UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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AMPHASTAR PHARMACEUTICALS, INC.
TABLE OF CONTENTS
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020
Special Note About Forward-Looking Statements
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 impact of the COVID-19 pandemic and related responses of business and governments to the pandemic on our operations and personnel, and on commercial activity and demand across our business operations and results of operations; |
● | interruptions to our manufacturing and production as a result of natural catastrophic events or other causes beyond our control such as power disruptions or widespread disease outbreaks, such as the COVID-19 pandemic; |
● | global, national and local economic and market conditions, specifically with respect to geopolitical uncertainty, and the COVID-19 pandemic; |
● | the timing and likelihood of U.S. Food and Drug Administration, or FDA, approvals and regulatory actions on our product candidates, manufacturing activities and product marketing activities; |
● | our ability to advance product candidates in our platforms into successful and completed clinical trials and our subsequent ability to successfully commercialize our product candidates; |
● | our ability to compete in the development and marketing of our products and product candidates; |
● | our expectations regarding the business expansion plans for 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 active pharmaceutical ingredient, or 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 trade tariffs, export or import restrictions, or other trade barriers; |
● | the impact of Patient Protection and Affordable Care Act (as amended) and other legislative and regulatory healthcare reforms in the countries in which we operate including the potential for drug price controls; |
● | the impact of global and domestic tax reforms, including the Tax Cuts and Jobs Act of 2017, or the Tax Act, as amended by the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act; |
● | the timing for completion and the validation of the new construction at our ANP and Amphastar facilities; |
● | the timing and extent of share buybacks; and |
● | our financial performance expectations, including our expectations regarding our backlog, revenue, cost of revenue, gross profit or gross margin, operating expenses, including changes in research and development, sales and marketing and general and administrative expenses, and our ability to achieve and maintain future profitability. |
You should read this Quarterly Report and the documents that we reference elsewhere in this Quarterly Report completely and with the understanding that our actual results may differ materially from what we expect as expressed or implied by our forward-looking statements. In light of the significant risks and uncertainties to which our forward-looking statements are subject, you should not place undue reliance on or regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. In particular, the extent of COVID-19’s impact on our business will depend on several factors, including the severity, duration and extent of the pandemic, as well as actions taken by governments, businesses,
and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time. We discuss many of these risks and uncertainties in greater detail in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2019, 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, |
| |||
2020 | 2019 |
| |||||
(unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Restricted cash | | | |||||
Short-term investments | | | |||||
Restricted short-term investments |
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Accounts receivable, net |
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Inventories |
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Income tax refunds and deposits |
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Prepaid expenses and other assets |
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Total current assets |
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Property, plant, and equipment, net |
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Finance lease right-of-use assets | | | |||||
Operating lease right-of-use assets | | | |||||
Goodwill and intangible assets, net |
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Other assets |
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Deferred tax assets |
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Total assets | $ | | $ | | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable and accrued liabilities | $ | | $ | | |||
Income taxes payable |
| |
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Current portion of long-term debt |
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Current portion of operating lease liabilities | | | |||||
Total current liabilities |
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Long-term reserve for income tax liabilities |
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Long-term debt, net of current portion |
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Long-term operating lease liabilities, net of current portion | | | |||||
Deferred tax liabilities |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies | |||||||
Stockholders’ equity: | |||||||
Preferred stock: par value $ |
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Common stock: par value $ |
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Additional paid-in capital |
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Retained earnings |
| |
| | |||
Accumulated other comprehensive loss |
| ( |
| ( | |||
Treasury stock |
| ( |
| ( | |||
Total Amphastar Pharmaceuticals, Inc. stockholders’ equity |
| |
| | |||
Non-controlling interests | | | |||||
Total equity | | | |||||
Total liabilities and stockholders’ equity | $ | | $ | |
See Accompanying Notes to Condensed Consolidated Financial Statements.
-1-
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, | ||||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||
Net revenues | $ | | $ | | $ | | $ | | |||||
Cost of revenues |
| |
| |
| |
| | |||||
Gross profit |
| |
| |
| |
| | |||||
Operating expenses: | |||||||||||||
Selling, distribution, and marketing |
| |
| |
| | | ||||||
General and administrative |
| |
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| | | ||||||
Research and development |
| |
| |
| | | ||||||
Total operating expenses |
| |
| |
| |
| | |||||
(Loss) Income from operations |
| ( |
| |
| |
| ( | |||||
Non-operating income (expenses): | |||||||||||||
Interest income |
| |
| |
| | | ||||||
Interest expense |
| ( |
| ( |
| ( | ( | ||||||
Other income (expenses), net |
| |
| |
| ( | | ||||||
Total non-operating income (expenses), net |
| |
| |
| ( |
| | |||||
(Loss) Income before income taxes |
| ( |
| |
| |
| | |||||
Income tax (benefit) provision |
| ( |
| |
| | | ||||||
Net (loss) income | $ | ( | $ | | $ | | $ | | |||||
Net loss attributable to non-controlling interests | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net (loss) income attributable to Amphastar Pharmaceuticals, Inc. | $ | ( | $ | | $ | | $ | | |||||
Net (loss) income per share attributable to Amphastar Pharmaceuticals, Inc. shareholders: | |||||||||||||
Basic | $ | ( | $ | | $ | | $ | | |||||
Diluted | $ | ( | $ | | $ | | $ | | |||||
Weighted-average shares used to compute net (loss) income per share attributable to Amphastar Pharmaceuticals, Inc. shareholders: | |||||||||||||
Basic |
| |
| |
| |
| | |||||
Diluted |
| |
| |
| |
| |
See Accompanying Notes to Condensed Consolidated Financial Statements.
-2-
AMPHASTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited; in thousands)
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||
Net (loss) income attributable to Amphastar Pharmaceuticals, Inc. | $ | ( | $ | | $ | | $ | | |||||
Other comprehensive income (loss) income attributable to Amphastar Pharmaceuticals, Inc., net of income taxes | |||||||||||||
Foreign currency translation adjustment |
| |
| ( |
| ( |
| ( | |||||
Total other comprehensive income (loss) income attributable to Amphastar Pharmaceuticals, Inc. |
| |
| ( |
| ( |
| ( | |||||
Total comprehensive income attributable to Amphastar Pharmaceuticals, Inc. | $ | | $ | | $ | | $ | |
See Accompanying Notes to Condensed Consolidated Financial Statements.
-3-
AMPHASTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited; in thousands, except share data)
Common Stock | Accumulated | Treasury Stock | Total | |||||||||||||||||||||||||
Additional | Other | Amphastar | Non- | |||||||||||||||||||||||||
Paid-in | Retained | Comprehensive | Stockholders' | controlling | ||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | loss | Shares | Amount | Equity | Interest | Total | |||||||||||||||||||
Balance as of December 31, 2019 |
| | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | | $ | | $ | | ||||||||
Net income attributable to Amphastar Pharmaceuticals, Inc. |
| — |
| — |
| — |
| |
| — |
| — |
| — |
| |
| — |
| | ||||||||
Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc. |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( |
| — |
| ( | ||||||||
Net loss attributable to non-controlling interest | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||
Purchase of treasury stock |
| — |
| — |
| — |
| — |
| — |
| ( | ( | ( | — |
| ( | |||||||||||
Issuance of treasury stock in connection with the Company's equity plans | — | — | ( | — | — | | | — | — | — | ||||||||||||||||||
Issuance of common stock in connection with the Company's equity plans |
| |
| — |
| ( |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||||
Share-based compensation expense |
| — |
| — |
| |
| — |
| — |
| — |
| — |
| |
| |
| | ||||||||
Balance as of March 31, 2020 |
| | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | | $ | | $ | | ||||||||
Net loss attributable to Amphastar Pharmaceuticals, Inc. |
| — |
| — |
| — |
| ( |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||||
Other comprehensive income attributable to Amphastar Pharmaceuticals, Inc. |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| |
| — |
| | ||||||||
Net loss attributable to non-controlling interest | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||
Purchase of treasury stock |
| — |
| — |
| — |
| — |
| — |
| ( | ( | ( | — |
| ( | |||||||||||
Issuance of treasury stock in connection with the Company's equity plans | — |
| — |
| ( |
| — |
| — |
| | | — | — |
| — | ||||||||||||
Issuance of common stock in connection with the Company's equity plans |
| |
| — |
| |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||||
Share-based compensation expense |
| — |
| — |
| |
| — |
| — |
| — |
| — |
| |
| |
| | ||||||||
Balance as of June 30, 2020 |
| | $ | | | $ | | $ | ( |
| ( | $ | ( | $ | | $ | | $ | |
-4-
AMPHASTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited; in thousands, except share data)
Common Stock | Accumulated | Treasury Stock | Total | |||||||||||||||||||||||||
Additional | Other | Amphastar | Non- | |||||||||||||||||||||||||
Paid-in | Retained | Comprehensive | Stockholders' | controlling | ||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | loss | Shares | Amount | Equity | Interest | Total | |||||||||||||||||||
Balance as of December 31, 2018 |
| | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | | $ | | $ | | ||||||||
Beginning balance adjustment as a result of the adoption of new accounting standards | — | — | — | ( | — | — | — | ( | — | ( | ||||||||||||||||||
Net income attributable to Amphastar Pharmaceuticals, Inc. |
| — |
| — |
| — |
| |
| — |
| — |
| — |
| |
| — |
| | ||||||||
Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc. |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( |
| — |
| ( | ||||||||
Proceeds from the private placement of ANP | — | — | | — | — | — | — | | | | ||||||||||||||||||
Net loss attributable to non-controlling interest | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||
Purchase of treasury stock |
| — |
| — |
| — |
| — |
| — |
| ( | ( | ( | — |
| ( | |||||||||||
Issuance of treasury stock in connection with the Company's equity plans | — | — | ( | — | — | | | — | — | — | ||||||||||||||||||
Issuance of common stock in connection with the Company's equity plans |
| |
| — |
| ( |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||||
Share-based compensation expense |
| — |
| — |
| |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||||
Balance as of March 31, 2019 |
| | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | | $ | | $ | | ||||||||
Net income attributable to Amphastar Pharmaceuticals, Inc. |
| — |
| — |
| — |
| |
| — |
| — |
| — |
| |
| — |
| | ||||||||
Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc. |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( |
| — |
| ( | ||||||||
Net loss attributable to non-controlling interest | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||
Purchase of treasury stock |
| — |
| — |
| — |
| — |
| — |
| ( | ( | ( | — |
| ( | |||||||||||
Issuance of treasury stock in connection with the Company's equity plans | — |
| — |
| ( |
| — |
| — |
| | | — | — |
| — | ||||||||||||
Issuance of common stock in connection with the Company's equity plans |
| |
| — |
| |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||||
Share-based compensation expense |
| — |
| — |
| |
| — |
| — |
| — |
| — |
| |
| |
| | ||||||||
Balance as of June 30, 2019 |
| | $ | | $ | | $ | | $ | ( |
| ( | $ | ( | $ | | $ | | $ | |
See Accompanying Notes to Condensed Consolidated Financial Statements.
