Amneal Pharmaceuticals, Inc 10-Q for FY2022 Q3
Amneal Pharmaceuticals, Inc. (AMRX)
10-Q
2022-11-07
For: 2022-09-30
View Original
Added on
April 06, 2026
About this 10-Q
Amneal Pharmaceuticals, Inc filed this 10-Q on November 7, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $545.56M
- up 3.2% from $528.59M a year earlier
- Net loss
- $7.61M
- compared with a net loss of $7.78M a year earlier
- Diluted EPS
- -$0.02
- compared with -$0.03 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number 001-38485
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
Amneal Pharmaceuticals, Inc. | |||||
| (Address of principal executive offices) | (Zip Code) | ||||
(908 ) 947-3120
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 28, 2022, there were 151,475,789 shares of Class A common stock outstanding and 152,116,890 shares of Class B common stock outstanding, both with a par value of $0.01.
Amneal Pharmaceuticals, Inc.
Table of Contents
1
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q and Amneal Pharmaceuticals, Inc.’s other publicly available documents contain “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Management and representatives of Amneal Pharmaceuticals, Inc. and its subsidiaries (the “Company”, “we”, “us”, or “our”) also may from time to time make forward-looking statements. Forward-looking statements do not relate strictly to historical or current facts and reflect management’s assumptions, views, plans, objectives and projections about the future. Forward-looking statements may be identified by the use of words such as “plans,” “expects,” “will,” “anticipates,” “estimates” and other words of similar meaning in conjunction with, among other things: discussions of future operations; expectations regarding supply chain disruptions, inflationary pressures and rising interest rates, expected operating results and financial performance; impact of planned acquisitions and dispositions; our strategy for growth; product development; regulatory approvals; our expectations regarding litigation matters, including settlements thereof; market position and expenditures.
Because forward-looking statements are based on current beliefs, expectations and assumptions regarding future events, they are subject to uncertainties, risks and changes that are difficult to predict and many of which are outside of our control. Investors should realize that if underlying assumptions prove inaccurate, known or unknown risks or uncertainties materialize, or other factors or circumstances change, our actual results and financial condition could vary materially from expectations and projections expressed or implied in our forward-looking statements. Investors are therefore cautioned not to rely on these forward-looking statements.
Summary of Material Risks
Risks and uncertainties that make an investment in the Company speculative or risky or that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to:
•our ability to successfully develop, license, acquire and commercialize new products on a timely basis;
•the competition we face in the pharmaceutical industry from brand and generic drug product companies, and the impact of that competition on our ability to set prices;
•our ability to obtain exclusive marketing rights for our products;
•our substantial amount of indebtedness and our ability to generate sufficient cash to service our indebtedness in the future, and the impact of interest rate fluctuations on such indebtedness;
•our ability to manage our growth through acquisitions and otherwise;
•our dependence on the sales of a limited number of products for a substantial portion of our total revenues;
•the continuing trend of consolidation of certain customer groups;
•our dependence on third-party suppliers and distributors for raw materials for our products and certain finished goods and any associated supply chain disruptions;
•legal, regulatory and legislative efforts by our brand competitors to deter competition from our generic alternatives;
•the impact of severe weather and natural disasters that could cause disruptions in manufacturing and our supply chain;
•the impact of the ongoing COVID-19 pandemic and variant strains;
•risks related to federal regulation of arrangements between manufacturers of branded and generic products;
•our reliance on certain licenses to proprietary technologies from time to time;
•the significant amount of resources we expend on research and development;
•the risk of product liability and other claims against us by consumers and other third parties and the impact of adverse judgements or settlements;
•risks related to changes in the regulatory environment, including U.S. federal and state laws related to healthcare fraud abuse and health information privacy and security and changes in such laws;
•changes to Food and Drug Administration product approval requirements;
•the impact of healthcare reform and changes in coverage and reimbursement levels by governmental authorities and other third-party payers;
•our dependence on third-party agreements for a portion of our product offerings;
•the impact of global economic conditions, including any economic effects stemming from adverse geopolitical events, an economic downturn, inflation, and rising interest rates;
•our ability to identify, make and integrate acquisitions or investments in complementary businesses and products on advantageous terms;
•our obligations under a tax receivable agreement may be significant;
2
•the high concentration of ownership of our Class A common stock and the fact that we are controlled by a group of stockholders, together with their affiliates and certain assignees, who owned Amneal Pharmaceuticals, LLC when it was a private company; and
•such other factors as may be set forth elsewhere in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, particularly in the section 1A. Risk Factors and our public filings with the SEC.
Investors should carefully read our Annual Report on Form 10-K for the year ended December 31, 2021, including the section 1A. Risk Factors, for a description of certain risks that could, among other things, cause our actual results to differ materially from those expressed in our forward-looking statements. Investors should understand that it is not possible to predict or identify all such factors and should not consider the risks described herein and in our Annual Report to be a complete statement of all potential risks and uncertainties. The Company does not undertake to publicly update any forward-looking statement that may be made from time to time, whether as a result of new information or future events or developments.
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Amneal Pharmaceuticals, Inc.
Consolidated Statements of Operations
(unaudited; in thousands, except per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||
| Cost of goods sold impairment charges | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| In-process research and development impairment charges | |||||||||||||||||||||||
| Intellectual property legal development expenses | |||||||||||||||||||||||
| Acquisition, transaction-related and integration expenses | |||||||||||||||||||||||
| Charges related to legal matters, net | |||||||||||||||||||||||
| Charges (insurance recoveries) for property losses and associated expenses | ( | ||||||||||||||||||||||
| Restructuring and other charges | |||||||||||||||||||||||
| Change in fair value of contingent consideration | ( | ( | |||||||||||||||||||||
| Other operating income | ( | ( | |||||||||||||||||||||
| Operating income (loss) | ( | ||||||||||||||||||||||
| Other (expense) income: | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Foreign exchange loss, net | ( | ( | ( | ( | |||||||||||||||||||
| Loss on refinancing | ( | ||||||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| Total other expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) before income taxes | ( | ( | |||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net (loss) income | ( | ( | ( | ||||||||||||||||||||
| Less: Net (income) loss attributable to non-controlling interests | ( | ( | |||||||||||||||||||||
| Net (loss) income attributable to Amneal Pharmaceuticals, Inc. before accretion of redeemable non-controlling interest | ( | ( | ( | ||||||||||||||||||||
| Accretion of redeemable non-controlling interest | ( | ||||||||||||||||||||||
| Net (loss) income attributable to Amneal Pharmaceuticals, Inc. | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||
| Net (loss) income per share attributable to Amneal Pharmaceuticals, Inc.'s class A common stockholders: | |||||||||||||||||||||||
| Basic | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||
| Diluted | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||
| Weighted-average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Amneal Pharmaceuticals, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(unaudited; in thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net (loss) income | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||
| Less: Net (income) loss attributable to non-controlling interests | ( | ( | |||||||||||||||||||||
| Net (loss) income attributable to Amneal Pharmaceuticals, Inc. before accretion of redeemable non-controlling interest | ( | ( | ( | ||||||||||||||||||||
| Accretion of redeemable non-controlling interest | ( | ||||||||||||||||||||||
| Net (loss) income attributable to Amneal Pharmaceuticals, Inc. | ( | ( | ( | ||||||||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Foreign currency translation adjustments arising during the period | ( | ( | ( | ( | |||||||||||||||||||
| Unrealized gain on cash flow hedge, net of tax | |||||||||||||||||||||||
| Less: Other comprehensive income attributable to non-controlling interests | ( | ( | ( | ( | |||||||||||||||||||
| Other comprehensive income attributable to Amneal Pharmaceuticals, Inc. | |||||||||||||||||||||||
| Comprehensive income (loss) attributable to Amneal Pharmaceuticals, Inc. | $ | $ | ( | $ | ( | $ | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Amneal Pharmaceuticals, Inc.
Consolidated Balance Sheets
(unaudited; in thousands, except per share amounts)
| September 30, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Trade accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Related party receivables | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Operating lease right-of-use assets - related party | |||||||||||
| Financing lease right-of-use assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Current portion of liabilities for legal matters | |||||||||||
| Revolving credit facility | |||||||||||
| Current portion of long-term debt, net | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Current portion of operating and financing lease liabilities - related party | |||||||||||
| Current portion of financing lease liabilities | |||||||||||
| Related party payables - short term | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net | |||||||||||
| Note payable - related party | |||||||||||
| Operating lease liabilities | |||||||||||
| Operating lease liabilities - related party | |||||||||||
| Financing lease liabilities | |||||||||||
| Related party payables - long term | |||||||||||
| Other long-term liabilities | |||||||||||
| Total long-term liabilities | |||||||||||
| Commitments and contingencies (Notes 5 and 13) | |||||||||||
| Redeemable non-controlling interests | |||||||||||
| Stockholders' Equity | |||||||||||
Preferred stock, $ | |||||||||||
Class A common stock, $ | |||||||||||
Class B common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Stockholders' accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive income (loss) | ( | ||||||||||
| Total Amneal Pharmaceuticals, Inc. stockholders' equity | |||||||||||
| Non-controlling interests | ( | ||||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
Amneal Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
(unaudited; in thousands)
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Unrealized foreign currency loss | ( | ||||||||||
| Amortization of debt issuance costs and discount | |||||||||||
| Loss on refinancing | |||||||||||
| Intangible asset impairment charges | |||||||||||
| Insurance recoveries for property and equipment losses | ( | ||||||||||
| Non-cash property losses | |||||||||||
| Stock-based compensation | |||||||||||
| Inventory provision | |||||||||||
| Change in fair value of contingent consideration | ( | ||||||||||
| Other operating charges and credits, net | |||||||||||
| Changes in assets and liabilities: | |||||||||||
| Trade accounts receivable, net | |||||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses, other current assets and other assets | ( | ( | |||||||||
| Related party receivables | ( | ||||||||||
| Accounts payable, accrued expenses and other liabilities | ( | ||||||||||
| Related party payables | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||
| Deposits for future acquisition of property, plant, and equipment | ( | ( | |||||||||
| Acquisition of intangible assets | ( | ( | |||||||||
| Acquisitions of businesses, net of cash acquired | ( | ( | |||||||||
| Proceeds from insurance recoveries for property and equipment losses | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Payments of deferred financing and refinancing costs | ( | ||||||||||
| Payments of principal on debt, revolving credit facility, financing leases and other | ( | ( | |||||||||
| Borrowings on revolving credit facility | |||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Employee payroll tax withholding on restricted stock unit vesting | ( | ( | |||||||||
| Tax distributions to non-controlling interests | ( | ( | |||||||||
| Acquisition of redeemable non-controlling interest | ( | ||||||||||
| Payments of deferred consideration for acquisitions - related party | ( | ||||||||||
| Payments of principal on financing lease - related party | ( | ||||||||||
| Repayment of related party note | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of foreign exchange rate on cash | ( | ( | |||||||||
| Net decrease in cash, cash equivalents, and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents, and restricted cash - beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash - end of period | $ | $ | |||||||||
| Cash and cash equivalents - end of period | $ | $ | |||||||||
| Restricted cash - end of period | |||||||||||
| Cash, cash equivalents, and restricted cash - end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
Amneal Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows (continued)
(unaudited; in thousands)
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for income taxes, net | $ | $ | |||||||||
| Supplemental disclosure of non-cash investing and financing activity: | |||||||||||
| Payable for acquisition of intangible assets | $ | $ | |||||||||
| Deferred consideration for acquisition - related party | $ | $ | |||||||||
| Contingent consideration for acquisition - related party | $ | $ | |||||||||
| Payments for restricted stock unit tax vesting | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8
Amneal Pharmaceuticals, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(unaudited; in thousands)
| Class A Common Stock | Class B Common Stock | Additional Paid-in Capital | Stockholders' Accumulated Deficit | Accumulated Other Comprehensive Income | Non- Controlling Interests | Total Equity | Redeemable Non-Controlling Interests | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | ( | ( | ( | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock unit vesting, net of shares withheld to cover payroll taxes | — | — | — | ( | ( | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on cash flow hedge, net of tax | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax distributions | — | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional Paid-in Capital | Stockholders' Accumulated Deficit | Accumulated Other Comprehensive (Loss) Income | Non- Controlling Interests | Total Equity | Redeemable Non-Controlling Interests | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | ( | ( | ( | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock unit vesting, net of shares withheld to cover payroll taxes | — | — | — | ( | ( | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on cash flow hedge, net of tax | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax distributions, net | — | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of redeemable non-controlling interest | — | — | — | — | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of redeemable non-controlling interest | — | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
9
Amneal Pharmaceuticals, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(unaudited; in thousands)
| Class A Common Stock | Class B Common Stock | Additional Paid-in Capital | Stockholders' Accumulated Deficit | Accumulated Other Comprehensive Loss | Non- Controlling Interests | Total Equity | Redeemable Non-Controlling Interests | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | ( | ( | ( | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock unit vesting, net of shares withheld to cover payroll taxes | — | — | — | ( | ( | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on cash flow hedge, net of tax | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax distributions | — | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional Paid-in Capital | Stockholders' Accumulated Deficit | Accumulated Other Comprehensive Loss | Non- Controlling Interests | Total Equity | Redeemable Non-Controlling Interests | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | ( | ( | ( | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock unit vesting, net of shares withheld to cover payroll taxes | — | — | — | ( | ( | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on cash flow hedge, net of tax | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax distributions | — | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interests from the KSP Acquisition | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
10
Amneal Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
(unaudited)
1. Nature of Operations
Amneal Pharmaceuticals, Inc. (the “Company”) is a pharmaceutical company specializing in developing, manufacturing, marketing and distributing high-value generic and branded specialty pharmaceutical products across a broad array of dosage forms and therapeutic areas. The Company operates principally in the United States, India, and Ireland, and sells to wholesalers, distributors, hospitals, chain pharmacies and individual pharmacies, either directly or indirectly. The Company is a holding company, whose principal assets are common units (“Amneal Common Units”) of Amneal Pharmaceuticals, LLC (“Amneal”).
In 2018, Amneal completed the acquisition of Impax Laboratories, Inc. (“Impax”), a generic and specialty pharmaceutical company. In 2020, Amneal acquired a 65.1 % controlling interest in both AvKARE Inc., a Tennessee corporation now a limited liability company (“AvKARE, LLC”), and Dixon-Shane, LLC d/b/a R&S Northeast LLC, a Kentucky limited liability company (“R&S”) (collectively, the “Rondo Acquisitions”). AvKARE, LLC is one of the largest private label providers of generic pharmaceuticals in the U.S. federal agency sector, primarily focused on serving the Department of Defense and the Department of Veterans Affairs. R&S is a national pharmaceutical wholesaler focused primarily on offering 340b-qualified entities products to provide consistency in care and pricing.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United States of America, should be read in conjunction with the Company’s annual audited financial statements for the year ended December 31, 2021 included in the Company’s 2021 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in annual financial statements have been omitted from the accompanying unaudited consolidated financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of September 30, 2022, cash flows for the nine months ended September 30, 2022 and 2021 and the results of its operations, its comprehensive income (loss) and its changes in stockholders’ equity for the three and nine months ended September 30, 2022 and 2021. The consolidated balance sheet data at December 31, 2021 was derived from the Company’s audited annual financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America.
Except for the updates included in this note, the accounting policies of the Company are set forth in Note 2. Summary of Significant Accounting Policies contained in the Company’s 2021 Annual Report on Form 10-K.
Use of Estimates
The preparation of financial statements requires the Company's management to make estimates and assumptions that affect the reported financial position at the date of the financial statements and the reported results of operations during the reporting period. Such estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The following are some, but not all, of such estimates: the determination of chargebacks, sales returns, rebates, billbacks, valuation of intangible and other assets acquired in business combinations, allowances for accounts receivable, accrued liabilities, initial and subsequent valuation of contingent consideration recognized in business combinations, stock-based compensation, valuation of inventory balances, the determination of useful lives for product rights and the assessment of expected cash flows used in evaluating goodwill and other long-lived assets for impairment. Actual results could differ from those estimates.
11
Recently Adopted Accounting Pronouncements
Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance, which requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The new standard is effective for the Company’s annual disclosures as of and for the year ending December 31, 2022, with early adoption permissible. The Company elected to adopt this guidance during the quarter ended June 30, 2022 in connection with the recognition of cash incentive related to the India Production Linked Incentive Scheme for the Pharmaceutical Sector (“PLI Scheme”). Refer to Note 19. Government Grants, for additional information.
Recently Issued Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides elective amendments for entities that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), to expand and clarify the scope of Topic 848 to include derivative instruments on discounting transactions. The amendments in this ASU are effective in the same timeframe as ASU 2020-04. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The new standard is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company does not expect this standard to have a material impact on its consolidated financial statements.
Reclassification
The prior period balance related to liabilities for legal proceedings of $58.0 million, formerly included in accounts payable and accrued expenses as of December 31, 2021, has been reclassified to the balance sheet caption current portion of liabilities for legal matters to conform to the current period presentation in the consolidated balance sheets.
3. Acquisitions
Saol Baclofen Franchise Acquisition
On December 30, 2021, the Company entered into an asset purchase agreement with certain entities affiliated with Saol International Limited (collectively, “Saol”), a private specialty pharmaceutical company, pursuant to which it agreed to acquire Saol’s baclofen franchise, including Lioresal®, LYVISPAH™, and a pipeline product under development (the “Saol Acquisition”). The Saol Acquisition expands the Company’s commercial institutional and specialty portfolio in neurology while adding commercial infrastructure in advance of its entry into the biosimilar institutional market. The transaction closed on February 9, 2022.
Consideration for the Saol Acquisition included $84.7 million, paid at closing with cash on hand, and contingent royalty payments based on annual net sales for certain acquired assets, beginning in 2023. Cash paid at closing included $1.1 million for inventory acquired in excess of the normalized level, as defined in the asset purchase agreement (working capital adjustment).
For the nine months ended September 30, 2022, the Company incurred $0.1 million in transaction costs associated with the Saol Acquisition, which was recorded in acquisition, transaction-related and integration expenses (none for the three months ended September 30, 2022).
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The Saol Acquisition was accounted for under the acquisition method of accounting, with Amneal as the accounting acquirer. The purchase price was calculated as follows (in thousands):
| Cash | $ | ||||
Contingent consideration (royalties) (1) | |||||
| Fair value of consideration transferred | $ | ||||
(1)The estimated fair value of contingent consideration on the acquisition date was $8.8 million and was based on significant Level 3 inputs that were not observable in the market. Key assumptions included the discount rate, projected year of payments and expected net product sales. Refer to Note 10. Fair Value Measurements, for additional information on the methodology and determination of this liability.
The following is a summary of the purchase price allocation for the Saol Acquisition (in thousands):
Final Fair Values as of February 9, 2022 | |||||
| Inventory | $ | ||||
| Prepaid expenses and other current assets | |||||
| Goodwill | |||||
| Intangible assets | |||||
| Total assets acquired | |||||
| Accounts payable and accrued expenses | |||||
| Fair value of consideration transferred | $ | ||||
The acquired intangible assets are being amortized over their estimated useful lives as follows (in thousands):
Final Fair Value | Weighted-Average Useful Life (in years) | ||||||||||
| Marketed product rights | $ | ||||||||||
The estimated fair value of the identifiable intangible assets was determined using the “income approach,” which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. The assumptions, including the expected projected cash flows, utilized in the purchase price allocation and in determining the purchase price were based on management's best estimates as of the closing date of the Saol Acquisition on February 9, 2022.
