated share based compensation	$ 1,900	1,700	$ 3,600	3,700
Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			2 years 7 months 6 days
Share-based Compensation Arrangement by Share-based Payment Award, Restricted Stock Units, Number of Shares of Common Stock Per Award (in Shares)	1		1
Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options	$ 16,000		$ 16,000
Board of Directors | Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share based compensation	$ 200	$ 200	$ 300	$ 300

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Stockholders' Equity (Information Relating to RSU Grants and Deliveries) (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2018 USD ($) shares
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Total RSUs outstanding at the beginning of the period	1,392,781
RSUs granted	435,474
RSUs forfeited	(45,431)
RSUs vested	(550,587)
Total RSUs outstanding at the end of the period	1,232,237
Stock surrendered to fulfill tax withholding obligations	199,868
Restricted Stock Units Issued as Compensation
Total Fair Market Value of RSUs Issued
RSUs granted (in Dollars) | $	$ 8,469

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Stockholders' Equity (Equity Awards to Consultants and Advisory Board Members) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Stockholders' Equity
Allocated share based compensation	$ 4,196	$ 4,298	$ 8,862	$ 8,749

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Stockholders' Equity (Share-Based Compensation Expense Included in the Statement of Operations) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share based compensation	$ 4,196	$ 4,298	$ 8,862	$ 8,749
Cost of revenues
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share based compensation	981	897	2,141	2,028
Selling, distribution and marketing
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share based compensation	104	65	211	149
General and administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share based compensation	2,743	2,985	5,636	5,768
Research and development
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated share based compensation	$ 368	$ 351	$ 874	$ 804

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Employee Benefits (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Employee Benefits
Defined Contribution Plan, Employer Matching Contribution, Percent of Match			50.00%
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay			6.00%
Defined Contribution Plan, Employer Discretionary Contribution Amount	$ 0.3	$ 0.2	$ 0.6	$ 0.5
Defined Benefit Plan, Assumptions Used Calculating Benefit Obligation, Discount Rate	1.60%		1.60%		1.60%
Defined Benefit Plan, Benefit Obligation	$ 2.1		$ 2.1		$ 2.1
Pension Cost (Reversal of Cost)	$ 0.0	$ 0.0	$ 0.1	$ 0.1

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Commitments and Contingencies (Supply Agreement with MannKind Corporation) (Details) - MannKind Corporation - Supply Commitment - Recombinant Human Insulin (RHI) - USD ($) $ in Millions	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Supply Commitment [Line Items]
Supply Commitment, Cancellation Fee					$ 0.9
Sales	$ 5.3	$ 0.0	$ 5.3	$ 0.0	$ 3.2

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Commitments and Contingencies (Collaboration Agreements) (Details) - Drug delivery system $ in Millions	1 Months Ended	6 Months Ended
	Oct. 31, 2017 USD ($) item	Jun. 30, 2018 USD ($) item
Collaborative Arrangement One [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Collaborative Agreement, Upfront Payment		$ 0.5
Collaborative Agreement, Milestone Payments		1.5
Collaborative Agreement, Contingent Obligation		$ 0.5
Collaborative Agreement, Contingent Purchase Obligation First 12 Months, Units | item		1,000,000
Purchase period		12 months
Collaborative Arrangement Two [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Collaborative Agreement, Upfront Payment		$ 0.4
Collaborative Agreement, Contingent Obligation	$ 1.0	$ 1.2
Purchase period	3 years
Collaborative Agreement, Amount	$ 1.6
Collaborative Agreement, Contingent Purchase Obligation, Units | item	100,000

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Commitments and Contingencies (Operating Lease Agreements) (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Operating Leased Assets [Line Items]
Operating Leases, Rent Expense	$ 1.0	$ 0.9	$ 2.1	$ 1.7
Minimum
Operating Leased Assets [Line Items]
Lessee Leasing Arrangements, Operating Leases, Renewal Term			1 year
Maximum
Operating Leased Assets [Line Items]
Lessee Leasing Arrangements, Operating Leases, Renewal Term			6 years

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Commitments and Contingencies (Purchase Commitments) (Details) - USD ($) $ in Millions	1 Months Ended		6 Months Ended	12 Months Ended
	Nov. 30, 2012	Jan. 31, 2010	Jun. 30, 2018	Dec. 31, 2016
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Maximum Royalty Amount Owed, Contingent On Sales of Products			$ 1.5
Commitments to Purchase Equipment and Raw Materials
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Long-term Purchase Commitment, Amount			$ 44.1
Commitment to invest | ANP
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Purchase Commitments Amount Fulfilled				$ 61.0
Land-use rights | Commitment to invest
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Finite-lived Intangible Assets Acquired	$ 1.3	$ 1.2
Land-use rights | Commitment to develop land
Purchase Commitment, Excluding Long-term Commitment [Line Items]
Contractual Obligation	$ 15.0

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Litigation (Details)				1 Months Ended
	Jul. 21, 2017 USD ($)	May 09, 2016 USD ($)	May 04, 2016 item	Oct. 31, 2011 USD ($)	Sep. 30, 2011 item
Enoxaparin Patent Litigation
Loss Contingencies [Line Items]
Fees and costs relating to a discovery motion		$ 400,000
False Claims Act Litigation
Loss Contingencies [Line Items]
Number of orders issued by district court | item			3
Pending Litigation [Member] | Enoxaparin Patent Litigation
Loss Contingencies [Line Items]
Number of Alleged Patent Infringements | item					2
Litigation, Plaintiff Preliminary Injunction Bond, Amount				$ 100,100,000
Settled Litigation [Member] | Enoxaparin Patent Litigation
Loss Contingencies [Line Items]
Litigation Settlement, Amount	$ 0

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Subsequent Events (Details) - Subsequent Event - ANP $ in Millions	Jul. 02, 2018 USD ($)
Subsequent Events
Proceeds from private placement	$ 57.2
Proceeds from officers and directors	$ 23.5
Equity interest retained post private placement	58.00%