-5-
AMPHASTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
Six Months Ended | |||||||
June 30, | |||||||
| 2020 |
| 2019 |
| |||
Cash Flows From Operating Activities: | |||||||
Net income | $ | | $ | | |||
Reconciliation to net cash provided by operating activities: | |||||||
Loss on impairment and disposal of assets |
| |
| | |||
Depreciation of property, plant, and equipment |
| |
| | |||
Amortization of product rights, trademarks, and patents |
| |
| | |||
Operating lease right-of-use asset amortization | | | |||||
Share-based compensation expense |
| |
| | |||
Changes in deferred taxes, net |
| |
| | |||
Changes in operating assets and liabilities: | |||||||
Accounts receivable, net |
| ( |
| | |||
Inventories |
| |
| ( | |||
Prepaid expenses and other assets |
| |
| ( | |||
Income tax refunds, deposits, and payables, net |
| ( |
| | |||
Operating lease liabilities | ( | ( | |||||
Accounts payable and accrued liabilities |
| |
| | |||
Net cash provided by operating activities |
| |
| | |||
Cash Flows From Investing Activities: | |||||||
Purchases and construction of property, plant, and equipment |
| ( |
| ( | |||
Purchase of short-term investments | | — | |||||
Payment of deposits and other assets |
| ( |
| ( | |||
Net cash used in investing activities |
| ( |
| ( | |||
Cash Flows From Financing Activities: | |||||||
Proceeds from the private placement of ANP | — | | |||||
Proceeds from equity plans, net of withholding tax payments |
| |
| ( | |||
Purchase of treasury stock |
| ( |
| ( | |||
Proceeds from borrowing under lines of credit |
| |
| — | |||
Repayments under lines of credit |
| — |
| ( | |||
Proceeds from issuance of long-term debt |
| |
| — | |||
Principal payments on long-term debt |
| ( |
| ( | |||
Net cash provided by financing activities |
| |
| | |||
Effect of exchange rate changes on cash |
| ( |
| ( | |||
Net increase in cash, cash equivalents, and restricted cash |
| |
| | |||
Cash, cash equivalents, and restricted cash at beginning of period |
| |
| | |||
Cash, cash equivalents, and restricted cash at end of period | $ | | $ | | |||
Noncash Investing and Financing Activities: | |||||||
Capital expenditure included in accounts payable | $ | | $ | | |||
Operating lease right-of-use assets | $ | — | $ | | |||
Equipment acquired under finance leases | $ | | $ | | |||
Supplemental Disclosures of Cash Flow Information: | |||||||
Interest paid, net of capitalized interest | $ | | $ | | |||
Income taxes paid | $ | | $ | |
See Accompanying Notes to Condensed Consolidated Financial Statements.
-6-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. General
Amphastar Pharmaceuticals, Inc., a Delaware corporation (together with its subsidiaries, hereinafter referred to as the “Company”) is a specialty pharmaceutical company that develops, manufactures, markets, and sells generic and proprietary injectable, inhalation, and intranasal products, including products with high technical barriers to market entry. Additionally, the Company sells insulin active pharmaceutical ingredient, or API, products. Most of the Company’s products are used in hospital or urgent care clinical settings and are primarily contracted and distributed through group purchasing organizations and drug wholesalers. The Company’s insulin API products are sold to other pharmaceutical companies for use in their own products and are being used by the Company in the development of injectable finished pharmaceutical products. The Company’s inhalation product, Primatene® Mist, is primarily distributed through drug retailers.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2019 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, 2019. 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), stockholders’ equity, and cash flows for the periods presented. Unless otherwise noted, all such adjustments are of a normal, recurring nature. The Company’s results of operations, comprehensive income (loss) and cash flows for the interim periods are not necessarily indicative of the results of operations and cash flows that it may achieve in future periods.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries, and are prepared in accordance with United States generally accepted accounting principles, or GAAP. All intercompany activity has been eliminated in the preparation of the condensed consolidated financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments 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 Biological Technology Co., Ltd., or Letop, (5) Nanjing Hanxin Pharmaceutical Technology Co., Ltd., or Hanxin, (6) Nanjing Hanxin Biomedical Testing Service Co., Ltd., or Hanxin Biomedical, (7) Nanjing Baixin Trading Co. Ltd., or Baixin, (8) Amphastar France Pharmaceuticals, S.A.S., or AFP, (9) Amphastar UK Ltd., or AUK, and (10) International Medication Systems (UK) Limited, or IMS UK.
In July 2018, the Company’s Chinese subsidiary, ANP, completed a private placement of its common equity interest to accredited investors for aggregate gross proceeds of approximately $
-7-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
COVID-19 Pandemic
The Company is subject to risks and uncertainties as a result of the novel coronavirus pandemic, or COVID-19. The extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the response to the pandemic is in its initial stages and information is rapidly evolving. The Company considered the impact of COVID-19 on the assumptions and estimates used to determine the results reported and asset valuations as of June 30, 2020.
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus, or COVID-19, as a pandemic, which continues to spread throughout the world, including locations where the Company operates, such as the United States, China and France. The Company has been actively monitoring the COVID-19 pandemic and its impact globally. In late January 2020, China implemented extensive curfews and travel restrictions to control the outbreak, and started easing these restrictions in March. Our business operations in China experienced a temporary disruption but resumed full operation in February 2020. In March 2020, France also implemented a stay-at-home order limiting movement and restricting travel, however, the Company was deemed to be an essential business and was not impacted by the restrictions. In March 2020, the Governors of the States of California and Massachusetts declared a health emergency and issued orders to close all nonessential business; as a specialty pharmaceutical company, the Company was deemed to be an essential businesses. In June 2020, some but not all of the restrictions were lifted in China, France, and states where the Company operates, and most businesses were allowed to reopen. All of the Company’s production facilities continued to operate during the quarter as they had prior to the COVID-19 pandemic with very little change, other than for enhanced safety measures intended to prevent the spread of the virus.
It is not possible at this time to estimate the complete impact that COVID-19 could have on the Company’s business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. Infections may resurge or become more widespread and the limitation on the Company’s ability to travel and timely sell and distribute its products, as well as any closures or supply disruptions, may be extended for longer periods of time, all of which would have a negative impact on the Company’s business, financial condition and operating results. The Company will continue to monitor the impact of COVID-19 on all aspects of its business.
Use of Estimates
The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The principal accounting estimates include: determination of allowances for credit losses, allowance for 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, 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 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 condensed consolidated statements of operations.
The Company’s French subsidiary, AFP, maintains its book of record in euros. ANP’s Chinese subsidiaries maintain their books of record in Chinese yuan. AUK’s subsidiary, IMS UK, maintains its book of record in British pounds. These local currencies have been determined to be the subsidiaries’ respective functional currencies. 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
-8-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 or losses of intercompany foreign currency transactions that are of a long-term investment nature for the three months ended June 30, 2020, was $
Comprehensive Income (Loss)
For the three and six months ended June 30, 2020 and 2019, the Company included its foreign currency translation gain or loss as part of its comprehensive income (loss). There was no material income tax (benefit) expense allocated to other comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019.
Advertising Expense
In connection with the launch of Primatene® Mist, in July 2019, the Company began to incur advertising expenses. Advertising expenses are recorded as incurred, except for expenses related to the development of a major commercial or media campaign, which are expensed in the period in which the commercial or campaign is first presented, and are reflected as a component of selling, distribution, and marketing in the Company’s condensed consolidated statement of operations. For the three and six months ended June 30, 2020, advertising expenses were $
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.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, money market accounts, certificates of deposit and highly liquid investments purchased with original maturities of three months or less.
Short-Term Investments
Short-term investments as of June 30, 2020 and December 31, 2019 consisted of certificates of deposit and investment grade corporate bonds with original expiration dates within 12 months.
Restricted Cash
Restricted cash is collateral required for the Company to guarantee certain vendor payments in France. As of June 30, 2020 and December 31, 2019, the restricted cash balance was $
Restricted Short-Term Investments
Restricted short-term investments consist of certificates of deposit that are collateral for standby letter of credit to qualify for workers’ compensation self-insurance. The certificates of deposit have original maturities greater than three months.
-9-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of June 30, 2020 and December 31, 2019, the balance of restricted short-term investments was $
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.
Recent Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU, No. 2019-12 Simplifying the Accounting for Income Taxes (Topic 740), which simplifies various aspects related to accounting for income taxes. The amendment also improves consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The guidance is effective for the Company’s interim and annual reporting periods during the year ended December 31, 2021, with early adoption permitted, including in any interim period. The Company is currently evaluating the impact that the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures.
In April 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The Company is currently evaluating the impact that the adoption of this guidance will have on its condensed consolidated financial statements and related disclosures.
Note 3. Revenue Recognition
In accordance with Accounting Standard Codification, or ASC, 606 Revenue from Contacts with Customers, revenue is recognized at the time that the Company’s customers obtain control of the promised goods.
Generally, revenue is recognized at the time of product delivery to the Company’s customers. In some cases, revenue is recognized at the time of shipment when stipulated by the terms of the sale agreements.
The consideration the Company receives in exchange for its goods or services is only recognized when it is probable that a significant reversal will not occur. The consideration to which the Company expects to be entitled includes a stated list price, less various forms of variable consideration. The Company makes significant estimates for related variable consideration at the point of sale, including chargebacks, rebates, product returns, other discounts and allowances.
Provisions for estimated chargebacks, rebates, discounts, product returns and credit losses are made at the time of sale and are analyzed and adjusted, if necessary, at each balance sheet date.
Revenues derived from contract manufacturing services are recognized when third-party products are shipped to customers, and after the customer has accepted test samples of the products to be shipped.
The Company’s accounting policy is to review each agreement involving contract development and manufacturing services to determine if there are multiple revenue-generating activities that constitute more than one unit of accounting. Revenues are recognized for each unit of accounting based on revenue recognition criteria relevant to that unit. The Company does not have any revenue arrangements with multiple performance obligations.
-10-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Provision for Chargebacks and Rebates
The provision for chargebacks and rebates is a significant estimate used in the recognition of revenue. Wholesaler chargebacks relate to sales terms under which the Company agrees to reimburse wholesalers for differences between the gross sales prices at which the Company sells its products to wholesalers and the actual prices of such products that wholesalers resell under the Company’s various contractual arrangements with third parties such as hospitals and group purchasing organizations in the United States. Rebates include primarily amounts paid to retailers, payers, and providers in the United States, including those paid to state Medicaid programs, and are based on contractual arrangements or statutory requirements. The Company estimates chargebacks and rebates using the expected value method at the time of sale to wholesalers based on wholesaler inventory stocking levels, historic chargeback and rebate rates, and current contract pricing.