Some of the more significant assumptions inherent in the development of those asset valuations included the estimated net cash flows for each year for each asset (including net revenues, cost of sales, selling and marketing costs and working capital / contributory asset charges), the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, the potential regulatory and commercial success risks, competitive trends impacting the asset and each cash flow stream, as well as other factors. The underlying assumptions used to prepare the discounted cash flow analysis may change; accordingly, for these and other reasons, actual results may vary significantly from estimated results.
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized. Of the total goodwill acquired in connection with the Saol Acquisition, $5.2 million was allocated to the Company’s Generics segment and $2.4 million was allocated to the Company’s Specialty segment.
From the acquisition date of February 9, 2022 to September 30, 2022, the Saol Acquisition contributed net revenue and an operating loss of $14.9 million and $4.6 million, respectively. For the three months ended September 30, 2022, the Saol Acquisition contributed net revenue and an operating loss of $5.6 million and $2.6 million, respectively.
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Puniska Healthcare Pvt. Ltd.
On November 2, 2021, the Company entered into a definitive agreement to acquire Puniska Healthcare Pvt. Ltd. (“Puniska”), a privately held manufacturer of parenteral and injectable drugs in India, and land in a transaction valued at $93.0 million (the “Puniska Acquisition”). Upon execution of the agreement, the Company paid $72.9 million with cash on hand for approximately 74 % of the equity interests of Puniska. Upon approval of the transaction by the government of India in March 2022, the Company paid, with cash on hand, an additional $1.7 million for the remaining 26 % of the equity interests of Puniska (included in redeemable non-controlling interests in the Company’s consolidated balance sheet as of December 31, 2021) and $14.2 million for the satisfaction of a preexisting payable to the sellers (included in related party payables-short term in the Company’s consolidated balance sheet as of December 31, 2021). During December 2021, the Company paid $4.3 million with cash on hand for land associated with the Puniska Acquisition.
There were no
The Puniska Acquisition, excluding the land acquired in December 2021, was accounted for under the acquisition method of accounting, with Amneal as the accounting acquirer. The preliminary purchase price was calculated as follows (in thousands):
Cash (1) | $ | ||||
Payable to sellers (2) | |||||
| Fair value of consideration transferred | $ | ||||
(1) Cash includes the payment made upon execution of the agreement.
(2) Due to the short-term nature of the payable to the sellers, the principal amount approximates fair value.
The following is a summary of the preliminary purchase price allocation for the Puniska Acquisition (in thousands):
Preliminary Fair Values as of November 2, 2021 | |||||
| Cash | $ | ||||
| Trade accounts receivable, net | |||||
| Inventories | |||||
| Prepaid expenses and other current assets | |||||
| Property, plant and equipment | |||||
| Goodwill | |||||
| Operating lease-right-of-use assets | |||||
| Other assets | |||||
| Total assets acquired | |||||
| Accounts payable and accrued expenses | |||||
| Operating lease liabilities | |||||
| Other long-term liabilities | |||||
| Total liabilities assumed | |||||
| Redeemable non-controlling interests | |||||
| Fair value of consideration transferred | $ | ||||
Goodwill is calculated as the excess of the consideration transferred and fair value of the redeemable non-controlling interests over the net assets recognized. All of the goodwill acquired in connection with the Puniska Acquisition was allocated to the Company’s Generics segment.
Kashiv Specialty Pharmaceuticals, LLC Acquisition
On January 11, 2021, the Company and Kashiv Biosciences, LLC (a related party, see Note 15. Related Party Transactions) (“Kashiv”) entered into a definitive agreement for Amneal to acquire a 98 % interest in Kashiv Specialty Pharmaceuticals, LLC
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(“KSP”), a subsidiary of Kashiv focused on the development of innovative drug delivery platforms, novel 505(b)(2) drugs and complex generics (the “KSP Acquisition”).
On April 2, 2021, the Company completed the KSP Acquisition. Under the terms of the transaction, the cash portion of the consideration was $104.5 million, comprised of a purchase price of $100.1 million (including initial and deferred consideration) and a working capital adjustment of $4.4 million. The initial cash purchase price was funded by cash on hand. For further detail of the purchase price, refer to the table below.
Transaction costs associated with the KSP Acquisition were $3.1 million for the nine months ended September 30, 2021 and were included in acquisition, transaction-related and integration expenses (none
The KSP Acquisition was accounted for under the acquisition method of accounting, with Amneal as the accounting acquirer.
The purchase price was calculated as follows (in thousands):
| Cash, including working capital payments | $ | ||||
Deferred consideration (1) | |||||
Contingent consideration (regulatory milestones) (2) | |||||
Contingent consideration (royalties) (2) | |||||
Settlement of Amneal trade accounts payable due to KSP (3) | ( | ||||
| Fair value consideration transferred | $ | ||||
(1)The deferred consideration was stated at the fair value estimate of $30.1 million, which is the $30.5 million contractually stated amount less a $0.4 million discount. The deferred consideration consisted of $30.0 million, which the Company paid in January 2022 and $0.5 million, which the Company paid during the three months ending September 30, 2022. As the deferred consideration is non-interest bearing, the Company, using guideline companies and market borrowings with comparable risk profiles, discounted the deferred consideration at 1.7 % over the period from April 2, 2021 to the maturity dates, for a fair value of $30.1 million on the date of acquisition. This discount was amortized to interest expense over the life of the deferred consideration utilizing the effective interest rate method.
(2) Kashiv is eligible to receive up to an additional $8.0 million in contingent payments upon the achievement of certain regulatory milestones and potential royalty payments from high single-digits to mid double-digits, depending on the amount of aggregate annual net sales for certain future pharmaceutical products. The estimated fair value of contingent consideration on the acquisition date was $5.7 million, based on significant Level 3 inputs that were not observable in the market. Key assumptions included the discount rate, probability of achievement of milestones, projected year of payments and expected net product sales. Refer to Note 10. Fair Value Measurements, for additional information on the methodology and determination of this liability.
(3) Represented trade accounts payable due to KSP that were effectively settled upon closing of the KSP Acquisition.
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The following is a summary of the purchase price allocation for the KSP Acquisition (in thousands):
| Final Fair Values as of April 2, 2021 | |||||
| Cash | $ | ||||
| Restricted cash | |||||
| Prepaid expenses and other current assets | |||||
| Property, plant and equipment | |||||
| Goodwill | |||||
| Intangible assets | |||||
| Operating lease right-of-use assets | |||||
| Total assets acquired | |||||
| Accounts payable and accrued expenses | |||||
| Operating lease liability | |||||
| Related party payable | |||||
| Total liabilities assumed | |||||
| Non-controlling interests | |||||
| Fair value of consideration transferred | $ | ||||
Total acquired intangible assets of $56.4 million were comprised of marketed product rights of $29.4 million and in-process research and development (“IPR&D”) of $27.0 million.
The acquired intangible assets are being amortized over their estimated useful lives as follows (in thousands):
Fair Value | Weighted-Average Useful Life (in years) | ||||||||||
| Marketed product rights | $ | ||||||||||
The estimated fair value of the IPR&D and identifiable intangible assets was determined using the “income approach”, which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. The assumptions, including the expected projected cash flows, utilized in the purchase price allocation and in determining the purchase price were based on management’s best estimates as of the closing date of the KSP Acquisition on April 2, 2021.
Some of the more significant assumptions inherent in the development of those asset valuations included the estimated net cash flows for each year for each asset or product (including net revenues, cost of sales, R&D, selling and marketing costs and working capital / contributory asset charges), the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, the potential regulatory and commercial success risks, competitive trends impacting the asset and each cash flow stream, as well as other factors. The underlying assumptions used to prepare the discounted cash flow analysis may change; accordingly, for these and other reasons, actual results may vary significantly from estimated results.
Goodwill is calculated as the excess of the consideration transferred and fair value of the non-controlling interests over the net assets recognized. Of the total goodwill acquired in connection with the KSP Acquisition, $40.8 million was allocated to the Company’s Generics segment and $2.7 million was allocated to the Company’s Specialty segment.
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4. Revenue Recognition
Concentration of Revenue
The following table summarizes revenues from each of our customers which individually accounted for 10% or more of our total net revenue:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Customer A | % | % | % | % | |||||||||||||||||||
| Customer B | % | % | % | % | |||||||||||||||||||
| Customer C | % | % | % | % | |||||||||||||||||||
| Customer D | % | % | % | % | |||||||||||||||||||
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Disaggregated Revenue
The Company's significant therapeutic classes for its Generics and Specialty segments and sales channels for its AvKARE segment, as determined based on net revenue for the three and nine months ended September 30, 2022 and 2021, are set forth below (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Generics | ||||||||||||||||||||||||||
| Anti-Infective | $ | $ | $ | $ | ||||||||||||||||||||||
| Hormonal/ Allergy | ||||||||||||||||||||||||||
Antiviral (1) | ||||||||||||||||||||||||||
| Central Nervous System | ||||||||||||||||||||||||||
| Cardiovascular System | ||||||||||||||||||||||||||
| Gastroenterology | ||||||||||||||||||||||||||
| Oncology | ||||||||||||||||||||||||||
| Metabolic Disease/Endocrine | ||||||||||||||||||||||||||
| Respiratory | ||||||||||||||||||||||||||
| Dermatology | ||||||||||||||||||||||||||
| Other therapeutic classes | ||||||||||||||||||||||||||
| International and other | ||||||||||||||||||||||||||
| Total Generics net revenue | ||||||||||||||||||||||||||
| Specialty | ||||||||||||||||||||||||||
| Hormonal/ Allergy | ||||||||||||||||||||||||||
| Central Nervous System | ||||||||||||||||||||||||||
| Other therapeutic classes | ||||||||||||||||||||||||||
| Total Specialty net revenue | ||||||||||||||||||||||||||
AvKARE | ||||||||||||||||||||||||||
| Distribution | ||||||||||||||||||||||||||
| Government Label | ||||||||||||||||||||||||||
| Institutional | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total AvKARE net revenue | ||||||||||||||||||||||||||
| Total net revenue | $ | $ | $ | $ | ||||||||||||||||||||||
A rollforward of the major categories of sales-related deductions for the nine months ended September 30, 2022 is as follows (in thousands):
| Contract Charge - Backs and Sales Volume Allowances | Cash Discount Allowances | Accrued Returns Allowance | Accrued Medicaid and Commercial Rebates | ||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | |||||||||||||||||||
| Provision related to sales recorded in the period | |||||||||||||||||||||||
| Credits/payments issued during the period | ( | ( | ( | ( | |||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | |||||||||||||||||||
18
5. Alliance and Collaboration
The Company has entered into several alliance, collaboration, license, distribution and similar agreements with respect to certain of its products and services with third-party pharmaceutical companies. The consolidated statements of operations include revenue recognized under agreements the Company has entered into to develop marketing and/or distribution relationships with its partners to fully leverage the technology platform and revenue recognized under development agreements which generally obligate the Company to provide research and development services over multiple periods. The Company's significant arrangements are discussed below.
Biosimilar Licensing and Supply Agreement
On May 7, 2018, the Company entered into a licensing and supply agreement with Mabxience S.L. for its biosimilar candidate for Avastin® (bevacizumab). The supply agreement was subsequently amended on March 2, 2021 and the licensing agreement was amended on March 4, 2021. Pursuant to the agreement, the Company will be the exclusive partner in the U.S. market and will pay development and regulatory milestone payments as well as commercial milestone payments on reaching pre-agreed sales targets in the market to Mabxience, up to $78.3 million. For the nine months ended September 30, 2021, the Company recognized $9.5 million of research and development expense under this agreement (none
On April 13, 2022, the Food and Drug Administration (“FDA”) approved the Company’s biologics license application for bevacizumab-maly, a biosimilar referencing Avastin®. In connection with this regulatory approval and associated activity, the Company incurred milestones of $26.5 million during the nine months ended September 30, 2022 (none during the three months ended September 30, 2022). The milestones, of which $10.0 million was paid during the three months ended June 30, 2022 and $16.5 million was paid during the three months ended September 30, 2022, have been capitalized as product rights intangible assets and will be amortized to cost of sales over their estimated useful lives of 7 years.
Agreements with Kashiv Biosciences, LLC
6. (Loss) Earnings per Share
Basic (loss) earnings per share of the Company’s class A common stock is computed by dividing net (loss) income attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of class A common stock outstanding during the period. Diluted (loss) earnings per share of class A common stock is computed by dividing net (loss) income attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of class A common stock outstanding, adjusted to give effect to potentially dilutive securities.
The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted (loss) earnings per share of class A common stock (in thousands, except per share amounts):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net (loss) income attributable to Amneal Pharmaceuticals, Inc. | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average shares outstanding - basic | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Stock options | |||||||||||||||||||||||
| Restricted stock units | |||||||||||||||||||||||
Weighted-average shares outstanding - diluted | |||||||||||||||||||||||
| Net (loss) earnings per share attributable to Amneal Pharmaceuticals, Inc.’s class A common stockholders: | |||||||||||||||||||||||
| Basic | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||
| Diluted | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||
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Shares of the Company's class B common stock do not share in the earnings or losses of the Company and, therefore, are not participating securities. As such, separate presentation of basic and diluted (loss) earnings per share of class B common stock under the two-class method has not been presented.
The following table presents potentially dilutive securities excluded from the computations of diluted (loss) earnings per share of class A common stock (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||
Stock options | (1) | (1) | (1) | (3) | |||||||||||||||||||||||||
Restricted stock units | (1) | (1) | (1) | ||||||||||||||||||||||||||
Performance stock units | (1) | (1) | (1) | (4) | |||||||||||||||||||||||||
| Shares of class B common stock | (2) | (2) | (2) | (2) | |||||||||||||||||||||||||
(1)Excluded from the computation of diluted earnings per share of class A common stock because the effect of their inclusion would have been anti-dilutive since there was a net loss attributable to the Company during the period.
(2)Shares of class B common stock are considered potentially dilutive shares of class A common stock. Shares of class B common stock have been excluded from the computations of diluted (loss) earnings per share because the effect of their inclusion would have been anti-dilutive under the if-converted method.
(3)Excluded from the computation of diluted earnings per share of class A common stock because the exercise price of the stock options exceeded the average market price of the class A common stock during the period (out-of-the-money).
7. Income Taxes
For the three months ended September 30, 2022, the Company’s provision for income taxes and effective tax rates were $4.6 million and 209.6 %, respectively, compared to $4.0 million and (198.2 )%, respectively, for the three months ended September 30, 2021. The period-over-period change in the provision for income taxes was primarily related to a change in the mix of foreign income.
For the nine months ended September 30, 2022, the Company’s provision for income taxes and effective tax rates were $8.5 million and (3.5 )%, respectively, compared to $7.1 million and 14.8 %, respectively, for the nine months ended September 30, 2021. The period-over-period change in the provision for income taxes was primarily related to a change in the mix of foreign income and a discrete benefit as a result of the completion of an Internal Revenue Service examination and Joint Committee review of the 2012-2018 federal income tax returns, which enabled the Company to recognize previously unrecognized tax benefits.
As of September 30, 2019, the Company established a valuation allowance based upon all available objective and verifiable evidence both positive and negative, including historical levels of pre-tax income (loss) both on a consolidated basis and tax reporting entity basis, legislative developments, expectations and risks associated with estimates of future pre-tax income, and prudent and feasible tax planning strategies. The Company estimated that as of September 30, 2019, it had generated a cumulative consolidated three-year pre-tax loss, which continued as of December 31, 2021. As a result of the initial September 30, 2019 and December 31, 2021 analyses, the Company determined that it remained more likely than not that it would not realize the benefits of its gross deferred tax assets (“DTAs”) and, therefore, maintained its valuation allowance. As of December 31, 2021, this valuation allowance was $416.6 million, and it reduced the carrying value of these gross DTAs, net of the impact of the reversal of taxable temporary differences, to zero. As of September 30, 2022, based on its evaluation of available positive and negative evidence, the Company has maintained its position with respect to the valuation allowance.
The Company entered into a tax receivable agreement (“TRA”) for which it is generally required to pay the holders of Amneal Common Units 85 % of the applicable tax savings, if any, in U.S. federal and state income tax that it is deemed to realize as a result of certain tax attributes of their Amneal Common Units sold to the Company (or exchanged in a taxable sale) and that are created as a result of (i) the sales of their Amneal Common Units for shares of class A common stock and (ii) tax benefits
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attributable to payments made under the TRA. In conjunction with the valuation allowance recorded on the DTAs at September 30, 2019, the Company reversed the TRA liability.
The projection of future taxable income involves significant judgment. Actual taxable income may differ from the Company’s estimates, which could significantly impact the timing of the recognition of the contingent liability under the TRA. As noted above, the Company has determined it is more-likely-than-not it will be unable to utilize all of its DTAs subject to the TRA; therefore, as of September 30, 2022, the Company has not recognized the contingent liability under the TRA related to the tax savings it may realize from common units sold or exchanged. If utilization of these DTAs becomes more likely than not in the future, at such time, Amneal will recognize a liability under the TRA as a result of basis adjustments under Internal Revenue Code Section 754. As of both September 30, 2022 and December 31, 2021, the contingent liability associated with the TRA was approximately $206.3
The timing and amount of any payments under the TRA may vary depending upon a number of factors, including the timing and number of Amneal Common Units sold or exchanged for the Company's class A common stock, the price of the Company's class A common stock on the date of sale or exchange, the timing and amount of the Company's taxable income, and the tax rate in effect at the time of realization of the Company's taxable income (the TRA liability is determined based on a percentage of the corporate tax savings from the use of the TRA's attributes). Further sales or exchanges occurring subsequent to September 30, 2022 could result in future Amneal tax deductions and obligations to pay 85 % of such benefits to the holders of Amneal Common Units. These obligations could be incremental to and substantially larger than the approximate $206.3
Any future recognition of these TRA liabilities will be recorded through charges in the Company’s consolidated statements of operations. However, if the tax attributes are not utilized in future years, it is reasonably possible no amounts would be paid under the TRA. Should the Company determine that a DTA with a valuation allowance is realizable in a subsequent period, the related valuation allowance will be reversed and if a resulting TRA payment is determined to be probable, a corresponding TRA liability will be recorded.
The U.S. federal government has recently signed into law the Inflation Reduction Act of 2022 (the “IRA”) which, among other things, imposes a minimum “book” tax on certain large corporations and creates a new excise tax on stock repurchases made by certain publicly traded corporations after December 31, 2022. Although the Company continues to evaluate the impact of the IRA on its consolidated financial statements as it awaits further guidance, the Company does not currently expect a material impact.
8. Trade Accounts Receivable, Net
Trade accounts receivable, net was comprised of the following (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
| Gross accounts receivable | $ | $ | |||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Contract charge-backs and sales volume allowances | ( | ( | |||||||||
| Cash discount allowances | ( | ( | |||||||||
| Subtotal | ( | ( | |||||||||
| Trade accounts receivable, net | $ | $ | |||||||||
Concentration of Receivables
Trade accounts receivable from customers representing 10% or more of the Company’s total trade accounts receivable were as follows:
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| September 30, 2022 | December 31, 2021 | ||||||||||
| Customer A | % | % | |||||||||
| Customer B | % | % | |||||||||
| Customer C | % | % | |||||||||
9. Inventories
Inventories were comprised of the following (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
Raw materials | $ | $ | |||||||||
Work in process | |||||||||||
Finished goods | |||||||||||
| Total inventories | $ | $ | |||||||||
10. Fair Value Measurements
Fair value is the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Value is determined using pricing models, discounted cash flow methodologies, or similar techniques and also includes instruments for which the determination of fair value requires significant judgment or estimation.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification for each reporting period. The following table sets forth the Company’s financial assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 (in thousands):
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| Fair Value Measurement Based on | ||||||||||||||||||||||||||
| September 30, 2022 | Total | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
Interest rate swap asset (1) | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
Deferred compensation plan liabilities (2) | $ | $ | $ | $ | ||||||||||||||||||||||
Contingent consideration liabilities (3) | $ | $ | $ | $ | ||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
Interest rate swap liability (1) | $ | $ | $ | $ | ||||||||||||||||||||||
Deferred compensation plan liabilities (2) | $ | $ | $ | $ | ||||||||||||||||||||||
Contingent consideration liability (3) | $ | $ | $ | $ | ||||||||||||||||||||||
(1)The fair value measurement of the Company’s interest rate swap classified within Level 2 of the fair value hierarchy is a model-derived valuation as of a given date in which all significant inputs are observable in active markets including certain financial information and certain assumptions regarding past, present, and future market conditions. Refer to Note 11. Financial Instruments for information on the Company's interest rate swap.
(2)These liabilities are recorded at the value of the amount owed to the plan participants, with changes in value recognized as compensation expense. The calculation of the deferred compensation plan obligation is derived from observable market data by reference to hypothetical investments selected by the participants.
(3)The fair value measurement of contingent consideration liabilities has been classified as Level 3 recurring liabilities as the valuations require judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for various inputs, the estimated fair values could be higher or lower than what the Company determined. As of September 30, 2022, the contingent consideration liability associated with the Saol Acquisition included $0.4 million recorded in accounts payable and accrued expenses and $7.9 million recorded in other-longer term liabilities. As of September 30, 2022 and December 31, 2021, the contingent consideration liability associated with the KSP Acquisition was valued at approximately $4.9 million and $5.9 million, respectively, and recorded within related party payables - long term. Refer to Note 3. Acquisitions for additional information related to contingent consideration associated with the KSP Acquisition and the Saol Acquisition.
There were no transfers between levels in the fair value hierarchy during the nine months ended September 30, 2022.
Contingent consideration
On April 2, 2021, the Company completed the KSP Acquisition, which provides for contingent milestone payments of up to an aggregate of $8.0 million (undiscounted) upon the achievement of certain regulatory milestones, as well as contingent royalty payments that are tiered depending on the aggregate annual net sales for certain future pharmaceutical products.
On February 9, 2022, the Company completed the Saol Acquisition, which provides for contingent royalty payments that are tiered depending on the aggregate annual net sales for certain pharmaceutical products, beginning in 2023.
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| Nine Months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||||||||||||||
| Balance, beginning of period | $ | $ | ||||||||||||||||||
| Addition due to the Saol Acquisition | ||||||||||||||||||||
| Addition due to the KSP Acquisition | ||||||||||||||||||||
| Change in fair value during the period | ( | |||||||||||||||||||
| Balance, end of period | $ | $ | ||||||||||||||||||
The fair value measurement of the contingent consideration liabilities were determined based on significant unobservable inputs, including the discount rate, estimated probabilities of success, timing of achieving specified regulatory milestones and the estimated amount of future sales of the acquired products. The contingent consideration liabilities were estimated by applying a probability-weighted expected payment model for contingent milestone payments and Monte Carlo simulation models for contingent royalty payments, which were then discounted to present value. Changes to the fair values of the contingent consideration liabilities can result from changes to one or a number of the aforementioned inputs. If different assumptions were used for various inputs, the estimated fair value could be higher or lower than what the Company determined.
The following table summarizes the significant unobservable inputs used in the fair value measurement of our contingent consideration liabilities as of September 30, 2022:
| Contingent Consideration Liability | Fair Value as of September 30, 2022 (in thousands) | Unobservable input | Range | Weighted Average(1) | ||||||||||||||||||||||||||||
| Regulatory Milestones (KSP Acquisition) | $ | Discount rate | - | |||||||||||||||||||||||||||||
| Probability of payment | - | |||||||||||||||||||||||||||||||
| Projected year of payment | 2024 | - | 2027 | 2024 | ||||||||||||||||||||||||||||
| Royalties (KSP Acquisition) | $ | Discount rate | - | |||||||||||||||||||||||||||||
| Probability of payment | - | |||||||||||||||||||||||||||||||
| Projected year of payment | 2024 | - | 2032 | 2029 | ||||||||||||||||||||||||||||
| Royalties (Saol Acquisition) | $ | Discount rate | - | |||||||||||||||||||||||||||||
| Projected year of payment | 2023 | - | 2033 | 2025 | ||||||||||||||||||||||||||||
(1) Unobservable inputs were weighted by the relative fair value of each product candidate acquired.
Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
The carrying amounts of cash, accounts receivable and accounts payable approximate their fair values due to the short-term maturity of these instruments.
The Term Loan, as defined in Note 17. Debt in the Company’s 2021 Annual Report on Form 10-K, is in the Level 2 category within the fair value level hierarchy. The fair value was determined using market data for valuation. The fair value of the Term Loan at September 30, 2022 was approximately $2.1 billion as compared to approximately $2.6 billion at December 31, 2021.
The Rondo Term Loan, as defined in Note 17. Debt in the Company’s 2021 Annual Report on Form 10-K, is in the Level 2 category within the fair value level hierarchy. The fair value of the Rondo Term Loan at September 30, 2022 and December 31, 2021 was $80.8 million and $139.0 million, respectively.
The Sellers Notes are in the Level 2 category within the fair value level hierarchy. The fair value of the Sellers Notes at September 30, 2022 and December 31, 2021 was $38.7 million and $38.0 million, respectively.
Refer to Note 17. Debt in our 2021 Annual Report on Form 10-K for detailed information about our indebtedness, including definitions of terms.
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Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
There were no non-recurring fair value measurements during the nine months ended September 30, 2022 and 2021.
11. Financial Instruments
The Company uses an interest rate swap to manage its exposure to market risks for changes in interest rates.
Interest Rate Risk
Interest income earned on cash and cash equivalents may fluctuate as interest rates change; however, due to their relatively short maturities, the Company does not hedge these assets or their investment cash flows because the impact of interest rate risk is not material. The Company is exposed to interest rate risk on its debt obligations. The Company's debt obligations consist of variable-rate and fixed-rate debt instruments. The Company's primary objective is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. In order to achieve this objective, the Company has entered into an interest rate swap on the Term Loan.
Interest Rate Derivative – Cash Flow Hedge
The interest rate swap involves the periodic exchange of payments without the exchange of underlying principal or notional amounts. In October 2019, the Company entered into an interest rate lock agreement for a total notional amount of $1.3 billion to hedge part of the Company's interest rate exposure associated with the variability in future cash flows from changes in the one-month LIBOR associated with the Term Loan.
As of September 30, 2022, the total gain, net of income taxes, related to the Company’s cash flow hedge was $88.9 million, of which $44.0 million was recognized in accumulated other comprehensive income and $44.9 million was recognized in non-controlling interests.
A summary of the fair values of derivative instruments in the consolidated balance sheets was as follows (in thousands):
| September 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Derivatives Designated as Hedging Instruments | Balance Sheet Classification | Fair Value | Balance Sheet Classification | Fair Value | ||||||||||||||||||||||
| Variable-to-fixed interest rate swap | Other assets | $ | Other long-term liabilities | $ | ||||||||||||||||||||||
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12. Goodwill and Other Intangible Assets
The changes in goodwill for the nine months ended September 30, 2022 and for the year ended December 31, 2021 were as follows (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
| Balance, beginning of period | $ | $ | |||||||||
| Goodwill acquired during the period | |||||||||||
| Adjustment during the period for Puniska Acquisition | |||||||||||
| Currency translation | ( | ( | |||||||||
| Balance, end of period | $ | $ | |||||||||
As of September 30, 2022, $366.3 million, $163.7 million, and $69.5 million of goodwill was allocated to the Specialty, Generics, and AvKARE segments, respectively. As of December 31, 2021, $363.9 million, $159.6 million, and $69.5 million of goodwill was allocated to the Specialty, Generics, and AvKARE segments, respectively. For the nine months ended September 30, 2022, goodwill acquired during the period was associated with the Saol Acquisition. For the year ended December 31, 2021, goodwill acquired during the period was associated with the Puniska Acquisition and the KSP Acquisition. Refer to Note 3. Acquisitions for additional information.
Intangible assets at September 30, 2022 and December 31, 2021 were comprised of the following (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Weighted-Average Amortization Period (in years) | Cost | Accumulated Amortization | Net | Cost | Accumulated Amortization | Net | |||||||||||||||||||||||||||||||||||
Amortizing intangible assets: | |||||||||||||||||||||||||||||||||||||||||
| Product rights | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Other intangible assets | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Subtotal | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
In-process research and development | |||||||||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
During the nine months ended September 30, 2022, the Company recognized $83.8 million of marketed product rights intangible assets associated with the purchase price allocation of the Saol Acquisition. During the nine months ended September 30, 2021, the Company recognized $56.4 million of intangible assets associated with the purchase price allocation of the KSP Acquisition, consisting of $29.4 million of marketed product rights and $27.0 million of IPR&D. Product rights are amortized to cost of goods sold over their estimated useful lives. Refer to Note 3. Acquisitions for additional information on the purchase price allocation associated with the Saol Acquisition and the final purchase price allocation associated with the KSP Acquisition.
Amortization expense related to intangible assets was as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Amortization | $ | $ | $ | $ | |||||||||||||||||||
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The following table presents future amortization expense for the next five years and thereafter, excluding $405.4 million of IPR&D intangible assets (in thousands):
| Future Amortization | |||||
| Remainder of 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total | $ | ||||
The Company reviews intangible assets with finite lives for recoverability whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. Indefinite-lived intangible assets, including IPR&D, are tested for impairment if impairment indicators arise and, at a minimum, annually.
For the three and nine months ended September 30, 2022, the Company recognized $0.7 million and $5.8 million, respectively, of intangible asset impairment charges, which were recognized in cost of goods sold impairment charges. The impairment charge for the three months ended September 30, 2022 was related to a product that is no longer expected to be sold to a key customer, and therefore the asset is not expected to be recoverable. The impairment charges for the nine months ended September 30, 2022 relates to the aforementioned charge, and a marketed product that experienced significant price erosion without an offsetting increase in customer demand, resulting in significantly lower than expected future margins.
For the three months ended September 30, 2021, the Company recognized $0.7 million of intangible asset impairments, which were recognized in cost of goods sold impairment charges. The impairment charges were related to two marketed products, which experienced significant price erosion during 2021.
13. Commitments and Contingencies
Commitments
Commercial Manufacturing, Collaboration, License, and Distribution Agreements
The Company continues to seek to enhance its product line and develop a balanced portfolio of differentiated products through product acquisitions and in-licensing. Accordingly, the Company, in certain instances, may be contractually obligated to make potential future development, regulatory, and commercial milestone, royalty and/or profit-sharing payments in conjunction with collaborative agreements or acquisitions that the Company has entered with third parties. The Company has also licensed certain technologies or intellectual property from various third parties. The Company is generally required to make upfront payments as well as other payments upon successful completion of regulatory or sales milestones. The agreements generally permit the Company to terminate the agreement with no significant continuing obligation. The Company could be required to make significant payments pursuant to these arrangements. These payments are contingent upon the occurrence of certain future events and, given the nature of these events, it is unclear when, if ever, the Company may be required to pay such amounts. Further, the timing of any future payment is not reasonably estimable. Refer to Note 5. Alliance and Collaboration for additional information. Certain of these arrangements are with related parties. Refer to Note 15. Related Party Transactions for additional information.
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Contingencies
Legal Proceedings
The Company's legal proceedings are complex, constantly evolving, and subject to uncertainty. As such, the Company cannot predict the outcome or impact of its significant legal proceedings which are set forth below. Additionally, the Company manufactures and derives a portion of its revenue from the sale of pharmaceutical products in the opioid class of drugs and may therefore face claims arising from the regulation and/or consumption of such products. While the Company believes it has meritorious claims and/or defenses to the matters described below (and intends to vigorously prosecute and defend them), the nature and cost of litigation is unpredictable, and an unfavorable outcome of such proceedings could include damages, fines, penalties and injunctive or administrative remedies. For any proceedings where losses are probable and reasonably capable of estimation, the Company accrues a potential loss. When the Company has a probable loss for which a reasonable estimate of the liability is a range of losses and no amount within that range is a better estimate than any other amount, the Company records the loss at the low end of the range. While these accruals have been deemed reasonable by the Company’s management, the assessment process relies heavily on estimates and assumptions that may ultimately prove inaccurate or incomplete. Additionally, unforeseen circumstances or events may lead the Company to subsequently change its estimates and assumptions. Unless otherwise indicated below, the Company is unable at this time to estimate the possible loss or the range of loss, if any, associated with such legal proceedings and claims. Any such claims, proceedings, investigations or litigation, regardless of the merits, might result in substantial costs to defend or settle, borrowings under our debt agreements, restrictions on product use or sales, or otherwise harm our business. The ultimate resolution of any or all claims, legal proceedings or investigations are inherently uncertain and difficult to predict, could differ materially from our estimates and could have a material adverse effect on the Company's results of operations and/or cash flows in any given accounting period, or on the Company's overall financial condition. The Company currently intends to vigorously prosecute and/or defend these proceedings as appropriate. From time to time, however, the Company may settle or otherwise resolve these matters on terms and conditions that it believes to be in its best interest. An insurance recovery, if any, is recorded in the period in which it is probable the recovery will be realized.
Charges (insurance recoveries) related to legal matters, net were comprised of the following (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Opana ER® antitrust litigation | $ | $ | $ | $ | |||||||||||||||||||
| Securities class action - Cambridge Retirement System v. Amneal | ( | ||||||||||||||||||||||
| Galeas v. Amneal | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
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Liabilities for legal matters were comprised of the following (in thousands):
| Matter | September 30, 2022 | December 31, 2021 | |||||||||
Opana ER® Antitrust Litigation(1) | $ | $ | |||||||||
| Opana ER® Antitrust Litigation - Accrued Interest | |||||||||||
Securities Class Action - Fleming v. Impax(2) | |||||||||||
Securities Class Action - Cambridge Retirement System v. Amneal(2) | |||||||||||
| Galeas vs. Amneal | |||||||||||
Other | |||||||||||
| Current portion of liabilities for legal matters | $ | $ | |||||||||
| Opana ER® Antitrust Litigation | $ | $ | |||||||||
| Imputed interest | ( | ||||||||||
| Accrued interest | |||||||||||
| Long-term portion of liabilities for legal matters (included in other long-term liabilities) | $ | $ | |||||||||
(1) During June 2022 and July 2022, the Company paid $100.0 million and $15.0 million, respectively, into a settlement escrow account, of which $73.0 million remains as of September 30, 2022 after payment of $42.0 million in court-approved claims from the escrow account to certain plaintiffs during July 2022.
As of September 30, 2022, the remaining payments associated with the Opana ER® antitrust litigation settlement agreements and the Preliminary Settlement Agreements (as defined below) are as follows:
| Amount Due | ||||||||
| December 2022 | $ | |||||||
| January 2023 | ||||||||
| January 2024 | ||||||||
| Add: Escrow account balance as of September 30, 2022 | ||||||||
| Undiscounted liability as of September 30, 2022 | $ | |||||||
As noted above, payments made with respect to litigation that has not been finally settled are recorded as escrow deposit assets. Upon final approval by the court, escrow deposit assets funded by the Company and its insurers will be used to satisfy the associated accrued liabilities. Refer to Note 17. Prepaid Expenses and Other Current Assets for additional information on settlement escrow deposits.
Refer to the respective discussions below for additional information on the significant matters in the tables above.
Medicaid Reimbursement and Price Reporting Matters
The Company is required to provide pricing information to state agencies, including agencies that administer federal Medicaid programs. Certain state agencies have alleged that manufacturers have reported improper pricing information, which allegedly caused them to overpay reimbursement costs. Other agencies have alleged that manufacturers have failed to timely file required reports concerning pricing information. Liabilities are periodically established by the Company for any potential claims or settlements of overpayment. The Company intends to vigorously defend against any such claims. The ultimate settlement of any potential liability for such claims may be higher or lower than estimated.
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Patent Litigation
There is substantial litigation in the pharmaceutical, biological, and biotechnology industries with respect to the manufacture, use, and sale of new products which are the subject of conflicting patent and intellectual property claims. One or more patents often cover the brand name products for which the Company is developing generic versions and the Company typically has patent rights covering the Company’s branded products.
Under federal law, when a drug developer files an Abbreviated New Drug Application (“ANDA”) for a generic drug seeking approval before expiration of a patent which has been listed with the FDA as covering the brand name product, the developer must certify its product will not infringe the listed patent(s) and/or the listed patent is invalid or unenforceable (commonly referred to as a “Paragraph IV” certification). Notices of such certification must be provided to the patent holder, who may file a suit for patent infringement within 45 days of the patent holder’s receipt of such notice. If the patent holder files suit within the 45-day period, the FDA can review and tentatively approve the ANDA, but generally is prevented from granting final marketing approval of the product until a final judgment in the action has been rendered in favor of the generic drug developer, or 30 months from the date the notice was received, whichever is sooner. The Company’s Generics segment is typically subject to patent infringement litigation brought by branded pharmaceutical manufacturers in connection with the Company’s Paragraph IV certifications seeking an order delaying the approval of the Company’s ANDA until expiration of the patent(s) at issue in the litigation.
When a drug developer files an Abbreviated Biologics License Application (“aBLA”) seeking approval to manufacture and market a biosimilar product, there are also procedures in place to resolve patent disputes early in the process if the parties choose to do so. To engage these legal provisions, an aBLA filer must produce a copy of the aBLA and relevant manufacturing information to the reference drug manufacturer shortly after the FDA accepts the aBLA for filing. This triggers what is termed the “patent dance” and begins a series of exchanges that will ultimately define the scope of a resulting patent litigation related to the product that is the subject of the aBLA. Notably, 60 days after receiving the aBLA and manufacturing information, the Biologics Application sponsor must provide a list of patents that are potentially infringed by the aBLA product. Within 60 days of receiving that list, the aBLA filer must provide its positions of why the disclosed patents are invalid or will not be infringed by the aBLA product. The patent owner can then respond to the non-infringement and invalidity positions, and the parties will negotiate the scope of litigation related to the disclosed patents. This “patent dance” is optional, but can provide certainty regarding the scope of litigation and can be valuable in settlement negotiations. If the parties do not resolve the dispute over the course of the “patent dance”, the case will proceed to patent litigation. There is no stay of FDA approval for biosimilar products, providing opportunities for the aBLA filer to launch while litigation is pending, which need to be carefully assessed.
The uncertainties inherent in patent litigation make the outcome of such litigation difficult to predict. For the Company’s Generics segment, the potential consequences in the event of an unfavorable outcome in such litigation include delaying the launch of its generic products until patent expiration. If the Company were to launch its generic product prior to successful resolution of a patent litigation, the Company could be liable for potential damages measured by the profits lost by the branded product manufacturer rather than the profits earned by the Company if it is found to infringe a valid, enforceable patent, or enhanced treble damages in cases of willful infringement. For the Company’s Specialty segment, an unfavorable outcome may significantly accelerate generic competition ahead of expiration of the patents covering the Company’s branded products. All such litigation typically involves significant expense.