The provision for chargebacks and rebates is reflected as a component of net revenues. The following table is an analysis of the chargeback and rebate provision:
Six Months Ended |
| ||||||
June 30, | |||||||
2020 | 2019 |
| |||||
(in thousands) |
| ||||||
Beginning balance |
| $ | |
| $ | | |
Provision for chargebacks and rebates |
| |
| | |||
Credits and payments issued to third parties |
| ( |
| ( | |||
Ending balance | $ | | $ | |
Changes in the chargeback provision from period to period are primarily dependent on the Company’s sales to its wholesalers, the level of inventory held by wholesalers, and the wholesalers’ customer mix. Changes in the rebate provision from period to period are primarily dependent on retailer’s and other indirect customers’ purchases. The approach that the Company uses to estimate chargebacks has been consistently applied for all periods presented. Variations in estimates have been historically small. The Company continually monitors the provision for chargebacks and rebates and makes adjustments when it believes that the actual chargebacks and rebates may differ from the estimates. The settlement of chargebacks and rebates generally occurs within 30 days to 60 days after the sale to wholesalers. Accounts receivable and/or accounts payable and accrued liabilities are reduced and/or increased by the chargebacks and rebate amounts depending on whether the Company has the right to offset with the customer. Of the provision for chargebacks and rebates as of June 30, 2020 and December 31, 2019, $
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.
-11-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The provision for product returns is reflected as a component of net revenues. The following table is an analysis of the product return liability:
Six Months Ended |
| ||||||
June 30, | |||||||
2020 | 2019 |
| |||||
(in thousands) |
| ||||||
Beginning balance |
| $ | |
| $ | | |
Provision for product returns |
| |
| | |||
Credits issued to third parties |
| ( |
| ( | |||
Ending balance | $ | | $ | |
Of the provision of product returns as of June 30, 2020 and December 31, 2019, $
Note 4. (Loss) Income per Share Attributable to Amphastar Pharmaceuticals, Inc. Shareholders
Basic net (loss) income per share attributable to Amphastar Pharmaceuticals, Inc. shareholders is calculated based upon the weighted-average number of shares outstanding during the period. Diluted net (loss) income per share attributable to Amphastar Pharmaceuticals, Inc. shareholders 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 and the reallocation of net income attributable to non-controlling interest from the assumed dilutive effect of stock options issued under the 2018 ANP Equity Incentive Plan, or the 2018 Plan.
As the Company reported a net loss for the three months ended June 30, 2020, the diluted net loss per share attributable to Amphastar Pharmaceuticals, Inc. shareholders, as reported, equals the basic net loss per share attributable to Amphastar Pharmaceuticals, Inc. shareholders 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 months ended June 30, 2020 net loss per share were
For the six months ended June 30, 2020, options to purchase
For the three and six months ended June 30, 2019, options to purchase
-12-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table provides the calculation of basic and diluted net (loss) income per share attributable to Amphastar Pharmaceuticals, Inc. shareholders for each of the periods presented:
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
(in thousands, except per share data) | |||||||||||||
Basic and dilutive numerator: |
|
|
|
|
|
|
|
|
| ||||
Net (loss) income attributable to Amphastar Pharmaceuticals, Inc. | $ | ( | $ | | $ | | $ | | |||||
Denominator: | |||||||||||||
Weighted-average shares outstanding — basic |
| |
| |
| |
| | |||||
Net effect of dilutive securities: | |||||||||||||
Incremental shares from equity awards |
| — |
| |
| |
| | |||||
Weighted-average shares outstanding — diluted |
| |
| |
| |
| | |||||
Net (loss) income per share attributable to Amphastar Pharmaceuticals, Inc. shareholders — basic | $ | ( | $ | | $ | | $ | | |||||
Net (loss) income per share attributable to Amphastar Pharmaceuticals, Inc. shareholders — diluted | $ | ( | $ | | $ | | $ | |
Note 5. Segment Reporting
The Company’s business is the development, manufacture, and marketing of pharmaceutical products. The Company has identified
● | Finished pharmaceutical products |
● | API |
The finished pharmaceutical products segment manufactures, markets and distributes Primatene® Mist, enoxaparin, naloxone, phytonadione, lidocaine, epinephrine, 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.
-13-
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, | ||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
(in thousands) | |||||||||||||
Net revenues: |
|
|
|
|
|
|
|
|
| ||||
Finished pharmaceutical products | $ | | $ | | $ | | $ | | |||||
API |
| |
| |
| | | ||||||
Total net revenues |
| |
| |
| |
| | |||||
Gross profit: | |||||||||||||
Finished pharmaceutical products |
| |
| |
| |
| | |||||
API |
| ( |
| ( |
| ( | ( | ||||||
Total gross profit |
| |
| |
| |
| | |||||
Operating expenses |
| |
| |
| |
| | |||||
(Loss) income from operations |
| ( |
| |
| |
| ( | |||||
Non-operating expense |
| |
| |
| ( |
| | |||||
(Loss) income before income taxes | $ | ( | $ | | $ | | $ | |
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, | ||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
(in thousands) | |||||||||||||
Finished pharmaceutical products net revenues: |
|
|
|
|
|
|
|
| |||||
Primatene® Mist | $ | | $ | | $ | | $ | | |||||
Phytonadione |
| |
| |
| |
| | |||||
Enoxaparin | | | | | |||||||||
Lidocaine | | | | | |||||||||
Naloxone | | | | | |||||||||
Epinephrine | | | | | |||||||||
Other finished pharmaceutical products |
| |
| |
| |
| | |||||
Total finished pharmaceutical products net revenues | $ | | $ | | $ | | $ | |
-14-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The amount of depreciation and amortization expense included in cost of revenue, by reporting segments, is presented below:
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
(in thousands) | |||||||||||||
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
| ||||
Finished pharmaceutical products | $ | | $ | | $ | | $ | | |||||
API |
| |
| |
| | | ||||||
Total depreciation and amortization expense | $ | | $ | | $ | | $ | |
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, | ||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 |
| |||||||||||||
(in thousands) |
| ||||||||||||||||||
United States |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | | |
China |
| |
| |
| |
| |
| |
| | |||||||
France |
| |
| |
| | |
| |
| | ||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | |
Note 6. Customer and Supplier Concentration
Customer Concentrations
% of Total Accounts | % of Net | ||||||||||||
Receivable | Revenue | ||||||||||||
Three Months Ended | Six Months Ended |
| |||||||||||
June 30, | December 31, | June 30, | June 30, | ||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| |
AmerisourceBergen |
| | % | | % | | % | | % | | % | | % |
McKesson |
| | % | | % | | % | | % | | % | | % |
Cardinal Health |
| | % | | % | | % | | % | | % | | % |
Supplier Concentrations
The Company depends on suppliers for raw materials, APIs, 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
-15-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
GAAP defines 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, 2020, cash equivalents include money market accounts. Short-term investments consist of certificates of deposit as well as investment-grade corporate bonds with original expiration dates within 12 months. The certificates of deposit are carried at amortized cost in the Company’s condensed consolidated balance sheet, which approximates their fair value determined based on Level 2 inputs. The corporate bonds are classified as held-to-maturity and are carried at amortized cost net of an allowance for credit losses, 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 fair value of the Company’s financial assets and liabilities measured on a recurring basis as of June 30, 2020 and December 31, 2019, are as follows:
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| |||||
(in thousands) |
| ||||||||||||
Cash equivalents - money market | $ | | $ | | $ | — | $ | — | |||||
Restricted cash - money market | | | — | — | |||||||||
Short-term investments - certificates of deposit | | — | | — | |||||||||
Restricted short-term investments - certificates of deposit |
| |
| — |
| |
| — | |||||
Corporate bonds | | — | | — | |||||||||
Fair value measurement as of June 30, 2020 | $ | | $ | | $ | | $ | — | |||||
Cash equivalents - money market | $ | | $ | | $ | — | $ | — | |||||
Restricted cash - money market | | | — | — | |||||||||
Short-term investments - certificates of deposit | | — | | — | |||||||||
Restricted short-term investments - certificates of deposit |
| |
| — |
| |
| — | |||||
Corporate bonds | | — | | — | |||||||||
Fair value measurement as of December 31, 2019 | $ | | $ | | $ | | $ | — |
The Company does not hold any Level 3 instruments that are measured at fair value on a recurring basis.
-16-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 2020 and December 31, 2019, there were no adjustments to fair value for nonfinancial assets or liabilities.
Note 8. Investments
A summary of the Company’s investments that are classified as held-to-maturity is as follows:
Gross | Gross | |||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||
| Cost |
| Gains |
| Losses |
| Value | |||||
(in thousands) | ||||||||||||
Corporate bonds | $ | | $ | | $ | — | $ | | ||||
Total investments as of June 30, 2020 | $ | | $ | | $ | — | $ | | ||||
Corporate bonds | $ | | $ | — | $ | ( | $ | | ||||
Total investments as of December 31, 2019 | $ | | $ | — | $ | ( | $ | |
The Company believes that the unrealized gains and losses disclosed above were primarily driven by interest rate change rather than by unfavorable changes in the credit ratings associated with these securities and as a result, the Company continues to expect to collect the principal and interest due on its debt securities that have an amortized cost in excess of fair value. At each reporting period, the Company evaluates securities for impairment when the fair value of the investment is less than its amortized cost. The Company evaluated the underlying credit quality and credit ratings of the issuers, noting neither a significant deterioration since purchase nor any other factors that would indicate a material credit loss.
The Company measures expected credit losses on held-to-maturity investments on a collective basis. All the Company’s held-to-maturity investments were considered to be one pool. The estimate for credit losses considers historical loss information that is adjusted for current conditions and reasonable and supportable forecasts. Expected credit losses on held-to-maturity investments were not material to the condensed consolidated financial statements.
Note 9. 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 | ||||||||||||
IMS (UK) international product rights | $ | | $ | | $ | | ||||||
Patents |
|
| | |
| | ||||||
Land-use rights |
|
| | |
| | ||||||
Subtotal |
|
| |
| |
| | |||||
Indefinite-lived intangible assets | ||||||||||||
Trademark |
| * |
| |
| — |
| | ||||
Goodwill - Finished pharmaceutical products |
| * |
| |
| — |
| | ||||
Subtotal |
| * |
| |
| — |
| | ||||
As of June 30, 2020 |
| * | $ | | $ | | $ | |
-17-
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 | ||||||||||||
IMS (UK) international product rights | $ | | $ | | $ | | ||||||
Patents |
|
| |
| |
| | |||||
Land-use rights |
|
| |
| |
| | |||||
Other intangible assets |
|
| |
| |
| — | |||||
Subtotal |
|
| |
| |
| | |||||
Indefinite-lived intangible assets | ||||||||||||
Trademark |
| * |
| |
| — |
| | ||||
Goodwill - Finished pharmaceutical products |
| * |
| |
| — |
| | ||||
Subtotal |
| * |
| |
| — |
| | ||||
As of December 31, 2019 |
| * | $ | | $ | | $ | |
* | Intangible assets with indefinite lives have an indeterminable average life. |
Goodwill
The changes in the carrying amounts of goodwill were as follows:
June 30, | December 31, |
| |||||
2020 | 2019 |
| |||||
(in thousands) |
| ||||||
Beginning balance |
| $ | |
| $ | | |
Currency translation |
| ( |
| ( | |||
Ending balance | $ | | $ | |
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, recorded at the allocated fair value of $
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.
Note 10. Inventories
Inventories consist of the following:
June 30, | December 31, |
| |||||
2020 | 2019 |
| |||||
(in thousands) |
| ||||||
Raw materials and supplies |
| $ | |
| $ | | |
Work in process |
| |
| | |||
Finished goods |
| |
| | |||
Total inventories | $ | | $ | |
-18-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Charges totaling $
Note 11. Property, Plant, and Equipment
Property, plant, and equipment consist of the following:
June 30, | December 31, |
| |||||
2020 | 2019 |
| |||||
(in thousands) |
| ||||||
Buildings |
| $ | |
| $ | | |
Leasehold improvements |
| |
| | |||
Land |
| |
| | |||
Machinery and equipment |
| |
| | |||
Furniture, fixtures, and automobiles |
| |
| | |||
Construction in progress |
| |
| | |||
Total property, plant, and equipment |
| |
| | |||
Less accumulated depreciation |
| ( |
| ( | |||
Total property, plant, and equipment, net | $ | | $ | |
Note 12. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following:
June 30, | December 31, | ||||
2020 | 2019 | ||||
(in thousands) | |||||
Accrued customer fees and rebates | $ | | $ | | |
Accrued payroll and related benefits | | | |||
Accrued product returns, current portion | | | |||
Accrued loss on firm purchase commitments | | | |||
Other accrued liabilities | | | |||
Total accrued liabilities |
| |
| | |
Accounts payable |
| |
| | |
Total accounts payable and accrued liabilities | $ | | $ | |
-19-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 13. Debt
Debt consists of the following:
June 30, | December 31, |
| |||||
2020 | 2019 |
| |||||
(in thousands) |
| ||||||
Loans with East West Bank |
|
|
|
| |||
Line of credit facility due December 2020 | $ | — | $ | — | |||
Mortgage payable due February 2021 | | | |||||
Equipment loan due June 2021 | | | |||||
Equipment loan due December 2022 | | | |||||
Equipment loan due February 2024 | | | |||||
Mortgage payable due October 2026 | | | |||||
Mortgage payable due June 2027 | | | |||||
Loans with Cathay Bank | |||||||
Line of credit facility due May 2022 |
| — |
| — | |||
Acquisition loan due June 2024 |
| |
| | |||
Mortgage payable due August 2027 |
| |
| | |||
Loans with Seine-Normandie Water Agency | |||||||
French government loan due June 2020 | — | ||||||
French government loan due July 2021 | | ||||||
French government loans due December 2026 | | ||||||
Loan with China Everbright Bank | |||||||
Line of credit facility due June 2021 | | — | |||||
Payment Obligation to Merck |
| — |
| | |||
Equipment under Finance Leases |
| |
| | |||
Total debt |
| |
| | |||
Less current portion of long-term debt |
| |
| | |||
Long-term debt, net of current portion | $ | | $ | |
As of June 30, 2020, the fair value of the loans listed above approximated 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 contracts were all in a liability position with an aggregate fair value of $
-20-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Loans with Cathay Bank
Line of Credit Facility—Due May 2022
In June 2020, the Company amended the $
Loan with China Everbright Bank
Line of Credit Facility – Due June 2021
In June 2020, the Company entered into a line of credit facility for $
Credit Agreement with China Merchant Bank
In March 2020, the Company entered into a credit agreement with China Merchant Bank. The credit agreement allows the Company to borrow up to $
Covenants
At June 30, 2020 and December 31, 2019, the Company was in compliance with its debt covenants.
Note 14. Income Taxes
The following table sets forth the Company’s income tax (benefit) provision for the periods indicated:
Three Months Ended | Six Months Ended |
| |||||||||||
June 30, | June 30, |
| |||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||
(in thousands) |
| ||||||||||||
(Loss) income before taxes | $ | ( | $ | | $ | | $ | | |||||
Income tax (benefit) provision | ( |
| | |
| | |||||||
Net (loss) income | $ | ( | $ | | $ | | $ | | |||||
Income tax (benefit) provision as a percentage of (loss) income before income taxes | | % |
| | % | | % |
| | % |
The change in the Company’s effective tax rate for the three and six months ended June 30, 2020, was primarily due to differences in pre-tax (loss) income positions, nondeductible executive severance compensation, and timing of discrete tax items.
CARES Act
The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, became law on March 27, 2020. It provides additional economic stimulus to address the impact of the COVID-19 pandemic. The Company does not expect there to be any significant benefit to its income tax provision as a result of the CARES Act, and will continue to closely
-21-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
monitor the impact of the COVID-19 pandemic, as well as any effects that may result from the CARES Act or future legislation.
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 continues to record a full valuation allowance on AFP’s income tax benefits and will continue to do so until AFP generates sufficient taxable income to realize its deferred income tax assets
For purposes of computing its annual effective tax rate, the Company did not benefit from its losses in the states where it files separately. This increased the Company’s income tax benefit by an immaterial amount during the three months ended June 30, 2020 and increased its income tax provision $
Note 15. Stockholders' Equity
Share Buyback Program
Pursuant to the Company’s existing share buyback program, the Company purchased
In August 2020, the Company’s Board of Directors authorized an increase of $
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 and applicable laws. The timing and actual number of treasury share purchases will depend on a variety of factors including price, corporate and regulatory requirements, and other conditions. These treasury share purchases are accounted for under the cost method and are included as a component of treasury stock in the Company’s condensed consolidated balance sheets.
2015 Equity Incentive Plan
As of June 30, 2020, the Company reserved an aggregate of
2014 Employee Stock Purchase Plan
As of June 30, 2020, the Company has issued
During the three months ended June 30, 2020, the Company issued
-22-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
recorded ESPP expense of $
Share-Based Award Activity and Balances (excluding the ANP Equity Plan)
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. 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, 2020 and 2019, are as follows:
Three Months Ended | Six Months Ended |
| ||||||||
June 30, | June 30, | |||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||
Average volatility |
| | % | | % | | % | | % | |
Risk-free interest rate |
| | % | | % | | % | | % | |
Weighted-average expected life in years |
| |||||||||
Dividend yield rate |
| | % | | % | | % | | % |
A summary of option activity for the six months ended June 30, 2020, 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, 2019 |
| |
| $ | |
|
|
|
| ||
Options granted |
| |
| | |||||||
Options exercised |
| ( |
| | |||||||
Options cancelled |
| ( |
| | |||||||
Options expired |
| ( |
| | |||||||
Outstanding as of June 30, 2020 |
| | $ | |
| $ | | ||||
Exercisable as of June 30, 2020 |
| | $ | |
| $ | |
(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, 2020. |
For the three and six months ended June 30, 2020, the Company recorded an expense of $
In April 2020, Jason Shandell resigned from his position as the Company’s President and General Counsel and as a member of the Company’s board of directors. In connection with his resignation, the Company and Mr. Shandell entered into a separation agreement. As part of the separation agreement, the Company agreed to accelerate
-23-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Information relating to option grants and exercises is as follows:
Three Months Ended | Six Months Ended |
| |||||||||||
June 30, | June 30, | ||||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||
(in thousands, except per share data) |
| ||||||||||||
Weighted-average grant date fair value per option share | $ | | $ | | $ | | $ | | |||||
Intrinsic value of options exercised |
| |
| |
| |
| | |||||
Cash received from options exercised |
| |
| |
| |
| | |||||
Total fair value of the options vested during the year |
| |
| |
| |
| |
A summary of the status of the Company’s non-vested options as of June 30, 2020, and changes during the six months ended June 30, 2020, is presented below:
|
| Weighted-Average |
| |||
Grant Date |
| |||||
Options | Fair Value |
| ||||
Non-vested as of December 31, 2019 | | $ | | |||
Options granted |
| |
| | ||
Options vested |
| ( |
| | ||
Options forfeited |
| ( |
| | ||
Non-vested as of June 30, 2020 |
| |
| |
As of June 30, 2020, there was $
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
As part of the separation agreement with Mr. Shandell, the Company agreed to accelerate the vesting of
As of June 30, 2020, there was $
-24-
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, 2019 |
| | ||||
RSUs granted |
| | $ | | ||
RSUs forfeited |
| ( | ||||
RSUs vested(2) |
| ( | ||||
RSUs outstanding at June 30, 2020 |
| |
(1) | The total fair market value is derived from the number of RSUs granted times the stock price on the date of grant. |
(2) | Of the vested RSUs, |
The 2018 ANP Equity Incentive Plan
In December 2018, ANP’s board of directors approved the 2018 Plan, which is set to expire in December 2023. The 2018 Plan permits the grant of stock options and other equity awards in ANP shares to ANP employees. As of June 30, 2020, ANP has issued
The Company recorded the aggregated share-based compensation expense in the consolidated statement of operations as follows:
Three Months Ended | Six Months Ended |
| |||||||||||
June 30, | June 30, | ||||||||||||
2020 | 2019 | 2020 |
| 2019 |
| ||||||||
(in thousands) |
| ||||||||||||
Cost of revenues |
| $ | |
| $ | |
| $ | |
| $ | | |
Operating expenses: | |||||||||||||
Selling, distribution, and marketing |
| |
| |
| |
| | |||||
General and administrative |
| |
| |
| |
| | |||||
Research and development |
| |
| |
| |
| | |||||
Total share-based compensation | $ | | $ | | $ | | $ | |
Note 16. 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
-25-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Defined Benefit Pension Plan
The Company’s subsidiary, AFP, has an obligation associated with a defined-benefit plan for its eligible employees. 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
Deferred Compensation Plan
In December 2019, the Company established a non-qualified deferred compensation plan. The deferred compensation plan allows certain eligible participants to defer a portion of their cash compensation and provides a matching contribution at the discretion of the Company. The plan’s obligations are payable upon retirement, termination of employment and/or certain other times in a lump-sum distribution or in installments, as elected by the participant in accordance with the plan. Participants can allocate their deferred compensation amongst various investment options with earnings accruing to the participant. The Company has established a Rabbi Trust to fund the plan obligations and to hold the plan assets. Eligible participants began contributing to the plan in January 2020. As of June 30, 2020, the plan assets and
Note 17. Commitments and Contingencies
Purchase Commitments
As of June 30, 2020, the Company has entered into commitments to purchase equipment and raw materials for an aggregate amount of approximately $
In accordance with certain agreements between ANP and the Chinese government, in January 2010 and November 2012, the Company acquired certain land-use rights for $
Note 18. Litigation
Momenta/Sandoz Enoxaparin Patent and Antitrust 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
On September 17, 2015, the Company initiated an antitrust lawsuit by filing a complaint in the California District Court against Momenta and Sandoz, or the Defendants. The Company’s complaint generally asserted that Defendants had
-26-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
engaged in certain types of illegal, monopolistic, and anticompetitive conduct giving rise to various causes of action against them. This lawsuit was subsequently transferred to the Massachusetts District Court.