The Company is generally responsible for all the patent litigation fees and costs associated with current and future products not covered by its alliance and collaboration agreements. The Company has agreed to share legal expenses with respect to third-party and Company products under the terms of certain of the alliance and collaboration agreements. The Company records the costs of patent litigation as expense in the period when incurred for products it has developed, as well as for products which are the subject of an alliance or collaboration agreement with a third-party.
Patent Defense Matter
Biogen International GMBH, et al. v. Amneal Pharmaceuticals LLC, et al. (Dimethyl Fumarate)
In June 2017, Biogen International GMBH (“Biogen”) filed suit against Amneal and various other generic manufacturers in the United States District Court for the District of Delaware (“D. Del.”) alleging patent infringement based on the filing of ANDAs by Amneal and others for generic alternatives to Biogen’s Tecfidera® (dimethyl fumarate) capsules product (Biogen International GMBH, et al. v. Amneal Pharmaceuticals LLC, et al., No. 1:17-cv-00823-MN). Biogen also filed suit in June 2017 against Mylan Pharmaceuticals Inc. (“Mylan”) in the United States District Court for the Northern District of West Virginia (“N.D. W. Va.”) relating to Mylan’s own ANDA for Tecfidera®. On June 18, 2020, the N.D. W. Va. court issued an
30
order finding the sole Biogen patent at issue invalid. Biogen appealed the order (the “Mylan Appeal”) to the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”). On September 22, 2020, the D. Del. court entered judgment in favor of the defendants (including Amneal), adopting the finding of invalidity made by the N.D. W. Va. court. Biogen appealed the D. Del. Order (“the Amneal Consolidated Appeal”).
Amneal, like Mylan and several other generic manufacturers, launched its generic dimethyl fumarate capsule products “at-risk,” pending the outcome of Biogen’s appeal of the N.D. W. Va. order.
On November 30, 2021, the Federal Circuit affirmed the N.D. W. Va. court’s order that Biogen’s patent is invalid: on March 23, 2022, issued a mandate in the Mylan Appeal as to the invalidity of the patent; and on June 16, 2022, Biogen filed a cert petition with the Supreme Court of the United States (the “U.S. Supreme Court”) which was denied on October 3, 2022. On October 31, 2022, the Federal Circuit dismissed Biogen’s consolidated appeals.
Other Litigation Related to the Company’s Business
Opana ER® FTC Matters
On February 25, 2014, Impax received a Civil Investigative Demand (“CID”) from the Federal Trade Commission (“FTC”) concerning its investigation into the drug Opana® ER and its generic equivalents. On March 30, 2016, the FTC filed a complaint against Impax, Endo Pharmaceuticals Inc. (“Endo”), and others in the United States District Court for the Eastern District of Pennsylvania, alleging that Impax and Endo violated antitrust laws when they entered into a June 2010 settlement agreement that resolved patent litigation in connection with the submission of Impax’s ANDA for generic original Opana® ER. In October 2016, the Court granted Impax’s motion to sever, formally terminating the suit against Impax. In January 2017, the FTC filed a Part 3 Administrative Complaint against Impax with similar allegations regarding the 2010 settlement. Following trial, in May 2018, the Administrative Law Judge ruled in favor of Impax and dismissed the Complaint in its entirety. FTC Complaint Counsel appealed the decision to the full Commission, and in March 2019, the FTC issued an Opinion & Order reversing the Administrative Law Judge’s decision. The Opinion & Order did not provide for any monetary damages but prevented Impax from entering into future agreements containing certain terms. Impax filed a Petition for Review of the FTC’s Opinion & Order with the United States Court of Appeals for the Fifth Circuit, and on April 13, 2021, the Fifth Circuit issued a decision denying Impax’s Petition for Review, effectively affirming the FTC’s Opinion & Order. On September 10, 2021, Impax filed a petition for writ of certiorari in the U.S. Supreme Court, which was denied in December 2021.
On July 12, 2019, the Company received a CID from the FTC concerning an August 2017 settlement agreement between Impax and Endo, which resolved a subsequent patent infringement and breach of contract dispute between the parties regarding the above-referenced June 2010 settlement agreement related to Opana® ER. The Company cooperated with the FTC regarding the CID. On January 25, 2021, the FTC filed a complaint against Endo, Impax and Amneal in the United States District Court for the District of Columbia, alleging that the 2017 settlement violated antitrust laws. In April 2021, the Company filed a motion to dismiss the FTC’s complaint, which the District Court granted on March 24, 2022. The FTC appealed the District Court’s decision in May 2022, which appeal remains pending. The Company believes it has strong defenses to the FTC’s allegations and intends to vigorously defend the action, however, no assurance can be given as to the timing or outcome of the litigation.
Opana ER® Antitrust Litigation
From June 2014 to April 2015, several complaints styled as class actions on behalf of direct purchasers and indirect purchasers (or end-payors) and several separate individual complaints on behalf of certain direct purchasers (the “opt-out plaintiffs”) of Opana ER® were filed against Endo and Impax.
In December 2014, the United States Judicial Panel on Multidistrict Litigation (the “JPML”) transferred the actions to the United States District Court for the Northern District of Illinois (“N.D. Ill.”) for coordinated pretrial proceedings, as In Re: Opana ER Antitrust Litigation (MDL No. 2580) (“MDL”). In each case, the complaints allege that Endo engaged in an anticompetitive scheme by, among other things, entering into an anticompetitive settlement agreement with Impax to delay generic competition of Opana ER® and in violation of state and federal antitrust laws. Plaintiffs seek, among other things, unspecified monetary damages, and equitable relief, including disgorgement and restitution.
In June 2022, Impax entered into a preliminary settlement agreement with the class of direct purchasers that, if all conditions are satisfied, would result in the resolution of substantially all the direct purchasers’ and individual complainants’ underlying claims and lawsuits in the MDL. At the same time, Impax entered into a settlement agreement with individual complainants that resolved all of their claims and lawsuits in the MDL. Subsequently, Impax entered into a separate preliminary settlement agreement with the class of indirect purchasers that, if all conditions are satisfied, would result in the resolution of substantially all the indirect purchasers’ underlying claims and lawsuits in the MDL. The preliminary settlement agreements are referred to herein collectively as the “Preliminary Settlement Agreements,” and the direct purchaser plaintiffs, indirect purchaser plaintiffs,
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and individual complainants are referred to herein collectively as “the Plaintiffs.” On November 3, 2022, the N.D. Ill. approved the direct purchasers’ settlement.
Pursuant to the settlement agreements, the Company has agreed to pay a total of $265.0 million between 2022 and mid-January 2024 to resolve substantially all the Plaintiffs’ claims. 3 % interest is due on $150.0 million payable between December 2022 and mid-January 2024. The settlement agreements are not an admission of liability or fault by Impax, the Company or its subsidiaries, and with respect to the Preliminary Settlement Agreements between Impax and the purported classes of (i) direct purchaser plaintiffs and (ii) indirect purchaser plaintiffs, they are subject to court approval. Upon satisfaction of the relevant pre-conditions, including but not limited to court approval of the final settlement agreements, substantially all the claims and lawsuits in the litigation will have been resolved. During the nine months ended September 30, 2022, the Company recorded a pre-tax charge of $262.8 2.2 million will be recognized to interest expense during the payment period.
Sergeants Benevolent Association Health & Welfare Fund v. Actavis, PLC, et. al.
In August 2015, a complaint styled as a class action was filed against Forest Laboratories (a subsidiary of Actavis plc) and numerous generic drug manufacturers, including Amneal, in the United States District Court for the Southern District of New York involving patent litigation settlement agreements between Forest Laboratories and the generic drug manufacturers concerning generic versions of Forest’s Namenda IR product. The complaint (as amended on February 12, 2016) asserts federal and state antitrust claims on behalf of indirect purchasers, who allege in relevant part that during the class period they indirectly purchased Namenda® IR or its generic equivalents in various states at higher prices than they would have absent the defendants’ allegedly unlawful anticompetitive conduct. Plaintiff seeks, among other things, unspecified monetary damages, and equitable relief, including disgorgement and restitution. On September 13, 2016, the Court stayed the indirect purchaser plaintiff’s claims pending factual development or resolution of claims brought in a separate, related complaint by direct purchasers (in which the Company is not a defendant). On September 10, 2018, the Court lifted the stay and referred the case to the assigned Magistrate Judge for supervision of supplemental, non-duplicative discovery in advance of mediation to be scheduled in 2019. The parties thereafter participated in supplemental discovery, as well as supplemental motion-to-dismiss briefing. On December 26, 2018, the Court granted in part and denied in part motions to dismiss the indirect purchaser plaintiff’s claims. On January 7, 2019, Amneal, its relevant co-defendants, and the indirect purchaser plaintiff informed the Magistrate Judge that they had agreed to mediation, which occurred in April 2019. In June 2019, the Company reached a settlement with the plaintiff, subject to Court approval. On September 10, 2019, the Court entered an order preliminarily approving the settlement and indefinitely staying the case as to the settling defendants (including the Company), until the disposition of the claims against the non-settling defendants. The remaining defendants have recently settled with the plaintiff. All parties will file proposed materials seeking final approval of the settlements and to finally resolve the case on November 8, 2022, after which time the settlement will be subject to final approval from the Court. The amount of the settlement was not material to the Company's consolidated financial statements.
Attorney General of the State of Connecticut Interrogatories and Subpoena Duces Tecum
On July 14, 2014, Impax received a subpoena and interrogatories from the State of Connecticut Attorney General (“Connecticut AG”) concerning its investigation into sales of Impax's generic product, digoxin. According to the Connecticut AG, the investigation concerned whether anyone engaged in a contract, combination, or conspiracy in restraint of trade or commerce which had the effect of (i) fixing, controlling, or maintaining prices or (ii) allocating or dividing customers or territories relating to the sale of digoxin. Impax cooperated in the investigation and produced documents and information in response to the subpoena in 2014 and 2015. However, no assurance can be given as to the timing or outcome of this investigation.
United States Department of Justice Investigations
On November 6, 2014, Impax disclosed that one of its sales representatives received a grand jury subpoena from the Antitrust Division of the United States Department of Justice (the “DOJ”). On March 13, 2015, Impax received a grand jury subpoena from the DOJ requesting the production of information and documents regarding the sales, marketing, and pricing of four generic prescription medications. Impax has cooperated in the investigation and produced documents and information in response to the subpoenas from 2014 to 2016. However, no assurance can be given as to the timing or outcome of the investigation.
On April 30, 2018, Impax received a CID from the Civil Division of the DOJ (the “Civil Division”). The CID requests the production of information and documents regarding the pricing and sale of Impax’s pharmaceuticals and interactions with other generic pharmaceutical manufacturers regarding whether generic pharmaceutical manufacturers engaged in market allocation and price-fixing agreements, paid illegal remuneration, and caused false claims to be submitted to the federal government.
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Impax has cooperated with the Civil Division’s investigation. However, no assurance can be given as to the timing or outcome of the investigation.
In Re Generic Pharmaceuticals Pricing Antitrust Litigation
Since March 2016, multiple putative antitrust class action complaints have been filed on behalf of direct purchasers, indirect purchasers (or end-payors), and indirect resellers, as well as individual complaints on behalf of certain direct and indirect purchasers, and municipalities (the “opt-out plaintiffs”) against manufacturers of generic drugs, including Impax and the Company. The complaints allege a conspiracy to fix, maintain, stabilize, and/or raise prices, rig bids, and allocate markets or customers for various generic drugs in violation of federal and state antitrust and consumer protection laws. Plaintiffs seek unspecified monetary damages and equitable relief, including disgorgement and restitution. The lawsuits have been consolidated in an MDL in the United States District Court for the Eastern District of Pennsylvania (In re Generic Pharmaceuticals Pricing Antitrust Litigation, No. 2724, (E.D. Pa.)).
On May 10, 2019, Attorneys General of 43 States and the Commonwealth of Puerto Rico filed a complaint in the United States District Court for the District of Connecticut against various manufacturers and individuals, including the Company, alleging a conspiracy to fix, maintain, stabilize, and/or raise prices, rig bids, and allocate markets or customers for multiple generic drugs. On November 1, 2019, the State Attorneys General filed an Amended Complaint on behalf of nine additional states and territories. On June 10, 2020, Attorneys General of 46 States, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Territory of Guam, the U.S. Virgin Islands, and the District of Columbia filed a new complaint against various manufacturers and individuals, including the Company, alleging a conspiracy to fix prices, rig bids, and allocate markets or customers for additional generic drugs. Plaintiff States seek unspecified monetary damages and penalties and equitable relief, including disgorgement and restitution. On September 9, 2021, the State Attorneys General filed an Amended Complaint on behalf of California in addition to the original Plaintiff States. On March 30, 2022, the State of Alabama voluntarily dismissed all its claims in the May 10, 2019 and June 10, 2020 actions against all defendants, including the Company, without prejudice. These lawsuits have been incorporated into MDL No. 2724. Fact and document discovery in MDL No. 2724 are proceeding. In May 2021, the court issued a revised order designating certain plaintiffs’ complaints regarding two generic drug products to proceed as bellwether cases, along with the Plaintiff States’ June 10, 2020, complaint involving the Company. No final scheduling order has yet been issued for this matter.
On June 3, 2020, the Company and Impax were also named in a putative class action complaint filed in the Federal Court of Canada in Toronto, Ontario against numerous generic pharmaceutical manufacturers, on behalf of a putative class of individuals who purchased generic drugs in the private sector from 2012 to the present (Kathryn Eaton v. Teva Canada Limited, et. al., No. T-607-20). The complaint alleges price fixing, among other claims. On August 23, 2022, plaintiff filed a second amended complaint. The case has otherwise not progressed to date.
Prescription Opioid Litigation
The Company and certain of its affiliates have been named as defendants in various matters filed in state and federal courts relating to the sale of prescription opioid pain relievers. Plaintiffs in these actions include state Attorneys General, county and municipal governments, hospitals, Indian tribes, pension funds, third-party payors, and individuals. Plaintiffs seek unspecified monetary damages and other forms of relief based on various causes of action, including negligence, public nuisance, unjust enrichment, and civil conspiracy, as well as alleged violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), state and federal controlled substances laws and other statutes. All cases involving the Company also name other manufacturers, distributors and retail pharmacies as defendants, and there are numerous other cases involving allegations relating to prescription opioid pain relievers against other manufacturers, distributors, and retail pharmacies in which the Company and its affiliates are not named.
Nearly all cases pending in federal district courts have been consolidated for pre-trial proceedings in an MDL in the United States District Court for the Northern District of Ohio (In re: National Prescription Opiate Litigation, Case No. 17-mdl-2804). There are approximately 915 cases in the MDL in which the Company or its affiliates have been named as defendants. The Company is also named in approximately 119 state court cases pending in eleven states. The Company has filed motions to dismiss in many of these cases. No firm trial dates have been set except in Alabama (July 24, 2023). The Company is not involved in the September 2022 trial in New Mexico previously reported because of the tentative settlement the Company reached with the New Mexico Attorney General in May 2022 to resolve the New Mexico Attorney General’s claims against the Company. The Company anticipates a final determination regarding approval to be made following the trial as to the plaintiff’s claims against the non-settling defendants.
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On August 3, 2022, the Company and certain of its affiliates were named as defendants in a Complaint filed in Tennessee state court, along with numerous other manufacturers, distributors, retailers, and healthcare providers, in which it is alleged the defendants are liable in civil damages to six minors who allegedly were born with neonatal abstinence syndrome (“NAS”) allegedly as a result of their biological mothers’ alleged use of diverted prescription opioid medications. The plaintiffs’ claim against each defendant in that case requires plaintiffs to prove by clear and convincing evidence that the defendant intentionally participated in Tennessee in that state’s illegal drug market as defined in the Tennessee Drug Dealer Liability Act. The Company intends to file a motion to dismiss the complaint. The Company also was named in two NAS cases in West Virginia state court which have been consolidated with other West Virginia state court NAS cases before the West Virginia Mass Litigation Panel (“WV MLP”). All NAS cases before the WV MLP have been stayed through December 30, 2022. On November 1, 2022, the Company entered into a preliminary settlement agreement to resolve all pending litigation brought by West Virginia political subdivisions.
Securities Class Actions
On April 17, 2017, New York Hotel Trades Council & Hotel Association of New York City, Inc. Pension Fund filed an amended putative class action complaint in the United States District Court for the Northern District of California against Impax and four former Impax officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 (Fleming v. Impax Laboratories Inc., et al., No. 4:16-cv-6557-HSG). Plaintiff alleges that Impax (1) concealed collusion with competitors to fix the price of the generic drug digoxin; (2) concealed anticipated erosion in the price of generic drug diclofenac; and (3) overstated the value of the generic drug budesonide. In June 2021, Plaintiffs (New York Hotel Trades Council & Hotel Association of New York City, Inc. Pension Fund, and Sheet Metal Workers’ Pension Fund of Southern California, Arizona and Nevada, who had filed various motions to intervene as a plaintiff in the case) and defendants reached a tentative agreement to settle all claims in the case for $33.0 million, subject to certain terms and conditions and subject to court approval. The district court entered an order granting preliminary approval of the settlement on November 22, 2021 and held a fairness hearing on March 31, 2022. On July 15, 2022, the district court entered an order granting final approval of the settlement. On July 21, 2022, a stipulated final judgment was entered, effectively terminating this matter before the district court. The settlement was fully covered by insurance and was paid from an escrow account (refer to Note 17. Prepaid Expenses and Other Current Assets for amounts deposited into a settlement escrow account).
On December 18, 2019, Cambridge Retirement System filed a putative class action complaint in the Superior Court of New Jersey, Somerset County against the Company and certain current or former officers alleging violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (Cambridge Retirement System v. Amneal Pharmaceuticals, Inc., et al., No. SOM-L-1701-19). Plaintiffs allege that the May 7, 2018, amended registration statement and prospectus issued in connection with the Amneal/Impax business combination was materially false and/or misleading because it failed to disclose that Amneal allegedly engaged in anticompetitive conduct to fix generic drug prices. Plaintiffs filed a motion for class certification on October 30, 2020, and in April 2021 filed a second amended complaint including similar allegations regarding a November 2017 registration statement and prospectus issued in connection with the Amneal/Impax business combination. In February 2022, the parties reached a tentative agreement to settle the claims, subject to, among other things, the negotiation and court approval of a definitive settlement agreement. On March 28, 2022, the parties executed a settlement agreement for $25.0 million. On April 29, 2022, the court preliminarily approved the settlement. On August 16, 2022, the court gave final approval to the settlement. For the nine months ended September 30, 2022, the Company recorded insurance recoveries of $15.5 million related to this case. The final settlement for $25.0 million was paid from an escrow account which was funded both by insurance recoveries of $15.5 million and cash paid by the Company of $9.5 million (refer to Note 17. Prepaid Expenses and Other Current Assets for amounts deposited into a settlement escrow account).