On May 20, 2019, the Company and the Plaintiffs entered into a Settlement Agreement to fully settle the patent litigation and antitrust litigation. The Settlement Agreement was contingent upon the District Court’s granting a Joint Motion to Vacate the Patent Judgment and thereafter, the Plaintiffs’ payment of $59.9 million to the Company. On June 18, 2019, the parties filed a Joint Motion to Vacate the Patent Judgment with the District Court, and on the same day, the District Court granted such motion. Accordingly, on June 19, 2019, the parties filed Joint Stipulations with the District Court to dismiss the patent litigation and the antitrust litigation, each of which is self-executing and effective upon filing pursuant to the Federal Rules of Civil Procedure 41(a)(1)(A)(ii). Furthermore, on June 26, 2019, the Federal Circuit issued an Order and a Mandate dismissing the appeal of the patent litigation. On June 27, 2019, pursuant to the Settlement Agreement, the Plaintiffs paid the Company $
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.
On May 11, 2017, the Company’s lawsuit against Aventis was dismissed for lack of jurisdiction. On July 14, 2017, Aventis filed an application with the District Court for entitlement to attorneys’ fees and expenses. On November 20, 2017, the District Court issued its order granting Aventis’ application for fees, stating that it would refer the matter to a magistrate judge for a report and recommendation regarding the amount of the award to be made.
On February 12, 2019, the District Court approved of the parties’ consent for the Magistrate Judge to conduct all further proceedings in this matter at the district court level, including determining the amount of attorneys’ fees to be awarded and entering a final judgment. The Magistrate Judge held a hearing on the Application on May 8, 2019, and indicated that a written opinion on this Application for Fees and Expenses would be forthcoming. The Magistrate Judge’s written opinion on this Application for Fees and Expenses has not been issued yet. The Company intends to continue to vigorously defend against any imposition of attorneys’ fees and expenses in this case.
Epinephrine (0.1 mg/mL) Patent Litigation
On June 28, 2018, Belcher Pharmaceuticals, LLC, or Belcher initiated a lawsuit in the United States District Court for the District of Delaware by filing a complaint against IMS for infringement of U.S. Patent No. 9,283,197 (the “197 Patent”) 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 3, 2019, Parties filed a Joint Stipulation to stay the litigation pending the Court’s ruling on the outcome of Belcher’s trial with Hospira. On August 19, 2019, the judge signed the order staying the litigation pending the Court’s ruling on the outcome of Belcher’s trial with Hospira because it involves the same ‘197 Patent as the Company’s litigation. On March 31, 2020, the Court in Belcher’s trial with Hospira issued its ruling in favor of Hospira and invalidated the ‘197 Patent based on obviousness and the ‘197 Patent is unenforceable due to inequitable conduct, and accordingly, the Court entered Final Judgment in favor of Hospira on April 3, 2020. Belcher filed a notice of appeal on only the inequitable conduct rulings from Final Judgment in favor of Hospira on May 4, 2020, and therefore, the ‘197 Patent is still invalid based on obviousness. On May 21, 2020, the Court entered an Order dismissing, with prejudice, the Company’s patent lawsuit with Belcher.
Vasopressin (20 units/mL) Patent Litigation
On December 20, 2018, Par Pharmaceutical, Inc., Par Sterile Products, LLC and Endo Par Innovation Company (collectively, “Par”) initiated a patent lawsuit by filing a Complaint against the Company in the United States District
-27-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Court for the District of Delaware for infringement of U.S. Patent Nos. 9,375,478 (“the ‘478 Patent”), 9,687,526 (“the ‘526 Patent”), 9,744,209 (“the ‘209 Patent”), 9,744,239 (“the ‘239 Patent”), 9,750,785 (“the ‘785 Patent”) and 9,937,223 (“the ‘223 Patent”) (collectively, “Par Patents”) with regard to the Company’s Abbreviated New Drug Application No. 211,857 for FDA approval to manufacture and sell Vasopressin (20 units/ mL). The Company filed its Answer to this Complaint on February 19, 2019. On April 18, 2019, the Court held a scheduling conference and entered a Scheduling Order.
On September 27, 2019, the Court entered a Revised Scheduling Order that consolidates the Company’s vasopressin patent lawsuit with two other vasopressin patent lawsuits filed by Par in the same Court, Par v. Amneal Pharmaceuticals GMBH et al., and Par v. American Regent, Inc. (collectively, the “Consolidated Vasopressin Patent Lawsuit”). In the Revised Scheduling Order, trial is still scheduled for January 2021 and the Company’s 30-month FDA stay is maintained at May 21, 2021. On the same day, the Court entered a Protective Order on the Consolidated Vasopressin Patent Lawsuits. On December 9, 2019, the Court entered a Second Revised Scheduling Order to include Fresenius Kabi USA, LCC as part of the Consolidated Vasopressin Patent Lawsuit, with trial still scheduled for January 11, 2021 and the Company’s 30-month FDA stay still maintained at May 21, 2021. On May 21, 2020, the Court entered a Consent Judgment between Par and American Regent, Inc., and thus, American Regent, Inc. is no longer part of the Consolidated Vasopressin Patent Lawsuit. The Company intends to vigorously defend this patent lawsuit.
Regadenoson (0.4 mg/5 mL, 0.08 mg/mL) Patent Litigation
On February 25, 2020, Astellas US LLC, Astellas Pharma US, Inc., and Gilead Sciences, Inc. (collectively, “Astellas-Gilead”) initiated a patent lawsuit by filing a Complaint in the United States District Court for the District of Delaware against IMS for infringement of U.S. Patent Nos. 8,106,183 (the “‘183 patent”), RE47,301 (the “‘301 patent”), and 8,524,883 (the “‘883 patent”) (collectively, “Astellas-Gilead Patents”) with regard to IMS’s Abbreviated New Drug Application No. 214,252 for FDA approval to manufacture and sell 0.4 mg/5 mL (0.08 mg/mL) intravenous solution of Regadenoson. On March 4, 2020, IMS filed its Answer to the Complaint and its Counterclaims. On March 30, 2020, the Court issued an Order allowing the Company to join the consolidated litigation in which five other generic Regadenoson ANDA filers are currently pending. In the consolidated litigation, trial is currently scheduled for June 14, 2021. The Company’s 30-month FDA stay expires August 10, 2022. The Company intends to vigorously defend this patent lawsuit.
Employment Litigation
a. | Raquel Brenes |
On September 11, 2019, a former employee, Raquel Brenes, (“Brenes”), initiated an employment litigation against IMS et al. by filing a Complaint having individual and class action claims for alleged violations of various California labor laws pertaining to wage and hour, and other state laws. This Complaint was filed in the Superior Court of California, Los Angeles County. On September 18, 2019, Brenes filed a First Amended Complaint maintaining the individual and class action claims. On January 21, 2020, Brenes filed a Second Amended Complaint that alleges only Private Attorney General Act, or PAGA, claims and omitted the individual and class action claims. On February 24, 2020, IMS filed an Answer to the Second Amended Complaint. On February 14, 2020, Brenes filed another Complaint against IMS in the Superior Court of California alleging various individual claims relating to disability discrimination and retaliation. The parties have agreed to reschedule the August 21, 2020 mediation to a later date due to the recent change in our Company’s outside labor counsel. The Company intends to vigorously defend this employment litigation.
-28-
AMPHASTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
b. | Robert Navarrette |
On April 7, 2020, a former employee, Robert Navarrette (“Navarrette”), filed a PAGA lawsuit against IMS and Amphastar Pharmaceuticals, Inc. in the Superior Court of California, Los Angeles County. In this PAGA lawsuit, Navarrette alleges various wage and hour claims. Navarrette has agreed to mediate this PAGA lawsuit, along with Brenes’ PAGA lawsuit. The parties are currently evaluating mediators and their availability for this mediation. The Company intends to vigorously defend this employment litigation.
c. | Priscilla Ramirez |
On April 10, 2020, ex-employee Priscilla Ramirez provided written notice to Amphastar Pharmaceuticals, Inc. that she intends to file a PAGA lawsuit for alleged violations of various California labor laws pertaining to wage and hour. On May 29, 2020, Ramirez filed this PAGA lawsuit against the Company. On August 4, 2020, Ramirez served this PAGA lawsuit on our Company. The Company intends to vigorously defend this lawsuit.
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.
-29-
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, 2019, 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 14 generic abbreviated new drug applications, or ANDAs, three biosimilar insulin product candidates and four proprietary product candidates, which are in various stages of development and target a variety of indications. Five ANDAs and one NDA are currently on file with the FDA.
Our largest products by net revenues currently include Primatene® Mist, phytonadione, enoxaparin sodium injection, lidocaine jelly sterile solution, and naloxone hydrochloride injection. In July 2019, we began a national digital, radio, and television campaign for our over-the-counter product Primatene® Mist, which will continue throughout 2020. During the second quarter of 2020, we launched our Epinephrine Injection, USP 30mg/30mL Multiple Dose Vial product.
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, API 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, our Chinese subsidiary, ANP, completed a private placement of its common equity interest and received approximately $56.3 million of cash proceeds. We have retained approximately 58% of the equity interest in ANP following the private placement. ANP’s net income or loss after July 2, 2018, is attributed to us in accordance with our equity interest of approximately 58% in ANP.
COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus, or COVID-19, as a pandemic, which continues to spread throughout the world, including locations where we operate, such as the United States, China and France. We have been actively monitoring the COVID-19 pandemic and its impact globally. In late January 2020, China implemented extensive curfews and travel restrictions to control the outbreak, and started easing these restrictions in March. Our business operations in China experienced a temporary disruption but resumed full operations in February 2020. In March 2020, France also implemented a stay-at-home order limiting movement and restricting travel, however, we were deemed to be an essential business and was not impacted by the restrictions. In
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March 2020, the Governors of the States of California and Massachusetts declared a health emergency and issued orders to close all nonessential businesses; as a specialty pharmaceutical company we were deemed to be an essential business. In June 2020, some of the restrictions were eased or lifted. Currently, our production facilities in all of our locations continue to operate as they had prior to the COVID-19 pandemic with very little change, other than for enhanced safety measures intended to prevent the spread of the virus.
The COVID-19 pandemic led to an increase in sales of Primatene® Mist and some hospital products due to “pantry loading” towards the end of the first quarter and early into the second quarter of 2020. We also noticed a decline in demand for certain products such as Cortrosyn® and lidocaine jelly which are frequently used in elective procedures.
It is not possible at this time to estimate the complete impact that COVID-19 could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. Infections may resurge or become more widespread and the limitation on our ability to travel and timely sell and distribute our products, as well as any closures or supply disruptions, may be extended for longer periods of time, all of which would have a negative impact on our business, financial condition and operating results. We will continue to monitor the impact of COVID-19 on all aspects of our business.