United States Department of Justice / Drug Enforcement Administration Subpoenas
On July 7, 2017, Amneal Pharmaceuticals of New York, LLC received an administrative subpoena issued by the Long Island, NY District Office of the Drug Enforcement Administration (the “DEA”) requesting information related to compliance with certain recordkeeping and reporting requirements. On or about April 12, 2019 and May 28, 2019, the Company received grand jury subpoenas from the U.S. Attorney’s Office for the Eastern District of New York (the “USAO”) relating to similar topics concerning the Company’s suspicious order monitoring program and its compliance with the Controlled Substances Act. The Company is cooperating with the USAO in responding to the subpoenas and has entered civil and criminal amended tolling agreements with the USAO through approximately November 14, 2022. It is not currently possible to determine the exact outcome of these investigations.
On March 14, 2019, Amneal received a subpoena (the “Subpoena”) from the U.S. Attorney’s Office for the Southern District of Florida. The Subpoena requests information and documents generally related to the marketing, sale, and distribution of
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oxymorphone. The Company has cooperated and produced documents in response to the Subpoena. However, no assurance can be given as to the timing or outcome of the underlying investigation.
On October 7, 2019, Amneal received a subpoena from the New York State Department of Financial Services seeking documents and information related to sales of opioid products in the state of New York. The Company is cooperating with the request and providing responsive information. It is not currently possible to determine the exact outcome of this investigation.
Ranitidine Litigation
The Company and its affiliates have been named as defendants, along with numerous other pharmaceutical manufacturers, wholesale distributors, and retail pharmacy chains, in In re Zantac/Ranitidine NDMA Litigation (MDL No. 2924), pending in the Southern District of Florida. Plaintiffs allege that defendants failed to disclose and/or concealed the alleged inherent presence of N-Nitrosodimethylamine (or “NDMA”) in brand-name Zantac® or generic ranitidine and the alleged associated risk of cancer. Consolidated groups of (a) personal injury plaintiffs, (b) economic loss/medical monitoring class action plaintiffs, and (c) third-party payor plaintiffs have each filed master complaints against brand and generic pharmaceutical manufacturers, distributors, retailers, and repackagers of ranitidine-containing products. The Company or its affiliates have been named in the three master complaints and approximately 313 personal injury short form complaints. On December 31, 2020, the Court dismissed in full the three master complaints against the generic manufacturers, including the Company and its affiliates, with leave to file amended complaints on certain claims relating to manufacturing, storage, and transportation. Plaintiffs filed amended complaints in February 2021, and Defendants filed various motions to dismiss the amended complaints in March 2021. On July 8, 2021, the MDL dismissed all claims against the generic drug manufacturers, including the Company and its affiliates, without leave to file further amended complaints. Plaintiffs have appealed the MDL court’s dismissal to the 11th Circuit Court of Appeals, which has consolidated the appeals of the personal injury cases. The 11th Circuit Court of Appeals has not established a briefing schedule yet in personal injury cases appeals.
On June 18, 2020, Amneal was named in a lawsuit filed in New Mexico brought by the New Mexico Attorney General alleging claims of public nuisance, negligence, and violations of consumer protection laws against various brand and generic manufacturers and store-brand distributors of Zantac®/Ranitidine. Plaintiff seeks unspecified compensatory and punitive damages, as well as abatement, medical monitoring, restitution, and injunctive relief. The Company filed a motion to dismiss on May 17, 2021, and filed a notice of supplemental authority based on the MDL court’s July 2021 dismissal order. The Court denied the motion on August 17, 2021. The Company filed a motion to dismiss based on lack of personal jurisdiction on January 26, 2022. On September 22, 2022, the Court ordered the parties to participate in 90 days of reciprocal jurisdictional discovery.
On November 12, 2020, Amneal was named in a public nuisance and consumer protection lawsuit filed in state court in Baltimore, Maryland, on behalf of the Mayor and City Council of Baltimore. Defendants removed the case to federal court and on April 1, 2021, the case was remanded to state court. On August 23, 2021, the Company filed a motion to dismiss, which was granted.
On October 1, 2021, Amneal and Amneal Pharmaceuticals of New York, LLC, were named as defendants in two Pennsylvania state court complaints, along with twenty-five other defendants, including brand-name manufacturers, generic manufacturers, and one Pennsylvania-based pharmacy. The complaint track cases are being coordinated in the Philadelphia County Court of Common Pleas with other Pennsylvania ranitidine cases in which the Company is not a party under what is known as a Mass Tort Program (MTP). The Complaints track the dismissed master personal injury complaint from the MDL and were removed and subsequently transferred to the MDL on November 9, 2021. The cases were remanded to Pennsylvania state court on April 22, 2022. The Company filed preliminary objections in one case on May 18, 2022, which remain pending, and intends to file preliminary objections in the second case following a coordinated briefing schedule. Amneal entities have been named in three additional cases filed on September 27, 2022, each of which will be part of the MTP.
In a lawsuit filed on February 8, 2022 by Gary Ross in Illinois state court, Amneal and Amneal Pharmaceuticals of New York, LLC, were named as defendants, along with twenty other defendants, including brand-name manufacturers, generic manufacturers, and retailers in which plaintiff claimed personal injury from use of ranitidine. The generic drug manufacturers filed a motion to dismiss in that case on March 28, 2022 which remains pending. On March 1, 2022, plaintiff Barbara Martin filed a lawsuit in Illinois state court naming Amneal, Amneal Pharmaceuticals of New York, LLC, and Amneal Pharmaceuticals, Inc., along with seven other defendants, including brand-name manufacturers, generic manufacturers, and retailers. Plaintiff has attempted to serve only Amneal Pharmaceuticals of New York, LLC. The Company filed a motion to dismiss on May 6, 2022. In addition, the Company and/or its affiliates, as well as multiple other defendants including other generic drug manufacturers, have been named as defendants in six multi-plaintiff cases filed in three different Illinois counties
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in which plaintiffs allege injuries in the form of various cancers from the use of ranitidine. At the appropriate time, the Company intends to file motions to dismiss in those cases.
The Company and/or its affiliates, as well as multiple other defendants including other generic drug manufacturers, have been named in seven multi-plaintiff cases filed in California during August and September 2022, in which plaintiffs allege injuries in the form of various cancers from the use of ranitidine. At the appropriate time, the Company intends to file motions to dismiss in those cases.
On September 26, 2022, Amneal Pharmaceuticals of New York, LLC was named as one of multiple defendants in a single-plaintiff case filed in Suffolk County, New York, alleging injuries in the form of bladder cancer from the use of ranitidine. At the appropriate time, the Company intends to file a motion to dismiss.
Metformin Litigation
Amneal and AvKARE, Inc. were named as defendants, along with numerous other manufacturers, retail pharmacies, and wholesalers, in several putative class action lawsuits pending in the United States District Court for the District of New Jersey (“D.N.J.”), consolidated as In Re Metformin Marketing and Sales Practices Litigation (No. 2:20-cv-02324-MCA-MAH). The lawsuits all allege that defendants made and sold to putative class members generic metformin products that were “adulterated” or “contaminated” with NDMA.
An economic loss complaint filed on behalf of consumers and third-party payors who purchased or paid or made reimbursements for metformin alleges that plaintiffs suffered economic losses in connection with their purchases or reimbursements due to the purported contamination. On May 20, 2021, the Court granted Defendants’ motion to dismiss the economic loss complaint, and Plaintiffs filed an amended complaint on June 21, 2021. Defendants again moved to dismiss, and on March 30, 2022, the Court granted in part and denied in part Defendants’ second motion to dismiss. Plaintiffs filed a second amended complaint on May 6, 2022. Defendants again moved to dismiss on June 3, 2022, and briefing is complete. Initial limited discovery took place, but further discovery has been stayed pending the outcome of the third motion to dismiss. Additionally, medical monitoring class action complaints were filed on behalf of consumers who consumed allegedly contaminated metformin allege “cellular damage, genetic harm, and/or are at an increased risk of developing cancer” and seek medical monitoring, including evaluation and treatment. These cases are currently stayed.
On March 29, 2021, a plaintiff filed a complaint in the United States District Court for the Middle District of Alabama asserting claims against manufacturers of Valsartan, Losartan, and Metformin based on the alleged presence of nitrosamines in those products. The only allegations against Amneal concern Metformin. (Davis v. Camber Pharmaceuticals, Inc., et al., C.A. No. 2:21-00254 (M.D. Ala.) (the “Davis Action”)). On May 5, 2021, the JPML transferred the Davis Action into the In re: Valsartan, Losartan, and Irbesartan Products Liability Litigation multi-district litigation for pretrial proceedings.
On October 29, 2021, three plaintiffs filed a complaint in the District Court of Douglas County, Nebraska asserting claims against Amneal based on the alleged presence of nitrosamines in metformin. On January 10, 2022, Amneal removed the case to the United States District Court for the District of Nebraska. (Conrad et al v. Amneal Pharmaceuticals, Inc., No. 22-cv-00011-BCB-SMB (D. Neb.)). Amneal moved to dismiss the complaint on March 3, 2022, and on March 31, 2022, one plaintiff filed an amended complaint. Amneal moved to dismiss the amended complaint on June 1, 2022. On September 1, 2022, the Court granted Amneal’s motion to dismiss, and ordered the Plaintiff to show cause as to why the case should not be dismissed against the remaining defendant, Amneal Pharmaceuticals Pvt. Ltd. On September 15, 2022, the Plaintiff filed a notice of voluntary dismissal as to Amneal Pharmaceuticals Pvt. Ltd., resulting in the case being completely dismissed.
Xyrem® (Sodium Oxybate) Antitrust Litigation
Amneal has been named as a defendant, along with Jazz Pharmaceuticals, Inc. (“Jazz”) and numerous other manufacturers of generic versions of Jazz’s Xyrem® (sodium oxybate), in several putative class action lawsuits filed in the United States District Court for the Northern District of California and the United States District Court for the Southern District of New York, alleging that the generic manufacturers entered into anticompetitive agreements with Jazz in connection with settling patent litigation related to Xyrem®. Plaintiffs seek unspecified monetary damages and penalties as well as equitable relief, including disgorgement and restitution. On December 16, 2020, the JPML transferred the actions to the United States District Court for the Northern District of California for consolidated pretrial proceedings consolidated as In re Xyrem (Sodium Oxybate) Antitrust Litigation (No. 5:20-md-02966-LHK). Plaintiffs filed a consolidated amended class complaint in March 2021, which Defendants moved to dismiss. On August 13, 2021, the Court granted in part and denied in part Defendants’ motion, dismissing the federal damages claims and several state-law claims, while permitting the remaining claims to proceed. Discovery is currently ongoing.
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Value Drug Company v. Takeda Pharmaceuticals U.S.A., Inc.
On August 5, 2021, Value Drug Company filed a purported class action lawsuit in the United States District Court for the Eastern District of Pennsylvania against Takeda Pharmaceuticals U.S.A., Inc. (“Takeda”) and numerous other manufacturers of generic versions of Takeda’s Colcrys® (colchicine), including Amneal, alleging that the generic manufacturers conspired with Takeda to restrict output of generic Colcrys in order to maintain higher prices, in violation of the antitrust laws. The Company, along with the other defendants, moved to dismiss for failure to state a claim, and on December 28, 2021, the Court granted the motion in full, with leave to amend. On January 18, 2022, Plaintiff filed its amended complaint, making substantively the same antitrust allegations, but alleging that the violations were effectuated by either a single overarching conspiracy or a series of bilateral conspiracies. The Company moved to dismiss the amended complaint for failure to state a claim. On March 30, 2022, the Court granted in part and denied in party defendants’ motion, dismissing the newly pled bilateral conspiracy claims but allowing the revised overarching conspiracy claim to proceed against all defendants. Plaintiff filed a motion for class certification on September 6, 2022, and the defendants opposed it on September 21, 2022. That motion remains pending, and discovery is ongoing. Trial is scheduled to begin in February 2023.
Galeas v. Amneal Pharmaceuticals, Inc.
On July 27, 2021, Cesy Galeas filed a purported class action lawsuit in the U.S. District Court for the Eastern District of New York against Amneal Pharmaceuticals, Inc., alleging that the payment schedule for certain workers violated New York Labor Law. Specifically, the purported class, which presently consists of one named plaintiff contends that the Company paid the employees all owed wages, but did so bi-weekly, instead of weekly. In March 2022, the parties reached an agreement to settle the claims for $1.2 million, subject to, among other things, court approval of the contemplated settlement agreement. The parties filed a motion to approve the settlement agreement on July 13, 2022 and the Court granted the same on September 28, 2022. A third-party administrator will now begin the process of notifying class members with instructions on how to submit claims. The Company recorded a $1.2 million charge associated with this matter for the nine months ended September 30, 2022.
Russell Thiele, et al. v. Kashiv Biosciences, LLC, et.al.
On March 22, 2022, two purported Amneal stockholders filed a stockholder derivative lawsuit in the Court of Chancery of the State of Delaware against Kashiv and certain members of the Company’s Board of Directors. The Company is named as a nominal defendant. The suit alleges that the Company’s January 2021 acquisition of a 98 % interest in KSP, then a wholly owned subsidiary of Kashiv, was unfair to the Company, that the defendant Directors breached fiduciary duties of loyalty and good faith in connection with the transaction, and that the transaction unjustly enriched Kashiv and certain of the defendants who had a financial interest in Kashiv. The suit, which is allegedly brought on the Company’s behalf, seeks among other remedies rescission of the transaction and unspecified monetary damages. Defendants moved to dismiss the complaint for failure to state a claim and failure to plead demand futility on June 3, 2022, and Plaintiffs filed an amended complaint on July 29, 2022. Defendants moved to dismiss the amended complaint on September 23, 2022, on the same grounds set forth in the original motion to dismiss.
14. Segment Information
The Company has three reportable segments: Generics, Specialty, and AvKARE.
Generics
Generics develops, manufactures and commercializes complex oral solids, injectables, ophthalmics, liquids, topicals, softgels, inhalation products and transdermals across a broad range of therapeutic categories. Generics’ retail and institutional portfolio contains many difficult-to-manufacture products or products that have a high barrier-to-entry, such as oncologics, anti-infectives and supportive care products for healthcare providers.
Specialty
Specialty delivers proprietary medicines to the U.S. market. The Company offers a growing portfolio in core therapeutic categories including central nervous system disorders, endocrinology, parasitic infections and other therapeutic areas. The Company's specialty products are marketed through skilled specialty sales and marketing teams, who call on neurologists, movement disorder specialists, endocrinologists and primary care physicians in key markets throughout the U.S. Specialty also has a number of product candidates that are in varying stages of development.
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AvKARE
AvKARE provides pharmaceuticals, medical and surgical products and services primarily to governmental agencies, primarily focused on serving the Department of Defense and the Department of Veterans Affairs. AvKARE is also a wholesale distributor of bottle and unit dose pharmaceuticals under the registered names of AvKARE and AvPAK, as well as medical and surgical products. AvKARE is also a packager and wholesale distributor of pharmaceuticals and vitamins to its retail and institutional customers who are located throughout the United States focused primarily on offering 340b-qualified entities products to provide consistency in care and pricing.
Chief Operating Decision Markers
The Company’s chief operating decision makers evaluate the financial performance of the Company’s segments based upon segment operating income (loss). Items below operating income (loss) are not reported by segment, since they are excluded from the measure of segment profitability reviewed by the Company’s chief operating decision makers. Additionally, general and administrative expenses, certain selling expenses, certain litigation settlements, and non-operating income and expenses are included in “Corporate and Other.” The Company does not report balance sheet information by segment since it is not reviewed by the Company’s chief operating decision makers.
The tables below present segment information reconciled to total Company financial results, with segment operating income (loss) including gross profit less direct selling, general and administrative expenses, research and development expenses, and other operating expenses to the extent specifically identified by segment (in thousands):
| Three Months Ended September 30, 2022 | Generics (1) | Specialty | AvKARE (1) | Corporate and Other | Total Company | |||||||||||||||||||||||||||
| Net revenue | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||||||||||||||
| Cost of goods sold impairment charges | ||||||||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||||||||
| Intellectual property legal development expenses | ||||||||||||||||||||||||||||||||
| Acquisition, transaction-related and integration expenses | ||||||||||||||||||||||||||||||||
| Charges related to legal matters, net | ||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | ( | ( | ||||||||||||||||||||||||||||||
| Restructuring and other charges | ||||||||||||||||||||||||||||||||
| Other operating income | ( | ( | ||||||||||||||||||||||||||||||
| Operating income (loss) | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
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| Nine Months Ended September 30, 2022 | Generics (1) | Specialty | AvKARE (1) | Corporate and Other | Total Company | |||||||||||||||||||||||||||
| Net revenue | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||||||||||||||
| Cost of goods sold impairment charges | ||||||||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||||||||
| Intellectual property legal development expenses | ||||||||||||||||||||||||||||||||
| Acquisition, transaction-related and integration expenses | ||||||||||||||||||||||||||||||||
| Charges related to legal matters, net | ||||||||||||||||||||||||||||||||
Charges (insurance recoveries) for property losses and associated expenses | ( | ( | ||||||||||||||||||||||||||||||
| Restructuring and other charges | ||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | ( | ( | ||||||||||||||||||||||||||||||
| Other operating income | ( | ( | ||||||||||||||||||||||||||||||
| Operating income (loss) | $ | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||
| Three Months Ended September 30, 2021 | Generics (1) | Specialty | AvKARE (1) | Corporate and Other | Total Company | |||||||||||||||||||||||||||
| Net revenue | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||||||||||||||
| Cost of goods sold impairment charges | ||||||||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||||||||
| Intellectual property legal development expenses | ||||||||||||||||||||||||||||||||
| Acquisition, transaction-related and integration expenses | ||||||||||||||||||||||||||||||||
| Charges related to legal matters, net | ||||||||||||||||||||||||||||||||
| Charges (insurance recoveries) for property losses and associated expenses | ||||||||||||||||||||||||||||||||
| Restructuring and other charges | ||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | ||||||||||||||||||||||||||||||||
| Operating income (loss) | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
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| Nine Months Ended September 30, 2021 | Generics (1) | Specialty | AvKARE (1) | Corporate and Other | Total Company | |||||||||||||||||||||||||||
| Net revenue | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Cost of goods sold | ||||||||||||||||||||||||||||||||
| Cost of goods sold impairment charges | ||||||||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||||||||
| Research and development | ||||||||||||||||||||||||||||||||
| In-process research and development charges | ||||||||||||||||||||||||||||||||
| Intellectual property legal development expenses | ||||||||||||||||||||||||||||||||
| Acquisition, transaction-related and integration expenses | ||||||||||||||||||||||||||||||||
| Charges related to legal matters, net | ||||||||||||||||||||||||||||||||
| Charges (insurance recoveries) for property losses and associated expenses | ||||||||||||||||||||||||||||||||
| Restructuring and other charges | ||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | ||||||||||||||||||||||||||||||||
| Operating income (loss) | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
(1)Operating results for the sale of Amneal products by AvKARE are included in Generics.
15. Related Party Transactions
The Company has various business agreements with certain parties in which there is some common ownership. However, the Company does not directly own or manage any of such related parties. Except as disclosed below, as of and for the three and nine months ended September 30, 2022, there were no material changes to our related party agreements or relationships as described in Note 24. Related Party Transactions and Note 22. Stockholders’ Equity in our 2021 Annual Report on Form 10-K.
Amendment to Kashiv Biosciences LLC License and Commercialization Agreement
In 2017 Kashiv and Amneal entered into an exclusive license and commercialization agreement (the “Kashiv Biosimilar Agreement”) to distribute and sell two biosimilar products, Filgrastim and Pegfilgrastim, in the U.S. Kashiv is responsible for development, regulatory filings, obtaining FDA approval, and manufacturing, and Amneal is responsible for marketing, selling, and pricing activities. The term of the agreement is 10 years from the respective product’s launch date.
The Kashiv Biosimilar Agreement provided for potential future milestone payments to Kashiv of up to $183.0 million, as follows: (i.) up to $22.5 million relating to regulatory approval and execution, (ii.) up to $43.0 million for successful delivery of commercial launch inventory, (iii.) up to $50.0 million depending on the number of competitors at launch for one product, and (iv.) between $15.0 million and $67.5 million for the achievement of cumulative net sales for both products.
In July 2022, the Company and Kashiv amended the Kashiv Biosimilar Agreement to, among other things, (i.) eliminate milestones related to the manufacturing and delivery of the Kashiv products, (ii.) revise the net sales milestones to provide for future milestone payments by the Company to Kashiv of up to $37.5 million for the achievement of cumulative combined net sales goals for both products, and (iii.) adjust the supply price of product that Kashiv manufacturers and supplies to the Company, which will lower the cost per unit of both products.
The remaining milestones are subject to reaching certain commercial sales volume objectives. In addition, the agreement provides for Amneal to pay a profit share equal to 50 % of net profits, after considering manufacturing and marketing costs.
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On May 27, 2022, the FDA approved the Company’s biologic license application, associated with the amended Kashiv Biosimilar Agreement, for Pegfilgrastim-pbbk. In connection with this regulatory approval and associated activity, the Company incurred a milestone of $15.0 million during the nine months ended September 30, 2022, payable to Kashiv. The milestone was capitalized as an intangible asset and will be amortized to cost of sales over an estimated useful life of 8.3 years. The Company paid Kashiv $15.0 million during August 2022 related to this milestone.
The following table summarizes the Company’s related party transactions (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| Related Party and Nature of Transaction | Caption in Balance Sheet and Statement of Operations | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||
| Kashiv Biosciences LLC | |||||||||||||||||||||||||||||
Parking space lease (1) | Cost of goods sold | $ | $ | $ | $ | ||||||||||||||||||||||||
Development and commercialization agreements - various products (1) | Research and development | ||||||||||||||||||||||||||||
License and commercialization agreement - Filgrastim and Pegfilgrastim - regulatory approval milestone for Filgrastim(1) | Selling, general and administrative | ||||||||||||||||||||||||||||
Development and commercialization agreement - Ganirelix Acetate and Cetrorelix Acetate (1) | Research and development | ||||||||||||||||||||||||||||
Development and commercialization agreements - various products (2) | Research and development | ||||||||||||||||||||||||||||
Profit sharing - various products (2) | Cost of goods sold | ||||||||||||||||||||||||||||
Commercial product support for EluRyng and other products (2) | Inventory and cost of goods sold | ||||||||||||||||||||||||||||
K127 development and commercialization agreement (2) | Research and development | ||||||||||||||||||||||||||||
| Transition services associated with the KSP Acquisition | Selling, general and administrative | ||||||||||||||||||||||||||||
| Development and commercialization - Consulting | Research and development | ||||||||||||||||||||||||||||
License and commercialization agreement - Filgrastim and Pegfilgrastim - regulatory approval milestone for Pegfilgrastim-pbbk(1) | Intangible asset | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
LAX Hotel, LLC (3) | |||||||||||||||||||||||||||||
| Financing lease | Inventory and cost of goods sold | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest component of financing lease | Interest expense | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
| Other Related Parties | |||||||||||||||||||||||||||||
| Kanan, LLC - operating lease | Inventory and cost of goods sold | $ | $ | $ | $ | ||||||||||||||||||||||||
| Sutaria Family Realty, LLC - operating lease | Inventory and cost of goods sold | $ | $ | $ | $ | ||||||||||||||||||||||||
| PharmaSophia, LLC - research and development services income | Research and development | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||
| Apace KY, LLC d/b/a Apace Packaging LLC - packaging agreement | Inventory and cost of goods sold | $ | $ | $ | $ | ||||||||||||||||||||||||
| Tracy Properties LLC - operating lease | Selling, general and administrative | $ | $ | $ | $ | ||||||||||||||||||||||||
| AzaTech Pharma LLC - supply agreement | Inventory and cost of goods sold | $ | $ | $ | $ | ||||||||||||||||||||||||
| AvPROP, LLC - operating lease | Selling, general and administrative | $ | $ | $ | $ | ||||||||||||||||||||||||
| Avtar Investments, LLC consulting services | Selling, general and administrative | $ | $ | $ | $ | ||||||||||||||||||||||||
| TPG Operations, LLC consulting services | Selling, general and administrative | $ | $ | $ | $ | ||||||||||||||||||||||||
| Alkermes | Inventory and cost of goods sold | $ | $ | $ | $ | ||||||||||||||||||||||||
| R&S Solutions - logistics services | Selling, general and administrative | $ | $ | $ | $ | ||||||||||||||||||||||||
(1) Agreement between Amneal and Kashiv was not affected by the KSP Acquisition (refer to Note 3. Acquisitions for additional information).
(2) Agreement between Amneal and Kashiv was acquired with KSP and has become a transaction among Amneal’s consolidated subsidiaries subsequent to the transaction closing on April 2, 2021. The disclosure relates to the historical agreement as a related party transaction through April 2, 2021 (refer to Note 3. Acquisitions for additional information).
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(3) During January 2021, LAX Hotel LLC sold its interests in the leased buildings to an unrelated third-party. Therefore, this lease was no longer a related party transaction subsequent to that date.
The following table summarizes the amounts due to or from the Company for related party transactions (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
Kashiv - deferred consideration associated with the KSP Acquisition (1) | $ | $ | |||||||||
| Kashiv - various agreements | |||||||||||
Sellers of Puniska - consideration for acquisition (2) | |||||||||||
| Apace Packaging LLC - packaging agreement | |||||||||||
| AzaTech Pharma LLC - supply agreement | |||||||||||
| Avtar Investments LLC - consulting services | |||||||||||
Sellers of AvKARE LLC and R&S - accrued interest on Sellers Notes (3) | |||||||||||
| R&S Solutions - logistics services | |||||||||||
| Alkermes | |||||||||||
| Related party payables - short term | $ | $ | |||||||||
| PharmaSophia, LLC - research and development agreement | $ | $ | |||||||||
| Sellers of AvKARE LLC and R&S - state tax indemnification | |||||||||||
| Kashiv - various agreements | |||||||||||
| Apace Packaging, LLC - packaging agreement | |||||||||||
| Tracy Properties | |||||||||||
| Related party receivables - short term | $ | $ | |||||||||
Kashiv - contingent consideration (4) | $ | $ | |||||||||
Sellers of AvKARE LLC and R&S - accrued interest on Sellers Notes (3) | |||||||||||
| Related party payables - long term | $ | $ | |||||||||
(1) As discussed in Note 3. Acquisitions, the purchase price for the KSP Acquisition included a contractually stated amount of deferred consideration of $30.5 million. The deferred consideration consisted of $30.0 million, which the Company paid during January 2022, and $0.5 million, which the Company paid during the three months ended September 30, 2022.
(2) As discussed in Note 3. Acquisitions, the purchase price for the Puniska Acquisition included $14.2 million due to the sellers for the satisfaction of a preexisting payable upon approval of the transaction by the government of India. The Company satisfied this liability in March 2022.
(3) Represents accrued interest on the Sellers Notes associated with the Rondo Acquisitions, as defined and discussed in Note 3. Acquisitions and Divestitures and Note 17. Debt in the Company’s 2021 Annual Report on Form 10-K.
Puniska Acquisition - Redeemable Non-Controlling Interests
The Company paid $1.7 million for the remaining 26 % equity interest of Puniska (included in redeemable non-controlling interests in the Company’s consolidated balance sheet as of December 31, 2021) upon approval of the Puniska Acquisition by the government of India in March 2022.
16. Stockholders’ Equity and Redeemable Non-Controlling Interests
Non-Controlling Interests
The Company consolidates the financial statements of Amneal and its subsidiaries and records non-controlling interests for the portion of Amneal’s economic interests that is not held by the Company. Non-controlling interests are adjusted for capital transactions that impact the non-publicly held economic interests in Amneal.
Under the terms of Amneal's limited liability company agreement, as amended, Amneal is obligated to make tax distributions to its members. During the three and nine months ended September 30, 2022, the Company recorded net tax distributions of $2.5
42
million and $9.8 million, respectively, as a reduction of non-controlling interests. For the three and nine months ended September 30, 2021, the Company recorded tax distributions of $8.6 million and $34.5 million, respectively, as a reduction of non-controlling interests.
As discussed in Note 3. Acquisitions, the Company acquired a 98 % interest in KSP on April 2, 2021. The sellers of KSP, a related party, hold the remaining interest. The Company attributes 2 % of the net income or loss of KSP to the non-controlling interests.
Redeemable Non-Controlling Interests
As discussed in Note 1. Nature of Operations, the Company acquired a 65.1 % controlling interest in both AvKARE, LLC and R&S in 2020. The sellers of AvKARE, LLC and R&S hold the remaining 34.9 % interest (“Rondo Class B Units”) in the holding company that directly owns the acquired companies (“Rondo”). Beginning on January 1, 2026, the holders of the Rondo Class B Units have the right (“Put Right”) to require the Company to acquire the Rondo Class B Units for a purchase price that is based on a multiple of Rondo’s earnings before income taxes, depreciation, and amortization (EBITDA) if certain financial targets and other conditions are met. Additionally, beginning on January 31, 2020, the Company has the right to acquire the Rondo Class B Units based on the same value and conditions as the Put Right. The Rondo Class B Units are also redeemable by the holders upon a change in control.
Since the redemption of the Rondo Class B Units is outside of the Company's control, the units have been presented outside of stockholders’ equity as redeemable non-controlling interests. Upon closing of the Rondo Acquisitions, the redeemable non-controlling interests were recorded as a component of the fair value of consideration transferred at an estimated fair value of $11.0 million. The fair value of the redeemable non-controlling interests was estimated using the Monte-Carlo simulation approach under the option pricing framework, which considers the redemption rights of both the Company and the holders of the Rondo Class B Units.
The Company attributes 34.9 % of the net income or loss associated with Rondo to redeemable non-controlling interests. The Company will also accrete the redeemable non-controlling interests to redemption value upon an event that makes redemption probable. For the three and nine months ended September 30, 2022, the Company recorded tax distributions of $0.7 million and $3.3 million as a reduction of redeemable non-controlling interests, respectively. For the three and nine months ended September 30, 2021, the Company recorded tax distributions of $0.5 million and $2.2 million as a reduction of redeemable non-controlling interests, respectively.
Redeemable Non-Controlling Interests - Puniska
As discussed in Note 3. Acquisitions, the Company acquired 74 % of the equity interests in Puniska on November 2, 2021. Amneal was required pursuant to the purchase agreement to acquire the remaining 26 % of Puniska upon approval of the transaction by the government of India. Since approval of the government of India was outside of the Company’s control, upon closing of the Puniska Acquisition, the equity interests of Puniska that the Company did not own were presented outside of stockholders' equity as redeemable non-controlling interests. The Company attributed 26 % of the net losses of Puniska to the redeemable non-controlling interests.
Upon approval of the transaction by the government of India in March 2022, the Company paid the $1.7 million redemption value for the remaining 26 % of the equity interests of Puniska. For the nine months ended September 30, 2022, the Company recorded accretion of $0.9 million to increase the redeemable non-controlling interests to redemption value.
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Changes in Accumulated Other Comprehensive (Loss) Income by Component (in thousands):
| Foreign currency translation adjustments | Unrealized (loss) gain on cash flow hedge, net of tax | Accumulated other comprehensive (loss) income | |||||||||||||||
| Balance December 31, 2020 | $ | ( | $ | ( | $ | ( | |||||||||||
| Other comprehensive loss before reclassification | ( | ||||||||||||||||
| Reallocation of ownership interests | ( | ( | ( | ||||||||||||||
| Balance December 31, 2021 | ( | ( | ( | ||||||||||||||
| Other comprehensive loss before reclassification | ( | ||||||||||||||||
| Reallocation of ownership interests | ( | ( | |||||||||||||||
| Balance September 30, 2022 | $ | ( | $ | $ | |||||||||||||
17. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets are comprised of the following (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
| Deposits and advances | $ | $ | |||||||||
| Prepaid insurance | |||||||||||
| Prepaid regulatory fees | |||||||||||
| Income and other tax receivables | |||||||||||
| Prepaid taxes | |||||||||||
Escrow deposits for legal settlements(1) | |||||||||||
| Other current receivables | |||||||||||
| Other prepaid assets | |||||||||||
Chargebacks receivable (2) | |||||||||||
| Total prepaid expenses and other current assets | $ | $ | |||||||||
(1)Escrow deposits for legal settlements included preliminary settlement escrow deposits by the Company’s insurers of $33.0 million as of December 31, 2021, associated with insured securities class action lawsuits. As of September 30, 2022, escrow deposits for legal settlements included $73.0 million associated with the Opana ER® antitrust litigation settlement agreements and Preliminary Settlement agreements. Refer to Note 13. Commitments and Contingencies for additional details regarding these matters.
(2)When a sale occurs on a contract item, the difference between the cost paid to the manufacturer by the Company and the contract cost that the end customer has with the manufacturer is rebated back to the Company by the manufacturer. The Company establishes a chargeback (rebate) receivable and a reduction to cost of goods sold in the same period as the related sale.
18. Other Assets
Other assets were comprised of the following (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
Interest rate swap (1) | $ | $ | |||||||||
| Security deposits | |||||||||||
| Long-term prepaid expenses | |||||||||||
| Deferred revolving credit facility costs | |||||||||||
| Other long term assets | |||||||||||
| Total | $ | $ | |||||||||
44
19. Government Grants
In November 2021, Amneal Pharmaceuticals Private Limited, a subsidiary of the Company in India, was selected as one of 55 companies to participate in the PLI Scheme. The government of India established the PLI Scheme to make India’s domestic manufacturing more globally competitive and to create global champions within the pharmaceutical sector by encouraging investment and product diversification with a focus on manufacturing complex and high value goods.
Under the PLI Scheme, the Company is eligible to receive up to 10 billion Indian rupees, or approximately $122.7 million (based on conversion rates as of September 30, 2022), over a maximum six-year period, starting in 2022. To be eligible to receive the cash incentives, Amneal must achieve (i) minimum cumulative expenditures towards developmental and/or capital investments and (ii) a minimum percentage growth in sales of eligible products.
The Company has concluded the PLI Scheme is government assistance in the form of a grant and, in the absence of specific accounting guidance under U.S. GAAP, the Company has analogized to International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance. The Company has evaluated the PLI Scheme to be a grant related to income and will recognize the cash incentives in the consolidated statements of operations on a systematic basis within other operating income. For the three and nine months ended September 30, 2022, the Company recognized $1.3 million and $2.5 million, respectively, of other operating income associated with the PLI Scheme. Receivables from the government of India of $1.7 million and $0.8 million, respectively, were recorded within prepaid and other current assets and other long-term assets as of September 30, 2022, respectively, based on the terms of the PLI Scheme.
20. Debt
The following is a summary of the Company’s total indebtedness (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
| Term Loan due May 2025 | $ | $ | |||||||||
| Rondo Term Loan due January 2025 | |||||||||||
| Other | |||||||||||
| Total debt | |||||||||||
| Less: debt issuance costs | ( | ( | |||||||||
| Total debt, net of debt issuance costs | |||||||||||
| Less: current portion of long-term debt | ( | ( | |||||||||
| Total long-term debt, net | $ | $ | |||||||||
There have been no material changes in the Company’s long-term debt since December 31, 2021, except as disclosed below. Refer to Note 17. Debt in our 2021 Annual Report on Form 10-K for additional information.
On June 2, 2022, the Company entered into a revolving credit agreement (the “New Credit Agreement”), which amended the existing senior secured asset backed revolving credit facility (the “Revolving Credit Facility”). The New Credit Agreement (i) replaced the Revolving Credit Facility with a $350.0 million senior secured revolving credit facility (the “New Revolving Credit Facility”) that matures on June 2, 2027, (ii) provides for up to $25.0 million of the New Revolving Credit Facility to be available for the purpose of issuing letters of credit; (iii) provides for up to $35.0 million of the New Revolving Credit Facility to be available for the purpose of issuing swingline loans; (iv) allows the the Company to request an incremental increase in the revolving facility commitments by up to $150.0 million; and (v) terminated the revolving credit facility commitments of lenders under the Revolving Credit Facility.
Interest is payable on the New Revolving Credit Facility at a rate equal to the alternate base rate (“ABR”) or the secured overnight financing rate (“SOFR”), plus an applicable margin, in each case, subject to a ABR floor of 1.00 % or a SOFR floor of 0.00 %, as applicable. The applicable margin for the New Revolving Credit Facility is initially 0.25 % per annum for ABR loans and 1.25 % per annum for SOFR loans. The applicable margin on borrowings under the New Revolving Credit Facility thereafter will adjust ranging from 0.25 % to 0.50 % per annum for ABR loans and from 1.25 % to 1.50 % per annum for SOFR loans determined by the average historical excess availability. The proceeds of any loans made under the New Revolving Credit Facility can be used for capital expenditures, acquisitions, working capital needs and other general purposes, subject to covenants as described below. The Company pays a commitment fee based on the average daily unused amount of the New Revolving Credit Facility at a rate of 0.25 % per annum.
45
Subject to the refinancing, there was a decrease in the borrowing capacity of certain lenders between the New Revolving Credit Facility and the Revolving Credit Facility. As a result, the Company recorded $0.3 million charge for the nine months ended September 30, 2022 in loss on refinancing. Additionally, the Company incurred costs of $1.6 million associated with the Credit Agreement, which was capitalized as deferred financing costs with the remaining unamortized costs associated with the New Revolving Credit Facility, and will be amortized over the life of the New Credit Agreement.
The New Credit Agreement contains certain negative covenants that, among other things and subject to certain exceptions, restrict the Company’s and certain subsidiaries’ ability to incur additional debt or guarantees, grant liens, make loans, acquisitions or other investments, dispose of assets, merge, dissolve, liquidate or consolidate, pay dividends or other payments on capital stock, make optional payments or modify certain debt instruments, modify certain organizational documents, enter into arrangements that restrict the ability to pay dividends or grant liens, or enter into or consummate transactions with affiliates. The New Revolving Credit Facility also includes a financial covenant whereby the Company must maintain a minimum fixed-charge coverage ratio if certain borrowing conditions are met. The New Revolving Credit Facility contains customary events of default, subject to certain exceptions. Upon the occurrence of certain events of default, the obligations under the New Revolving Credit Facility may be accelerated and the commitments may be terminated.
As of September 30, 2022, the Company had $60.0 million in borrowings under the New Revolving Credit Facility.
21. Property Losses and Associated Expenses
On September 1, 2021, Tropical Storm Ida brought extreme rainfall and flash flooding to New Jersey that caused damage to two of the Company’s facilities. Operations at these facilities were closed for the majority of September 2021 in order to assess the damage, make repairs and restore operations.