The COVID-19 pandemic has and will continue to adversely affect global economies and financial markets, resulting in an economic downturn that could affect demand for our products and impact our operating results. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of the continued global economic impact of the pandemic. We cannot anticipate all of the ways in which health epidemics such as COVID-19 could adversely impact our business. See the Risk Factors section for further discussion of the possible impact of the COVID-19 pandemic on our business.
Business Segments
As of June 30, 2020, 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 manufactures, markets, and distributes Primatene® Mist, enoxaparin, naloxone, phytonadione, lidocaine, epinephrine, as well as various other critical and non-critical care drugs. The API segment manufactures and distributes RHI API and porcine insulin API for external customers and internal product development. 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.
For more information regarding our segments, see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Segment Reporting.”
-31-
Results of Operations
Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019
Net revenues
Three Months Ended |
| ||||||||||||
June 30, | Change | ||||||||||||
| 2020 |
| 2019 |
| Dollars |
| % |
| |||||
(in thousands) |
| ||||||||||||
Net revenues | |||||||||||||
Finished pharmaceutical products | $ | 80,935 | $ | 73,735 | $ | 7,200 | 10 | % | |||||
API |
| 4,871 |
| 5,312 |
| (441) |
| (8) | % | ||||
Total net revenues | $ | 85,806 | $ | 79,047 | $ | 6,759 |
| 9 | % | ||||
Cost of revenues | |||||||||||||
Finished pharmaceutical products | $ | 45,498 | $ | 39,195 | $ | 6,303 |
| 16 | % | ||||
API |
| 7,131 |
| 7,465 |
| (334) |
| (4) | % | ||||
Total cost of revenues | $ | 52,629 | $ | 46,660 | $ | 5,969 |
| 13 | % | ||||
Gross profit | $ | 33,177 | $ | 32,387 | $ | 790 | 2 | % | |||||
as % of net revenues |
| 39 | % |
| 41 | % |
The increase in net revenues of finished pharmaceutical products for the three months ended June 30, 2020 was due to the following changes:
Three Months Ended |
| ||||||||||||
June 30, | Change | ||||||||||||
| 2020 |
| 2019 |
| Dollars |
| % |
| |||||
(in thousands) |
| ||||||||||||
Finished pharmaceutical products net revenues | |||||||||||||
Primatene® Mist | $ | 12,468 | $ | 2,512 | $ | 9,956 | 396 | % | |||||
Phytonadione | 10,689 | 12,441 | (1,752) | (14) | % | ||||||||
Enoxaparin | 10,218 | 9,838 | 380 | 4 | % | ||||||||
Naloxone | 8,723 | 7,833 | 890 | 11 | % | ||||||||
Lidocaine | 7,608 | 10,082 | (2,474) | (25) | % | ||||||||
Epinephrine | 6,957 | 3,139 | 3,818 | 122 | % | ||||||||
Other finished pharmaceutical products |
| 24,272 |
| 27,890 |
| (3,618) |
| (13) | % | ||||
Total finished pharmaceutical products net revenues | $ | 80,935 | $ | 73,735 | $ | 7,200 |
| 10 | % |
The increase in sales of Primatene® Mist in the second quarter of 2020 is a result of the continued success of our nationwide digital, television and radio campaign, which will continue throughout 2020, as well as a short-term increase due to “pantry loading” in response to the COVID-19 pandemic in April. Sales of naloxone increased during the quarter primarily due to higher unit volumes. During the second quarter of 2020, we launched our newly approved epinephrine injection, USP 30mg/30mL multiple dose vial, which had sales of $2.6 million, and we saw an increase in demand for our epinephrine pre-filled syringes. We experienced lower demand for certain products, which are frequently used in elective procedures, including lidocaine and some products such as Cortrosyn® which are included in other finished pharmaceutical products. We attribute these declines in products used in elective procedures to a nationwide decline in these procedures by hospitals and individuals in response to the COVID-19 pandemic. These declines were partially offset by a $2.4 million increase in sales of sodium bicarbonate, included in other finished pharmaceutical products, as we were able to utilize the new production line approved earlier in the year to meet strong market demand.
We anticipate that the sales of naloxone and enoxaparin will continue to fluctuate in the future as a result of competition.
Sales of API decreased primarily due to the timing of customer purchases.
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We anticipate that sales of API will continue to fluctuate and may decrease due to the inherent uncertainties related to sales to MannKind Corporation pursuant to a supply agreement with them. In addition, most of our API sales are denominated in euros, and the fluctuation in the value of the euros 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, 2020. Historically, our backlog has not been a meaningful indicator in any given period of our ability to achieve any particular level of overall revenue or financial performance.
Gross margins
The decrease in gross margins during the three months ended June 30, 2020, primarily relates to inventory reserves, including a $3.6 million reserve for crude heparin purchases and commitments at ANP. This was partially offset by an increase in sales of Primatene® Mist and the recent launch of epinephrine injection multiple dose vial, both of which are higher margin products.
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 isoproterenol, epinephrine multi dose vials, and Primatene® Mist. Additionally, we have not seen any supply disruption due to the COVID-19 pandemic at this time, but we are carefully monitoring our supply chain for any potential problems.
Selling, distribution and marketing, and general and administrative
Three Months Ended |
| ||||||||||||
June 30, | Change | ||||||||||||
2020 | 2019 | Dollars | % |
| |||||||||
(in thousands) |
| ||||||||||||
Selling, distribution, and marketing |
| $ | 4,026 |
| $ | 2,992 |
| $ | 1,034 |
| 35 | % | |
General and administrative | $ | 15,924 | $ | 12,426 | $ | 3,498 |
| 28 | % |
The increase in selling, distribution, and marketing expenses was primarily due to marketing and distribution expenses related to Primatene® Mist, including the cost of a national digital, television and radio marketing campaign which began in July 2019. The increase in general and administrative expense primarily relates to the separation agreement entered into with a former executive. In connection with the separation agreement, we incurred an expense of $4.9 million relating to cash compensation and share-based compensation expense.
We expect that selling, distribution and marketing expenses will increase due to the increase in marketing expenditures for Primatene® Mist. Legal fees may fluctuate due to the timing of patent challenges and other litigation matters.
Research and development
Three Months Ended |
| ||||||||||||
June 30, | Change | ||||||||||||
| 2020 |
| 2019 |
| Dollars |
| % |
| |||||
(in thousands) |
| ||||||||||||
Salaries and personnel-related expenses | $ | 6,682 | $ | 6,237 | $ | 445 |
| 7 | % | ||||
Pre-launch inventory |
| — |
| 143 |
| (143) |
| (100) | % | ||||
Clinical trials |
| 1,429 |
| 1,530 |
| (101) |
| (7) | % | ||||
FDA fees |
| 45 |
| 104 |
| (59) |
| (57) | % | ||||
Testing, operating and lab supplies |
| 3,343 |
| 3,878 |
| (535) |
| (14) | % | ||||
Depreciation |
| 2,459 |
| 2,147 |
| 312 |
| 15 | % | ||||
Other expenses |
| 2,191 |
| 1,957 |
| 234 |
| 12 | % | ||||
Total research and development expenses | $ | 16,149 | $ | 15,996 | $ | 153 | 1 | % |
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Research and development costs consist primarily of costs associated with the research and development of our product candidates including the cost of developing APIs. We expense research and development costs as incurred.
We have made, and expect to continue to make, substantial investments in research and development to expand our product portfolio and grow our business. We expect that research and development expenses will increase on an annual basis due to increased clinical trial costs related to our biosimilar and inhalation product candidates. These expenditures will include costs of APIs developed internally as well as APIs purchased externally, the cost of purchasing reference listed drugs and the costs of performing the clinical trials. 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. Some of our ongoing clinical trials have experienced short-term interruptions in the recruitment of patients due to the COVID-19 pandemic, as hospitals prioritize their resources towards the COVID-19 pandemic and governments impose travel restrictions. These conditions may in turn delay spending and delay the results of these trials.
Other income (expenses), net
Three Months Ended |
| ||||||||||||
June 30, | Change | ||||||||||||
2020 | 2019 | Dollars | % |
| |||||||||
(in thousands) |
| ||||||||||||
Other income (expenses), net |
| $ | 1,255 |
| $ | 60,001 |
| $ | (58,746) |
| NM |
In June 2019, we recognized a gain of $59.9 million relating to our settlement of the enoxaparin patent and antitrust litigation with Momenta Pharmaceuticals, Inc. and Sandoz Inc. For more information regarding litigation matters, see “Part I – Item 1. Financial Statements –Notes to Condensed Consolidated Financial Statements – Litigation.”
Income tax provision
Three Months Ended |
| ||||||||||||
June 30, | Change | ||||||||||||
| 2020 |
| 2019 |
| Dollars |
| % |
| |||||
(in thousands) |
| ||||||||||||
Income tax provision (benefit) | $ | (75) | $ | 14,173 | $ | (14,248) | NM | ||||||
Effective tax rate | 5 | % |
| 23 | % |
The difference in income tax provision (benefit) was primarily due to differences in pre-tax income (loss) positions and nondeductible executive severance compensation.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
Net revenues
Six Months Ended |
| ||||||||||||
June 30, | Change | ||||||||||||
| 2020 |
| 2019 |
| Dollars |
| % |
| |||||
(in thousands) |
| ||||||||||||
Net revenues | |||||||||||||
Finished pharmaceutical products | $ | 162,233 | $ | 148,274 | $ | 13,959 |
| 9 | % | ||||
API |
| 8,261 |
| 10,563 |
| (2,302) |
| (22) | % | ||||
Total net revenues | $ | 170,494 | $ | 158,837 | $ | 11,657 |
| 7 | % | ||||
Cost of revenues | |||||||||||||
Finished pharmaceutical products | $ | 87,986 | $ | 81,422 | $ | 6,564 |
| 8 | % | ||||
API |
| 12,508 |
| 14,125 |
| (1,617) |
| (11) | % | ||||
Total cost of revenues | $ | 100,494 | $ | 95,547 | $ | 4,947 |
| 5 | % | ||||
Gross profit | $ | 70,000 | $ | 63,290 | $ | 6,710 | 11 | % | |||||
as % of net revenues |
| 41 | % |
| 40 | % |
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The increase in net revenues of the finished pharmaceutical products for the six months ended June 30, 2020, was due to the following changes:
Six Months Ended |
| ||||||||||||
June 30, | Change | ||||||||||||
| 2020 |
| 2019 |
| Dollars |
| % |
| |||||
(in thousands) |
| ||||||||||||
Finished pharmaceutical products net revenues | |||||||||||||
Primatene® Mist | $ | 25,345 | $ | 5,409 | $ | 19,936 | 369 | % | |||||
Phytonadione | 21,718 | 22,561 | (843) | (4) | % | ||||||||
Enoxaparin | 19,386 | 24,322 | (4,936) | (20) | % | ||||||||
Lidocaine | 18,265 | 22,061 | (3,796) | (17) | % | ||||||||
Naloxone | 17,598 | 15,197 | 2,401 | 16 | % | ||||||||
Epinephrine | 10,947 | 5,818 | 5,129 | 88 | % | ||||||||
Other finished pharmaceutical products |
| 48,974 |
| 52,906 |
| (3,932) |
| (7) | % | ||||
Total finished pharmaceutical products net revenues | $ | 162,233 | $ | 148,274 | $ | 13,959 |
| 9 | % |
The increase in sales of Primatene® Mist is a result of the continued success of our nationwide digital, television and radio campaign, which will continue throughout 2020, as well as a short-term increase due to “pantry loading” in March and April 2020, in response to the COVID-19 pandemic. The increase in epinephrine was primarily due to an increase in unit volumes relating to the launch of our epinephrine injection, USP 30mg/30mL multiple dose vial product. Sales of naloxone increased primarily due to an increase in unit volume. The decrease in sales of enoxaparin relates to a decrease in unit volume of $7.0 million, which was partially offset by an increase in average selling price. We experienced lower demand for certain products, which are frequently used in elective procedures, including lidocaine and some products such as Cortrosyn® which are included in other finished pharmaceutical products. We attribute these declines in products used in elective procedures to a nationwide decline in these procedures by hospitals and individuals in response to the COVID-19 pandemic. These declines were partially offset by a $3.9 million increase in sales of sodium bicarbonate, included in other finished pharmaceutical products, as we were able to utilize the new production line approved earlier in the year to meet strong market demand.
We anticipate that the sales of naloxone and enoxaparin will continue to fluctuate in the future as a result of competition.
Sales of API decreased primarily due to the timing of customer purchases.
We anticipate that sales of API will continue to fluctuate and may decrease due to the inherent uncertainties related to sales to MannKind Corporation pursuant to a supply agreement with them. In addition, most of our API sales are denominated in euros, and the fluctuation in the value of the euros versus the U.S. dollar has had, and will continue to have, an impact on API sales revenues in the near term.
Gross margins
The increase in sales of Primatene® Mist and the recent launch of epinephrine injection multiple dose vial, which are both higher margin products, helped increase our gross margins for the six months ended June 30, 2020. Gross margins for Primatene® Mist were magnified by the use of API and components which were expensed to pre-launch inventory in prior years. These trends were partially offset by inventory reserves, including a $3.6 million reserve for crude heparin purchases and commitments at ANP.
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 isoproterenol, Primatene® Mist, and epinephrine multi dose vials, which were launched over the past few years. Additionally, we have not seen any supply disruption due to the COVID-19 pandemic at this time, but we are carefully monitoring for any potential problems.
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Selling, distribution and marketing, and general and administrative
Six Months Ended |
|
| |||||||||||
June 30, | Change | ||||||||||||
| 2020 |
| 2019 |
| Dollars |
| % |
| |||||
(in thousands) |
| ||||||||||||
Selling, distribution, and marketing | $ | 7,320 | $ | 6,133 | $ | 1,187 |
| 19 | % | ||||
General and administrative | $ | 26,670 | $ | 28,753 | $ | (2,083) |
| (7) | % |
The increase in selling, distribution, and marketing expenses was primarily due to marketing and distribution expenses related to Primatene® Mist, including the cost of a national digital, television and radio marketing campaign which began in July 2019. The decrease in general and administrative expense was primarily due a decrease in legal expenses as a result of the enoxaparin patent and antitrust litigation settlement reached in the second quarter of 2019. This was partially offset by an expense of $4.9 million relating to cash compensation and share-based compensation expense in connection with a separation agreement with a former executive during the second quarter of 2020.
For more information regarding litigation matters, see “Part I – Item 1. Financial Statements –Notes to Condensed Consolidated Financial Statements – Litigation.”
We expect that selling, distribution and marketing expenses will increase due to the increase in marketing expenditures for Primatene® Mist. Legal fees may fluctuate due to the timing of patent challenges and other litigation matters.
Research and development
Six Months Ended |
| ||||||||||||
June 30, | Change | ||||||||||||
| 2020 |
| 2019 |
| Dollars |
| % |
| |||||
(in thousands) |
| ||||||||||||
Salaries and personnel-related expenses | $ | 12,902 | $ | 12,642 | $ | 260 |
| 2 | % | ||||
Pre-launch inventory |
| (10) |
| 158 |
| (168) |
| (106) | % | ||||
Clinical trials |
| 3,884 |
| 3,233 |
| 651 |
| 20 | % | ||||
FDA fees |
| 89 |
| 404 |
| (315) |
| (78) | % | ||||
Testing, operating and lab supplies |
| 6,031 |
| 6,450 |
| (419) |
| (6) | % | ||||
Depreciation |
| 4,807 |
| 4,275 |
| 532 |
| 12 | % | ||||
Other expenses |
| 3,749 |
| 3,441 |
| 308 |
| 9 | % | ||||
Total research and development expenses | $ | 31,452 | $ | 30,603 | $ | 849 | 3 | % |
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.
Clinical trial expense increased due to external studies related to our generic product pipeline, primarily for our inhalation ANDAs and our insulin biosimilar programs.
We have made, and expect to continue to make, substantial investments in research and development to expand our product portfolio and grow our business. We expect that research and development expenses will increase on an annual basis due to increased clinical trial costs related to our biosimilar and inhalation product candidates. These expenditures will include costs of APIs developed internally as well as APIs purchased externally, the cost of purchasing reference listed drugs and the costs of performing the clinical trials. 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. Some of our ongoing clinical trials have experienced short term interruptions in the recruitment of patients due to the COVID-19 pandemic, as hospitals prioritize their resources towards the COVID-19 pandemic and governments impose travel restrictions. These conditions may in turn delay spending and delay the results of these trials.
-36-
Other income (expenses), net
Six Months Ended |
| ||||||||||||
June 30, | Change | ||||||||||||
| 2020 |
| 2019 |
| Dollars |
| % |
| |||||
(in thousands) |
| ||||||||||||
Other (expenses) income, net | $ | (497) | $ | 59,422 | $ | (59,919) |
| NM |
In June 2019, we recognized a gain of $59.9 million relating to our settlement of the enoxaparin patent and antitrust litigation with Momenta Pharmaceuticals, Inc. and Sandoz Inc. For more information regarding litigation matters, see “Part I – Item 1. Financial Statements –Notes to Condensed Consolidated Financial Statements – Litigation.”
Income tax provision
Six Months Ended |
| ||||||||||||
June 30, | Change | ||||||||||||
| 2020 |
| 2019 |
| Dollars |
| % |
| |||||
(in thousands) |
| ||||||||||||
Income tax provision | $ | 2,205 | $ | 12,694 | $ | (10,489) | NM | ||||||
Effective tax rate |
| 51 | % |
| 22 | % |
The difference in income tax provision was primarily due to differences in pre-tax income positions, nondeductible executive severance compensation, and timing of discrete tax items.
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.
As of June 30, 2020, our foreign subsidiaries collectively held $14.2 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 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.
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 increased by $8.3 million to $173.5 million at June 30, 2020, compared to $165.2 million at December 31, 2019.
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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, 2020 and 2019:
Six Months Ended June 30, | |||||||
| 2020 | 2019 | |||||
(in thousands) | |||||||
Statement of Cash Flow Data: | |||||||
Net cash provided by (used in) | |||||||
Operating activities | $ | 31,566 | $ | 48,113 | |||
Investing activities |
| (18,788) |
| (24,553) | |||
Financing activities |
| 1,007 |
| 10,487 | |||
Effect of exchange rate changes on cash |
| (82) |
| (11) | |||
Net increase in cash, cash equivalents, and restricted cash | $ | 13,703 | $ | 34,036 |
Sources and Use of Cash
Operating Activities
Net cash provided by operating activities was $31.6 million for the six months ended June 30, 2020, which included net income of $2.1 million. Non-cash items were primarily comprised of $10.0 million of depreciation and amortization, and $11.8 million of share-based compensation expense.
Additionally, for the six months ended June 30, 2020, there was a net cash inflow from changes in operating assets and liabilities of $4.3 million, which resulted from a decrease in inventory and an increase in accounts payable and accrued liabilities, which was partially offset by an increase in accounts receivable. The increase in accounts receivable was due to the timing of sales. Accounts payable and accrued liabilities decreased primarily due to the timing of payments.
Net cash provided by operating activities was $48.1 million for the six months ended June 30, 2019, which included net income of $44.8 million. Non-cash items were primarily comprised of $8.8 million of depreciation and amortization, and $8.7 million of share-based compensation expense. Additionally, there was a net cash outflow from changes in operating assets and liabilities of $15.0 million which resulted from the increase in accounts receivable and inventory partially offset by an increase in accounts payable and accrued liabilities. The increase in accounts receivable was due to the timing of sales in the quarter. The increase in inventory was partially due to increased purchases of raw materials and production of finished goods resulting in a net increase of $24.9 million of enoxaparin and a net increase of $6.3 million of Primatene® Mist inventory. These trends were partially offset by a decrease in API at AFP. Tax related items increased as a result of the receipt of the $59.9 million relating to the litigation settlement with Momenta Pharmaceuticals, Inc. and Sandoz Inc. Accounts payable and accrued liabilities increased primarily due to the timing of payments.
Investing Activities
Net cash used in investing activities was $18.8 million for the six months ended June 30, 2020, primarily as a result of $18.9 million in purchases of property, plant, and equipment, which included $3.3 million incurred in the United States, $2.2 million in France, and $13.4 million in China.
Net cash used in investing activities was $24.6 million for the six months ended June 30, 2019, primarily as a result of $24.5 million in purchases of property, plant, and equipment, which included $6.0 million incurred in the United States, $4.3 million in France, and $14.2 million in China.
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Financing Activities
Net cash provided by financing activities was $1.0 million for the six months ended June 30, 2020, primarily as a result of $18.2 million in net proceeds from the settlement of share-based compensation awards under our equity plans offset by $16.7 million used to purchase treasury stock. Additionally, we received $3.8 million from borrowings on our lines of credit, of which $3.1 million was converted into an equipment loan during the year. We also made $4.3 million in principal payments on our long-term debt.
Net cash provided by financing activities was $10.5 million for the six months ended June 30, 2019, primarily as a result of the receipt of $18.3 million for ANP private placement, which was partially offset by $4.1 million used to purchase treasury stock, and $0.2 million of net proceeds used to settle share-based compensation awards under our equity plans. Additionally, we made $3.6 million in principal payments on our long-term debt and lines of credit.
Indebtedness
For more information regarding our outstanding indebtedness, see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Debt”.
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, 2019, except that our outstanding debt obligations have changed as follows:
June 30, | December 31, |
| ||||||||
| 2020 |
| 2019 |
| Change |
| ||||
(in thousands) |
| |||||||||
Short-term debt and current portion of long-term debt | $ | 12,075 | $ | 7,741 | $ | 4,334 | ||||
Long-term debt |
| 34,622 |
| 39,394 |
| (4,772) | ||||
Total debt | $ | 46,697 | $ | 47,135 | $ | (438) |
As of June 30, 2020, we had $49.0 million in unused borrowing capacity under revolving lines of credit with Cathay Bank, East West Bank, and China Merchant 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, 2019.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Summary of Significant Accounting Policies”.