The Company concluded that all inventory on-hand at the time of the flooding was damaged and unsellable and that a majority of the equipment was damaged beyond repair. In addition, the Company incurred significant costs to repair both facilities. Accordingly, the Company recorded $8.2 1.9 million associated with property damage and inventory losses were received. Charges (insurance recoveries) for property losses and associated expenses was comprised of the following (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Impairment of equipment | $ | $ | $ | $ | |||||||||||||||||||
| Impairment of inventory | |||||||||||||||||||||||
| Repairs and maintenance expenses | |||||||||||||||||||||||
| Salaries and benefits | |||||||||||||||||||||||
| Total property losses and associated expenses | |||||||||||||||||||||||
| Less: Insurance recoveries received | ( | ||||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||
46
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Amneal Pharmaceuticals, Inc. (the “Company,” “we,” “us,” or “our”) is a pharmaceutical company specializing in developing, manufacturing, marketing and distributing high-value generic pharmaceutical products across a broad array of dosage forms and therapeutic areas, as well as branded products and biosimilar products. We operate principally in the United States, India, and Ireland, and sell to wholesalers, distributors, hospitals, chain pharmacies and individual pharmacies, either directly or indirectly.
The Company is a holding company, whose principal assets are common units (“Amneal Common Units”) of Amneal Pharmaceuticals, LLC (“Amneal”). In 2018, Amneal completed the acquisition of Impax Laboratories, Inc. (“Impax”), a generic and specialty pharmaceutical company.
The group of investors, together with their affiliates and certain assignees, who owned Amneal when it was a private company (the “Members”) held 50.1% of Amneal Common Units and the Company held the remaining 49.9% as of September 30, 2022.
The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under Item 1A. Risk Factors in our 2021 Annual Report on Form 10-K and under the heading Cautionary Note Regarding Forward-Looking Statements included elsewhere in this Quarterly Report on Form 10-Q.
The following discussion and analysis for the three and nine months ended September 30, 2022 should also be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements for the year ended December 31, 2021 included in our 2021 Annual Report on Form 10-K.
Overview
We have three reportable segments: Generics, Specialty, and AvKARE.
Generics
Our Generics segment includes over 250 product families covering an extensive range of dosage forms and delivery systems, including both immediate and extended release oral solids, powders, liquids, sterile injectables, nasal sprays, inhalation and respiratory products, ophthalmics, films, transdermal patches and topicals. We focus on developing products with substantial barriers-to-entry resulting from complex drug formulations or manufacturing, or legal or regulatory challenges. Generic products, particularly in the U.S., generally contribute most significantly to revenues and gross margins at the time of their launch, and even more so in periods of market exclusivity, or in periods of limited generic competition. As such, the timing of new product introductions can have a significant impact on the Company’s financial results. The entrance into the market of additional competition generally has a negative impact on the volume and / or pricing of the affected products. Additionally, pricing is determined by market place dynamics and is often affected by factors outside of the Company’s control.
Specialty
Our Specialty segment is engaged in the development, promotion, sale and distribution of proprietary branded pharmaceutical products, with a focus on products addressing central nervous system (“CNS”) disorders, including migraine and Parkinson’s disease. Our portfolio of products includes Rytary®, an extended release oral capsule formulation of carbidopa-levodopa for the treatment of Parkinson’s disease, post-encephalitic parkinsonism, and parkinsonism that may follow carbon monoxide intoxication or manganese intoxication. In addition to Rytary®, our promoted Specialty portfolio includes Unithroid® (levothyroxine sodium), for the treatment of hypothyroidism, which is sold under a license and distribution agreement with Jerome Stevens Pharmaceuticals, Inc., and Emverm® (mebendazole) 100 mg chewable tablets, for the treatment of pinworm, whipworm, common roundworm, common hookworm and American hookworm in single or mixed infections.
For Specialty products, the majority of the product’s commercial value is usually realized during the period in which the product has market exclusivity. In the U.S. when market exclusivity expires and generic versions of a product are approved and marketed, there can often be very substantial and rapid declines in the branded product’s sales. For example, the pediatric exclusivity of the AstraZeneca patent licensed to Impax for Zomig® Nasal Spray expired in May 2021, and we lost market exclusivity in the fourth quarter of 2021.
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AvKARE
Our AvKARE segment provides pharmaceuticals, medical and surgical products, and services primarily to governmental agencies. AvKARE is a re-packager of bottle and unit dose pharmaceuticals under the registered names of AvKARE and AvPAK, which service the Department of Defense and Department of Veterans Affairs as well as institutional customers. AvKARE is also a wholesale distributor of pharmaceuticals, over the counter products and medical supplies to institutional customers which are located throughout the United States of America focused primarily on offering 340b-qualified entities products to provide consistency in care and pricing.
The Pharmaceutical Industry
The pharmaceutical industry is highly competitive and highly regulated. As a result, we face a number of industry-specific factors and challenges, which can significantly impact our results. For a more detailed explanation of our business and its risks, refer to our 2021 Annual Report on Form 10-K, as supplemented by Part II, Item 1A “Risk Factors” of our subsequent Quarterly Reports on Form 10-Q.
COVID-19 Pandemic
In March 2020, the World Health Organization designated the outbreak of a novel strain of coronavirus (“COVID-19”) as a global pandemic. Governments and businesses around the world took unprecedented actions to mitigate the spread of COVID-19, including imposing restrictions on movement and travel such as quarantines and shelter-in-place requirements, and restricting or prohibiting outright some or all commercial and business activity, including the manufacture and distribution of certain goods and the provision of non-essential services.
To the extent that the pandemic (and variant strains) continues or worsens, national, state, local and international governments may impose additional restrictions or extend the restrictions already in place. The worsening of the pandemic and the related safety and business operating restrictions could result in a number of adverse impacts to our business, including, but not limited to, additional disruption to the economy and our customers, additional work restrictions, supply chains being interrupted or slowed, and rising supply prices. Also, governments may impose other laws, regulations, or taxes that could adversely impact our business, financial condition, or results of operations. Further, depending on the extent to which our customers are affected, they could delay or reduce purchases of products we provide. The potential effects of the pandemic also could impact us in a number of other ways including, but not limited to, reductions to our profitability, fluctuations in foreign currency markets, the availability of future borrowings, the cost of borrowings, credit risks of our customers and counterparties, and potential impairment of the carrying amount of goodwill or other definite-lived assets.
Although not currently expected, any supply chain disruptions may significantly impact our 2022 results of operations and cash flows. Increasing infection rates and the introduction of new and more easily transmitted variants of COVID-19 could cause material disruptions to our global supply chains and cause labor shortages, as well as reduce the number of physician visits in general.
We continue to actively monitor the situation and may take further precautionary and preemptive actions as may be required by national, state, or local authorities or that we determine are in the best interests of our employees, customers, partners, suppliers, and shareholders. Until the ultimate extent and duration of the pandemic is known, we cannot predict the ultimate effects the pandemic may have on our business, in particular with respect to demand for our products, our strategy, and our prospects, the effects on our customers, or the impact on our financial results.
Inflation
While it is difficult to accurately measure the impact of inflation, we currently expect an inflationary impact to income (loss) before income taxes of approximately $30 million for the year ending December 31, 2022, excluding the impact of rising interest rates. However, rising inflationary pressures due to higher input costs, including higher material, transportation, labor and other costs, could exceed our expectations, which would further adversely impact our operating results in future periods.
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Results of Operations
Consolidated Results
The following table sets forth our summarized, consolidated results of operations for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net revenue | $ | 545,557 | $ | 528,593 | $ | 1,602,545 | $ | 1,556,773 | |||||||||||||||
| Cost of goods sold | 350,653 | 329,394 | 1,027,439 | 953,514 | |||||||||||||||||||
| Cost of goods sold impairment charges | 674 | 688 | 5,786 | 688 | |||||||||||||||||||
| Gross profit | 194,230 | 198,511 | 569,320 | 602,571 | |||||||||||||||||||
| Selling, general and administrative | 100,071 | 91,397 | 297,542 | 268,280 | |||||||||||||||||||
| Research and development | 50,235 | 48,927 | 153,781 | 149,973 | |||||||||||||||||||
| In-process research and development impairment charges | — | — | — | 710 | |||||||||||||||||||
| Intellectual property legal development expenses | 1,411 | 1,627 | 2,996 | 6,574 | |||||||||||||||||||
| Acquisition, transaction-related and integration expenses | 39 | 134 | 714 | 7,219 | |||||||||||||||||||
| Charges related to legal matters, net | 285 | 19,000 | 249,836 | 19,000 | |||||||||||||||||||
| Charges (insurance recoveries) for property losses and associated expenses | — | 8,186 | (1,911) | 8,186 | |||||||||||||||||||
| Restructuring and other charges | 581 | 425 | 1,312 | 788 | |||||||||||||||||||
| Change in fair value of contingent consideration | (1,425) | 300 | (1,495) | 300 | |||||||||||||||||||
| Other operating income | (1,320) | — | (2,495) | — | |||||||||||||||||||
| Operating income (loss) | 44,353 | 28,515 | (130,960) | 141,541 | |||||||||||||||||||
| Total other expense, net | (42,173) | (30,558) | (109,512) | (93,856) | |||||||||||||||||||
| Income (loss) before income taxes | 2,180 | (2,043) | (240,472) | 47,685 | |||||||||||||||||||
| Provision for income taxes | 4,570 | 4,049 | 8,459 | 7,056 | |||||||||||||||||||
| Net (loss) income | $ | (2,390) | $ | (6,092) | $ | (248,931) | $ | 40,629 | |||||||||||||||
Net Revenue
Net revenue for the three months ended September 30, 2022 was $545.6 million, an increase of 3% as compared to $528.6 million for the three months ended September 30, 2021. The increase from the prior year period was attributable to the following:
•Growth in our Generics segment of $3.1 million was primarily due to volume growth and an increase in new products launched in 2022 and 2021 of $4.3 million, partially offset by continued price erosion.
•Specialty segment net revenue decreased $3.3 million as growth in our promoted products, including Rytary® and Unithroid® which increased 12% and 39%, respectively, was driven by favorable pricing and volume growth that continues to remain strong, offset by loss of exclusivity on Zomig® nasal spray and declines in our non-promoted products.
•AvKARE segment net revenue grew $17.1 million as compared to the prior year period due to growth in our distribution channel.
Net revenue for the nine months ended September 30, 2022 was $1,602.5 million, an increase of 3% as compared to $1,556.8 million for the nine months ended September 30, 2021. The increase from the prior year period was attributable to the following:
•Growth in our Generics segment of $12.8 million was primarily due to new products launched in 2022 and 2021 that contributed net revenue growth of $7.7 million, the favorable year-over-year impact of lower returns relating to Oseltamivir (generic Tamiflu®), and volume growth. These increases were partially offset by continued price erosion.
•Specialty segment net revenue decreased $5.7 million as compared to the prior year period, driven by the loss of exclusivity of Zomig® nasal spray as well as a decline in our other non-promoted products. Net revenue from our promoted products, including Rytary® and Unithroid®, increased 7% and 33%, respectively as prescription growth remained strong for both products.
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•AvKARE segment net revenue grew $38.7 million as compared to the prior year period due to growth in our distribution channel.
Cost of Goods Sold and Gross Profit
Cost of goods sold, including impairment charges, increased 6%, or $21.2 million, to $351.3 million for the three months ended September 30, 2022 as compared to $330.1 million for the three months ended September 30, 2021. The increase in cost of goods sold, including impairment charges, was primarily due to increased Generics and AvKARE volume and increased freight charges, partially offset by the impact of the loss of exclusivity on Zomig® nasal spray.
Gross profit for the three months ended September 30, 2022 was $194.2 million (36% of total net revenue) as compared to gross profit of $198.5 million (38% of total net revenue) for the three months ended September 30, 2021. Our gross profit as a percentage of net revenue decreased compared to the prior year period primarily as a result of the factors discussed above.
Cost of goods sold, including impairment charges, increased 8%, or $79.0 million, to $1,033.2 million for the nine months ended September 30, 2022 as compared to $954.2 million for the nine months ended September 30, 2021. The increase in cost of goods sold was primarily due to increased Generics and AvKARE volume, increased freight costs, a reduction in operating efficiency benefits realized as compared to the prior year period, and a $5.1 million period over period increase in intangible asset impairment charges.
Gross profit for the nine months ended September 30, 2022 was $569.3 million (36% of total net revenue) as compared to gross profit of $602.6 million (39% of total net revenue) for the nine months ended September 30, 2021. Our gross profit as a percentage of net revenue decreased compared to the prior year period primarily as a result of the factors discussed above.
Selling, General, and Administrative
Selling, general, and administrative (“SG&A”) expenses for the three months ended September 30, 2022 was $100.1 million, as compared to $91.4 million for the three months ended September 30, 2021. The $8.7 million increase from the prior year period was primarily due to $6.9 million of costs associated with our biosimilar launches, including the Saol Acquisition (as defined in Note 3. Acquisitions to the financial statements included in this Form 10-Q), an increase in employee compensation, and increased freight charges as fuel costs increased.
SG&A expenses for the nine months ended September 30, 2022 were $297.5 million, as compared to $268.3 million for the prior year period. The $29.3 million increase from the prior year period was primarily due to $16.4 million of costs associated with our biosimilar launches, including the Saol Acquisition and a $5.0 million expense associated with a biosimilar regulatory approval, an increase in employee compensation, and increased freight charges as fuel costs increased.
Research and Development
Research and development (“R&D”) expenses for the three months ended September 30, 2022 were $50.2 million, as compared to $48.9 million for the three months ended September 30, 2021. The $1.3 million increase compared to the prior year period was primarily attributable to costs of $2.8 million associated with acquired businesses in 2021, partially offset by operating efficiencies.
R&D expenses for the nine months ended September 30, 2022 were $153.8 million, as compared to $150.0 million for the nine months ended September 30, 2021. The $3.8 million increase compared to the prior year period was primarily attributable to increased compensation and other costs, including $15.6 million of costs associated with businesses acquired in 2021, partially offset by decreases in in-licensing and upfront milestone payments of $12.4 million.
Intellectual Property Legal Development Expense
Intellectual property legal development expenses include, but are not limited to, costs associated with formulation assessments, patent challenge opinions and strategy, and litigation expenses to defend our intellectual property. Intellectual property legal development expenses for the three months ended September 30, 2022 and 2021 were $1.4 million and $1.6 million, respectively. Expenses may vary based on the number of individual cases and corresponding litigation outstanding in a particular period.
Intellectual property legal development expenses for the nine months ended September 30, 2022 and 2021 were $3.0 million and $6.6 million, respectively. The period-over-period decrease of $3.6 million was due to the timing of specific cases. Expenses may vary based on the number of individual cases and corresponding litigation outstanding in a particular period.
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Acquisition, Transaction-Related and Integration Expenses
Acquisition, transaction-related and integration expenses were immaterial for the three months ended September 30, 2022 and 2021. Acquisition, transaction-related and integration expenses were $0.7 million for the nine months ended September 30, 2022 as compared to $7.2 million for the nine months ended September 30, 2021.
Acquisition, transaction-related and integration expenses for the nine months ended September 30, 2022 were primarily related to the Saol Acquisition, which closed on February 9, 2022. For the nine months ended September 30, 2021, acquisition, transaction-related and integration expenses were primarily related to the KSP Acquisition, which closed on April 2, 2021, and integration expenses related to the businesses that comprise our AvKARE segment. Refer to Note 3. Acquisitions for additional information.
Charges Related to Legal Matters, Net
For the three and nine months ended September 30, 2022, we recorded charges related to legal matters, net, of $0.3 million and $249.8 million, respectively. The net charges for the nine months ended September 30, 2022 were primarily comprised of charges associated with Opana® ER antitrust litigation, net of insurance recoveries associated with securities class actions. For the three and nine months ended September 30, 2021, we recorded charges of $19.0 million for securities class actions. Refer to Note 13. Commitments and Contingencies for additional information.
(Insurance recoveries) Property losses and associated expenses
On September 1, 2021, Tropical Storm Ida brought extreme rainfall and flash flooding to New Jersey that caused damage to two of our facilities. The Company concluded that all inventory on-hand at the time of the flooding was damaged and unsellable and that a majority of the equipment was damaged beyond repair. In addition, the Company incurred significant costs to repair both facilities. Accordingly, the Company recorded $8.2 million of charges for property losses and associated expenses for both of the three and nine months ended September 30, 2021.
During the nine months ended September 30, 2022, insurance recoveries of $1.9 million associated with property damage and inventory losses were received and recorded in charges (insurance recoveries) for property losses and associated expenses.
Other Operating Income
Other operating income for the three and nine month periods ended September 30, 2022 of $1.3 million and $2.5 million, respectively, was comprised of income earned from the India Production Linked Incentive Scheme for the Pharmaceutical Sector. Refer to Note 19. Government Grants for additional information.
Total Other Expense, Net
Total other expense, net was $42.2 million for the three months ended September 30, 2022 as compared to $30.6 million for the three months ended September 30, 2021. Overall, the increase from the prior year period was driven by a $5.5 million unfavorable period-over-period impact of net foreign exchange gains and losses and higher interest expense, partially offset by an increase in the benefit related to a previously outstanding contingent liability.
Total other expense, net was $109.5 million for the nine months ended September 30, 2022 as compared to $93.9 million for the nine months ended September 30, 2021. Overall, the increase from the prior year period was driven by a $12.7 million unfavorable period-over-period impact of net foreign exchange gains and losses and higher interest expense, partially offset by an increase in the benefit related to a previously outstanding contingent liability.
Provision For Income Taxes
For the three months ended September 30, 2022 and 2021, our provision for income taxes and effective tax rates were $4.6 million and 209.6% and $4.0 million and (198.2)%, respectively. The period-over-period change in the provision for income taxes was primarily related to a change in the mix of foreign income.
For the nine months ended September 30, 2022 and 2021, our provision for income taxes and effective tax rates were $8.5 million and (3.5)% and $7.1 million and 14.8%, respectively. The period-over-period change in the provision for income taxes was primarily related to a change in the mix of foreign income and a discrete benefit as a result of the completion of an Internal
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Revenue Service examination and Joint Committee review of the 2012-2018 federal income tax returns, which enabled the Company to recognize previously unrecognized tax benefits.
Net (Loss) Income
We recognized a net loss for the three months ended September 30, 2022 of $2.4 million as compared to net loss of $6.1 million for the three months ended September 30, 2021. The period-over-period change was attributable to the factors discussed above.
We recognized a net loss for the nine months ended September 30, 2022 of $248.9 million as compared to net income of $40.6 million for the nine months ended September 30, 2021. The period-over-period change was attributable to the factors discussed above, including the charge for the nine months ended September 30, 2022 related to legal matters of $262.8 million associated with the Opana® ER antitrust litigation.
Generics
The following table sets forth results of operations for our Generics segment for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net revenue | $ | 350,266 | $ | 347,127 | $ | 1,032,908 | $ | 1,020,072 | |||||||||||||||
| Cost of goods sold | 217,997 | 208,670 | 640,450 | 598,122 | |||||||||||||||||||
| Cost of goods sold impairment charges | 674 | 688 | 5,786 | 688 | |||||||||||||||||||
| Gross profit | 131,595 | 137,769 | 386,672 | 421,262 | |||||||||||||||||||
| Selling, general and administrative | 30,259 | 15,941 | 84,410 | 46,500 | |||||||||||||||||||
| Research and development | 41,987 | 34,999 | 129,382 | 114,547 | |||||||||||||||||||
| In-process research and development impairment charges | — | — | — | 710 | |||||||||||||||||||
| Intellectual property legal development expenses | 1,369 | 1,584 | 2,919 | 6,506 | |||||||||||||||||||
| Acquisition, transaction-related and integration expenses | 16 | — | 24 | — | |||||||||||||||||||
| Charges related to legal matters, net | 285 | — | 2,442 | — | |||||||||||||||||||
| Charges (insurance recoveries) for property losses and associated expenses | — | 8,186 | (1,911) | 8,186 | |||||||||||||||||||
| Restructuring and other charges | 507 | — | 713 | 80 | |||||||||||||||||||
| Other operating income | (1,320) | — | (2,495) | — | |||||||||||||||||||
| Operating income (loss) | $ | 58,492 | $ | 77,059 | $ | 171,188 | $ | 244,733 | |||||||||||||||
Net Revenue
Generics net revenue was $350.3 million for the three months ended September 30, 2022, an increase of $3.1 million as compared to the prior year period, primarily due to volume growth and an increase in new products launched in 2022 and 2021 of $4.3 million, partially offset by continued price erosion.