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 FDA, in particular, maintains oversight of the formulation, manufacture, distribution, packaging, and labeling of all of our products. The Drug Enforcement Administration, or DEA, maintains oversight over our products that are considered controlled substances.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Except for the broad effects of the COVID-19 pandemic as a result of its negative impact on the global economy and financial markets, there have been no material changes in market risk from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2019. We are exposed to market risk in the ordinary course of business. 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).
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 as of such date, 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, 2020, 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
For information regarding legal proceedings, see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Litigation.”
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, 2019, filed with the Securities and Exchange Commission on March 16, 2020.
Our business may be adversely affected by the current COVID-19 pandemic or other epidemics.
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus, or COVID-19, as a pandemic, which continues to spread throughout the world, including locations where we operate, such as the United States, China and France. We have been actively monitoring the COVID-19 pandemic and its impact globally. In late January 2020, China implemented extensive curfews and travel restrictions to control the outbreak, and started easing these restrictions in March. In March 2020, France also implemented a stay-at-home order limiting movement and restricting travel. In March 2020, the Governors of the States of California and Massachusetts declared a health emergency and issued orders to close all nonessential businesses. As a specialty pharmaceutical company we are deemed to be an essential business. Since then, the government in the United States, China and France, have re-opened and re-imposed restrictions on travel and business as the pandemic recedes and grows.
This contagious disease outbreak has continued to spread across the globe and is impacting worldwide economic activity and financial markets. The COVID-19 pandemic may disrupt the operations of our customers, suppliers and partners for an indefinite period of time, including as a result of travel restrictions and/or business shutdowns, all of which could negatively impact our business and results of operations, including cash flows. Disruptions to our manufacturing partners and suppliers could result in disruption to the production of our products and failure to satisfy demand. More generally, the outbreak of COVID-19 could adversely affect economies and financial markets globally and nationally, potentially leading to an economic downturn, which could decrease spending and adversely affect demand for our products and harm our business and results of operations. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future. Specifically, difficult macroeconomic conditions, increased and prolonged unemployment or a decline in business confidence as a result of the COVID-19 pandemic, could have a continuing adverse effect on the demand for some of our products. The degree of impact of the COVID-19 pandemic on our business will depend on several factors, such as the duration and the extent of the pandemic, as well as actions taken by governments, businesses, and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time.
In addition, some of our ongoing clinical trials have experienced short-term interruptions in the recruitment of patients due to the COVID-19 pandemic, as hospitals prioritize their resources toward the COVID-19 pandemic and governments impose travel restrictions. These conditions may in turn delay spending and delay the results of these trials.
It is not possible at this time to estimate the complete impact that the COVID-19 pandemic could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. Infections may resurge or become more widespread and the limitation on our ability to travel and timely sell and distribute our products, as well as any closures or supply disruptions, may be extended for longer periods of time, all of which would have a negative impact on our business, financial condition and operating results. We will continue to monitor the impact of the COVID-19 pandemic on all aspects of our business.
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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, impact of outbreaks of health epidemics, such as the COVID-19 pandemic, or changes in social, political, trade, health, economic, environmental, or climate-related 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 enoxaparin as well as the APIs for isoproterenol and 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 or widespread disease outbreaks, including the recent outbreaks that impact animal-derived products, such as the importation of pig-derived crude heparin from countries impacted by the African swine flu, and outbreak of the COVID-19 pandemic, which has resulted in and may in the future result in, business closures, transportation restrictions, import and export complications, and otherwise cause shortages in the supply of raw materials or cause disruptions in our manufacturing capability; |
● | product supply disruptions and increased costs as a result of heightened exposure to changes 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 previously 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 or intellectual property by the Chinese government, which could result in the total loss of our investment in China; and |
● | interruptions to our manufacturing or business operations resulting from geo-political actions, including war and terrorism, natural disasters including earthquakes, typhoons, floods, and fires, or outbreaks of health epidemics such as coronavirus, or outbreaks in livestock or animals that impact or restrict importation, use, or distribution of animal-derived products. |
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 actively monitoring and assessing the potential impact of the COVID-19 pandemic. This includes evaluating the impact on our employees, suppliers, and logistics providers as well as evaluating governmental actions being taken to curtail the spread of the virus. While the Chinese government has been relaxing work restrictions, at this time, it is unclear if the Chinese government will reinstate restrictions or if further restrictions will be put into place by the government. In addition, many countries have placed significant bans on travel to and from China, with many countries and airlines suspending flights to and from mainland China. Any material adverse effect on our employees, suppliers, and logistics providers could have a material adverse effect on our manufacturing operations in China or the supply of raw materials or APIs originating from China.
Our business and operations would be impacted in the event of system breach or failure.
We, our collaborators, third-party providers, distributors, customers and other contractors utilize information technology systems and networks to transmit, store and otherwise process electronic data in connection with our business activities.
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This includes our clinical data and business proprietary information, Electronic Data Interchange, or EDI, on purchase orders, invoices, chargebacks, etc. We, and others on our behalf, also collect and process certain personal data, including about our personnel, business partners, and others, which may be subject to applicable data protection laws and regulations. We, and others on our behalf, rely on complex information technology systems, including Internet-based systems, to transmit, store and otherwise process such data in support of our supply chain processes, operations, and communications. Despite our implementation of security measures to protect the confidentiality, integrity, and availability of the systems and data within our control from various threats (e.g., cyber-attack, insider threat, accidental disclosure, intellectual property theft and economic espionage, natural disaster, war, terrorism, telecommunications and electrical outage), risks remain.
Potential legal (regulatory or contractual), financial, operational, and reputational harm may arise from the accidental or unlawful destruction, damage, loss, unavailability, alteration, impairment, misuse, unauthorized disclosure of, or unauthorized access to (i) our data, which is transmitted, stored or otherwise processed by us or by collaborators, third-party providers, distributors and other contractors on our behalf (a “data security incident”); and (ii) the systems upon which we rely for our operations (an “other event”). For example:
● | The accidental or unlawful loss, unavailability or alteration of clinical trial data from completed or ongoing clinical trials for any of our product candidates could result in delays in our development and regulatory approval efforts as well as significantly increase our costs to recover or reproduce the data. |
● | The size and complexity of our systems may make them potentially vulnerable to breakdown or interruption, whether due to computer viruses or other causes, which may result in the loss of key information or the impairment of production and other supply chain processes, adversely affecting our business. |
● | Any data security incident or other event, either on its own or as a pattern, may require costly response and remediation efforts, trigger litigation or adverse regulatory action arising from or related to such an incident or event, and result in significant additional expense to implement further data protection measures. Integrating the systems and data of any acquired entity may in some cases further increase these risks due to unforeseen threats and vulnerabilities. |
● | Similarly, any data security incident or other event experienced by our collaborators, third-party providers, distributors and other contractors may hinder our product development, supply chain, other business operations, or our regulatory and contractual obligations to others, and could also give rise to litigation or adverse regulatory action. |
Subsequent to the first quarter of 2020, we were subject to a cyber-event that resulted in a temporary disruption to some of our internal computer systems. At this time, we are still evaluating the impact to the business.
There can be no assurance that we will be successful in preventing data security incidents or other events nor that we will be successful in mitigating their effects, despite the implementation of security measures for systems and data within our control. Similarly, there can be no assurance that our collaborators, third-party providers, distributors and other contractors will be successful in protecting our data on their systems or in protecting other systems upon which we may rely. Any such data security incident or other event could have a material adverse effect on our business and prospects.
Some of our products are marketed without FDA approval and may be subject to enforcement actions by the FDA.
Some of our prescription products are marketed without FDA approval. These products, like many other prescription drugs on the market that the FDA have not been 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
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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 the 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 help address a national drug shortage, while we prepared and filed applications for approval of the products. Between August and October, 2010, we reintroduced atropine, morphine, dextrose, and epinephrine prefilled syringes.
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. In April 2020, the FDA granted approval of our Epinephrine Injection USP 30mg/30mL Multiple Dose Vial, and we launched the product in May 2020.
For the years ended December 31, 2019, 2018, and 2017, we recorded net revenues of $39.3 million, $26.4 million, and $22.0 million, respectively, from our unapproved products. For the six months ended June 30, 2020 and 2019, we recorded net revenues of $21.7 million and $18.7 million, respectively, from our unapproved products. Our unapproved products currently on the market include: atropine, morphine, dextrose and epinephrine prefilled syringes. We have filed three 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.
Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, as well as provisions of the Delaware General Corporation Law, or the DGCL, could depress the trading price of our common stock by making it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include:
● | authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; |
● | prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; |
● | eliminating the ability of stockholders to call a special meeting of stockholders; |
● | establishing advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted upon at stockholder meetings; |
● | establishing a classified Board of Directors, whereby only one-third of the members of our Board of Directors are elected at one time; and |
● | providing that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum. |
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These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors, which is responsible for appointing the members of our management. Furthermore, our amended and restated certificate of incorporation provides that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a breach of fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation, or our amended and restated bylaws; or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine. This provision is not intended to apply to actions arising under the Securities Act or the Exchange Act, or any claim for which the federal courts have exclusive jurisdiction. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to this provision. This exclusive-forum provision may discourage lawsuits against us or our directors, officers, and employees. In addition, we are subject to Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by our Board of Directors. This provision could delay or prevent a change of control, whether or not it is desired by or beneficial to our stockholders, which could also affect the price that some investors are willing to pay for our common stock.
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, 2020 |
| 150,646 |
| $ | 15.68 | 150,646 |
| — | ||
May 1 – May 31, 2020 |
| 96,785 | 18.04 |
| 96,785 |
| — | |||
June 1 – June 30, 2020 |
| 81,960 | 19.99 |
| 81,960 |
| — |
(1) | During the second quarter of 2020, we repurchased shares of our common stock as part of the share buyback program authorized by our Board of Directors on November 4, 2019. As of June 30, 2020, $5.1 million remained available under such program. In August 2020, our Board of Directors authorized an increase of $20.0 million to our share buyback 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 |
| Description |
10.1+ | ||
10.2 | ||
31.1 | ||
31.2 | ||
32.1# | ||
32.2# | ||
|
| |
101.INS | XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definitions Linkbase Document | |
104 | Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101) |
# | 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. |
* | Portions of this exhibit (indicated by asterisks) have been redacted in compliance with Regulation S-K Item 601(b)(10). |
+ | Indicates a management contract or compensatory plan or arrangement. |
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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. | |
By: | /s/ JACK Y. ZHANG |
Jack Y. Zhang | |
Chief Executive Officer |
Date: August 7, 2020
AMPHASTAR PHARMACEUTICALS, INC. | |
By: | /s/ WILLIAM J. PETERS |
William J. Peters | |
Chief Financial Officer |
Date: August 7, 2020
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