Generics net revenue was $1,032.9 million for the nine months ended September 30, 2022, an increase of $12.8 million as compared to the prior year period. The increase primarily related to new products launched in 2022 and 2021 that contributed revenue growth of $7.7 million, the favorable year-over-year impact of lower returns relating to Oseltamivir (generic Tamiflu®), and volume growth. These increases were partially offset by continued price erosion.
Cost of Goods Sold and Gross Profit
Generics cost of goods sold, including impairment charges, for the three months ended September 30, 2022 was $218.7 million, an increase of $9.3 million compared the prior year period. The increase in cost of goods sold was primarily attributable to increased volume and inflationary pressure on freight.
Generics gross profit for the three months ended September 30, 2022 was $131.6 million (38% of net revenue) as compared to gross profit of $137.8 million (40% of net revenue) for the three months ended September 30, 2021 as a result of the factors described above.
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Generics cost of goods sold, including impairment charges, for the nine months ended September 30, 2022 was $646.2 million, an increase of $47.4 million as compared to the nine months ended September 30, 2021. The increase in cost of goods sold was primarily attributable to increased volume, increased freight costs, and a reduction in operating efficiencies period-over-period.
Generics gross profit for the nine months ended September 30, 2022 was $386.7 million (37% of net revenue) as compared to gross profit of $421.3 million (41% of net revenue) for the nine months ended September 30, 2021 as a result of the factors described above.
Selling, General, and Administrative
Generics SG&A expense for the three months ended September 30, 2022 was $30.3 million, as compared to $15.9 million for the three months ended September 30, 2021. The increase over the prior year period was primarily due to $6.9 million of costs associated with our biosimilar launches, including the Saol Acquisition, an increase in employee compensation, and increased freight charges as fuel costs increased.
Generics SG&A expense for the nine months ended September 30, 2022 was $84.4 million, as compared to $46.5 million for the nine months ended September 30, 2021. The increase over the prior year period was primarily attributed to $16.4 million of costs associated with our biosimilar launches, including the Saol Acquisition and a $5.0 million expense associated with a biosimilar regulatory approval, an increase in employee compensation, increased freight charges due to rising fuel costs, and increased legal fees.
Research and Development
Generics R&D expenses for the three months ended September 30, 2022 was $42.0 million, an increase of $7.0 million compared to the three months ended September 30, 2021. The increase was primarily associated with increased project spending as our complex portfolio continued to advance, inflationary pressures and the costs associated with acquired businesses in 2021 of $3.0 million relating to complex generics, offset, in part, by a decrease in in-licensing and upfront milestone payments of $1.0 million.
Generics R&D expenses for the nine months ended September 30, 2022 was $129.4 million, an increase of $14.8 million as compared to the nine months ended September 30, 2021. The increase was primarily associated with increased project spending as our complex portfolio continued to advance, inflationary pressures and the costs associated with acquired businesses in 2021 of $12.5 million relating to complex generics, offset, in part, by a decrease in in-licensing and upfront milestone payments of $9.5 million.
Intellectual Property Legal Development Expenses
Intellectual property legal development expenses include, but are not limited to, costs associated with formulation assessments, patent challenge opinions and strategy, and litigation expenses to defend our intellectual property. Intellectual property legal development expenses for the three months ended September 30, 2022 and 2021 were $1.4 million and $1.6 million, respectively. Expenses may vary based on the number of individual cases and corresponding litigation outstanding in a particular period.
Intellectual property legal development expenses for the nine months ended September 30, 2022 and 2021 were $2.9 million and $6.5 million, respectively. The period-over-period decrease of $3.6 million was due to the timing of specific cases. Expenses may vary based on the number of individual cases and corresponding litigation outstanding in a particular period.
Charges (Insurance Recoveries) for Property losses and Associated Expenses
On September 1, 2021, Tropical Storm Ida brought extreme rainfall and flash flooding to New Jersey that caused damage to two of our facilities. The Company concluded that all inventory on-hand at the time of the flooding was damaged and unsellable and that a majority of the equipment was damaged beyond repair. In addition, the Company incurred significant costs to repair both facilities. Accordingly, the Company recorded $8.2 million of charges for property losses and associated expenses for both of the three and nine months ended September 30, 2021.
During the nine months ended September 30, 2022, insurance recoveries of $1.9 million associated with property damage and inventory losses were received and recorded in charges (insurance recoveries) for property losses and associated expenses.
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Other Operating Income
Other operating income for the three and nine month periods ended September 30, 2022 of $1.3 million and $2.5 million, respectively, was comprised of income earned from the India Production Linked Incentive Scheme for the Pharmaceutical Sector. Refer to Note 19. Government Grants for additional information.
Specialty
The following table sets forth results of operations for our Specialty segment for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net revenue | $ | 89,484 | $ | 92,745 | $ | 271,571 | $ | 277,311 | |||||||||||||||
| Cost of goods sold | 43,719 | 47,303 | 130,363 | 144,184 | |||||||||||||||||||
| Gross profit | 45,765 | 45,442 | 141,208 | 133,127 | |||||||||||||||||||
| Selling, general and administrative | 22,201 | 22,211 | 69,772 | 62,748 | |||||||||||||||||||
| Research and development | 8,248 | 13,928 | 24,399 | 35,426 | |||||||||||||||||||
| Intellectual property legal development expenses | 42 | 43 | 77 | 68 | |||||||||||||||||||
| Acquisition, transaction-related and integration expenses | 15 | — | 47 | 16 | |||||||||||||||||||
| Change in fair value of contingent consideration | (1,425) | 300 | (1,495) | 300 | |||||||||||||||||||
| Operating income | $ | 16,684 | $ | 8,960 | $ | 48,408 | $ | 34,569 | |||||||||||||||
Net Revenue
Specialty net revenue for the three months ended September 30, 2022 was $89.5 million, a decrease of $3.3 million as compared to the three months ended September 30, 2021, driven by the loss of exclusivity of Zomig® nasal spray and a decline in our other non-promoted products. Net revenue from our promoted products, including Rytary® and Unithroid®, increased 12% and 39%, respectively as prescription growth remained strong for both products.
Specialty net revenue for the nine months ended September 30, 2022 was $271.6 million, a decrease of $5.7 million as compared to the nine months ended September 30, 2021, driven by the loss of exclusivity of Zomig® nasal spray and a decline in our other non-promoted products. Net revenue from our promoted products, including Rytary® and Unithroid®, increased 7% and 33%, respectively as prescription growth remained strong for both products.
Cost of Goods Sold and Gross Profit
Specialty cost of goods sold for the three months ended September 30, 2022 was $43.7 million as compared to $47.3 million for the three months ended September 30, 2021. Specialty gross profit for the three months ended September 30, 2022 was $45.8 million (51% of net revenue) as compared to gross profit of $45.4 million (49% of net revenue) for the three months ended September 30, 2021. The increase in gross profit primarily related to the decrease in revenues, offset by product mix, including the loss of exclusivity on Zomig® nasal spray, which had lower margin.
Specialty cost of goods sold for the nine months ended September 30, 2022 was $130.4 million as compared to $144.2 million for the nine months ended September 30, 2021. Specialty gross profit for the nine months ended September 30, 2022 was $141.2 million (52% of net revenue) as compared to gross profit of $133.1 million (48% of net revenue) for the nine months ended September 30, 2021. The increase in gross profit primarily related to the decrease in revenues, offset by product mix, including the loss of exclusivity on Zomig® Nasal Spray which had lower margin.
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Selling, General, and Administrative
Specialty SG&A expense was $22.2 million for both the three months ended September 30, 2022 and 2021, as operating efficiencies offset inflationary pressures.
Specialty SG&A expense was $69.8 million for the nine months ended September 30, 2022, an increase of $7.0 million compared to the nine months ended September 30, 2021. The increase was driven by an increase in in-person sales and marketing efforts following the onset of the COVID-19 pandemic.
Research and Development
Specialty R&D expenses for the three months ended September 30, 2022 were $8.2 million, as compared to $13.9 million for the three months ended September 30, 2021. The $5.7 million decrease from the prior year period was primarily attributable to a decrease in project spend as the IPX study wound down.
Specialty R&D expenses for the nine months ended September 30, 2022 were $24.4 million, as compared to $35.4 million for the nine months ended September 30, 2021. The $11.0 million decrease from the prior year period was primarily attributable to a decrease in project costs as our IPX203 study wound down and a decrease in in-licensing and upfront milestone payments of $2.9 million.
AvKARE
The following table sets forth results of operations for our AvKARE segment for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net revenue | $ | 105,807 | $ | 88,721 | $ | 298,066 | $ | 259,390 | |||||||||||||||
| Cost of goods sold | 88,937 | 73,421 | 256,626 | 211,208 | |||||||||||||||||||
| Gross profit | 16,870 | 15,300 | 41,440 | 48,182 | |||||||||||||||||||
| Selling, general and administrative | 13,216 | 14,683 | 39,361 | 41,986 | |||||||||||||||||||
| Acquisition, transaction-related and integration expenses | — | — | — | 1,422 | |||||||||||||||||||
| Operating income | $ | 3,654 | $ | 617 | $ | 2,079 | $ | 4,774 | |||||||||||||||
Net Revenue
AvKARE net revenue for the three months ended September 30, 2022 was $105.8 million, an increase of $17.1 million as compared to the three months ended September 30, 2022, driven by growth in our distribution channel.
AvKARE net revenue for the nine months ended September 30, 2022 was $298.1 million, an increase of $38.7 million as compared to the nine months ended September 30, 2021, driven by growth in our distribution channel.
Cost of Goods Sold and Gross Profit
AvKARE cost of goods sold for the three months ended September 30, 2022 was $88.9 million as compared to $73.4 million for the three months ended September 30, 2021. AvKARE gross profit for the three months ended September 30, 2022 was $16.9 million (16% of net revenue) as compared to gross profit of $15.3 million (17% of net revenue) for the three months ended September 30, 2021. The decrease in gross profit as a percentage of revenue primarily related to the increase in sales through our lower margin distribution channel.
AvKARE cost of goods sold for the nine months ended September 30, 2022 was $256.6 million as compared to $211.2 million for the nine months ended September 30, 2021. AvKARE gross profit for the nine months ended September 30, 2022 was $41.4 million (14% of net revenue) as compared to gross profit of $48.2 million (19% of net revenue) for the nine months ended September 30, 2021. The decrease in gross profit primarily related to the increase in sales through our lower margin distribution channel and a decrease in sales through our higher margin governmental label channel.
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Selling, General, and Administrative
AvKARE SG&A expense was $13.2 million for the three months ended September 30, 2022 as compared to $14.7 million in the prior year period. SG&A expense decreased period-over-period primarily due to a decrease in amortization expense.
AvKARE SG&A expense was $39.4 million for the nine months ended September 30, 2022 as compared to $42.0 million for the prior year period. SG&A expense decreased period-over-period primarily due to a decrease in amortization expense.
Liquidity and Capital Resources
On June 2, 2022, the Company entered into a revolving credit agreement (the “New Credit Agreement”), which amended the existing senior secured asset based revolving credit facility (the “Revolving Credit Facility”). The New Credit Agreement (i) replaced the Revolving Credit Facility with a $350.0 million senior secured revolving credit facility (the “New Revolving Credit Facility”) that matures on June 2, 2027, (ii) provides for up to $25.0 million of the New Revolving Credit Facility to be available for the purpose of issuing letters of credit; (iii) provides for up to $35.0 million of the New Revolving Credit Facility to be available for the purpose of issuing swingline loans; (iv) allows the the Company to request an incremental increase in the revolving facility commitments by up to $150.0 million; and (v) terminated the revolving credit facility commitments of lenders under the Revolving Credit Facility.
Interest is payable on the New Revolving Credit Facility at a rate equal to the alternate base rate (“ABR”) or the secured overnight financing rate (“SOFR”), plus an applicable margin, in each case, subject to a ABR floor of 1.00% or a SOFR floor of 0.00%, as applicable. The applicable margin for the New Revolving Credit Facility is initially 0.25% per annum for ABR loans and 1.25% per annum for SOFR loans. The applicable margin on borrowings under the New Revolving Credit Facility thereafter will adjust ranging from 0.25% to 0.50% per annum for ABR loans and from 1.25% to 1.50% per annum for SOFR loans determined by the average historical excess availability. The proceeds of any loans made under the New Revolving Credit Facility can be used for capital expenditures, acquisitions, working capital needs and other general purposes, subject to covenants as described below. The Borrower pays a commitment fee based on the average daily unused amount of the New Revolving Credit Facility at a rate of 0.25% per annum.
Our primary source of liquidity is cash generated from operations, available cash on hand and borrowings under debt financing arrangements, including $285.9 million of available capacity on our New Revolving Credit facility as of September 30, 2022. Refer to Note 17. Debt in our 2021 Annual Report on Form 10-K for additional information. We believe these sources are sufficient to fund our planned operations, meet our interest and contractual obligations, including acquisitions, and provide sufficient liquidity over the next 12 months from the date of filing of this Form 10-Q. However, our ability to satisfy our working capital requirements and debt obligations will depend upon economic conditions, the impact of the COVID-19 pandemic, and demand for our products, which are factors that may be out of our control.
Our primary uses of capital resources are to fund operating activities, including research and development expenses associated with new product filings, and pharmaceutical product manufacturing expenses, license payments, spending on production facility expansions and capital equipment, acquisitions, and settlements of litigation. As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. A continued worldwide disruption could materially affect our future access to sources of liquidity, particularly our cash flows from operations, and financial condition. In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions.
We estimate that we will invest approximately $65.0 million to $75.0 million during 2022 for capital expenditures to support and grow our existing operations, primarily related to investments in manufacturing equipment, information technology and facilities.
Over the next 12 months, we expect to make substantial payments, including $100.0 million in payments associated with the Preliminary Settlement Agreements for the Opana® ER antitrust litigation (refer to Note 13. Commitments and Contingencies), monthly interest and quarterly principal amounts due for our debt instruments, including our Term Loan and Rondo Term Loan, as well as contractual payments for leased premises. Refer to Note 17. Debt and Note 12. Leases in our 2021 Annual Report on Form 10-K for additional information on our indebtedness and leases, respectively.
We are party to a tax receivable agreement (“TRA”) that requires us to make cash payments to the Members other than the Company, in respect of certain tax benefits that we may realize or may be deemed to realize as a result of sales or exchanges of Amneal Common Units by the Members (refer to Note 1. Nature of Operations). The timing and amount of any payments under the TRA will also vary, depending upon a number of factors including the timing and number of Amneal Common Units sold
56
or exchanged for our class A common stock, the price of our class A common stock on the date of sale or exchange, the timing and amount of our taxable income, and the tax rate in effect at the time of realization of our taxable income. The tax receivable agreement also requires that we make an accelerated payment to the Members equal to the present value of all future payments due under the agreement upon certain change of control and similar transactions. Further sales or exchanges occurring subsequent to September 30, 2022 could result in future Amneal tax deductions and obligations to pay 85% of such benefits to the holders of Amneal Common Units. These obligations could be incremental to and substantially larger than the approximate $206.3 million contingent liability as of September 30, 2022 (refer to Note 7. Income Taxes). As a result of the foregoing, our obligations under the tax receivable agreement could have a substantial negative impact on our liquidity. For further details, refer to Item 1A. Risk Factors in our 2021 Annual Report on Form 10-K.
In addition, pursuant to the limited liability operating agreement of Amneal, as amended, in connection with any tax period, we will be required to make distributions to Amneal's members, on a pro rata basis in proportion to the number of Amneal Common Units held by each member, of cash until each member (other than Amneal) has received an amount at least equal to its assumed tax liability and Amneal has received an amount sufficient to enable it to timely satisfy all of its U.S. federal, state and local and non-U.S. tax liabilities, and meet its obligations pursuant to the TRA. During the nine months ended September 30, 2022 and September 30, 2021, we made tax distributions of $3.3 million and $2.2 million, respectively, to the Members.
As of September 30, 2022, our cash and cash equivalents consist of cash on deposit and highly liquid investments. A portion of our cash flows are derived outside the United States. As a result, we are subject to market risk associated with changes in foreign exchange rates. We maintain cash balances at both U.S. based and foreign country based commercial banks. At various times during the year, our cash balances held in the United States may exceed amounts that are insured by the Federal Deposit Insurance Corporation (FDIC). We make our investments in accordance with our investment policy. The primary objectives of our investment policy are liquidity and safety of principal.
Cash Flows
(in thousands)
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash provided by (used in): | |||||||||||
| Operating activities | $ | 88,392 | $ | 178,559 | |||||||
| Investing activities | (162,843) | (107,213) | |||||||||
| Financing activities | (84,453) | (107,772) | |||||||||
| Effect of exchange rate changes on cash | (1,944) | (76) | |||||||||
| Net decrease in cash, cash equivalents, and restricted cash | $ | (160,848) | $ | (36,502) | |||||||
Cash Flows from Operating Activities
Net cash provided by operating activities was $88.4 million for the nine months ended September 30, 2022 as compared to $178.6 million for the nine months ended September 30, 2021. The decrease in operating cash flows from the prior year period was primarily driven by payments of $115.0 million into an escrow account associated with the Opana® ER antitrust litigation settlement agreements and Preliminary Settlement Agreements. Refer to Note 13. Commitments and Contingencies.
Cash Flows from Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2022 was $162.8 million as compared to $107.2 million for the nine months ended September 30, 2021. The increase from the prior year period of $55.6 million was primarily due to an increase in cash paid for intangible assets associated with marketed product licenses and business acquisitions.
Cash Flows from Financing Activities
Net cash used in financing activities was $84.5 million for the nine months ended September 30, 2022 as compared to $107.8 million for the nine months ended September 30, 2021. The decrease from the prior year period of $23.3 million was primarily due to $85.0 million in borrowings under the New Revolving Credit Facility (refer to Note 20. Debt) and a $23.5 million decrease in tax distributions, partially offset by $44.5 million paid for deferred consideration associated with the KSP
57
Acquisition and the Puniska Acquisition (refer to Note 3. Acquisitions) and an increase in principal payments made on borrowings of $37.4 million.
Commitments and Contractual Obligations
The contractual obligations of the Company are set forth in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s 2021 Annual Report on Form 10-K. Other than the contractual obligations noted below (shown in thousands), there have been no material changes to the disclosure presented in our 2021 Annual Report on Form 10-K.
| Payments Due by Period | |||||||||||||||||
| Contractual Obligations | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | ||||||||||||
Opana ER® antitrust litigation Preliminary Settlement Agreements(1) | $ | 150,000 | $ | 100,000 | $ | 50,000 | $ | — | $ | — | |||||||
Interest associated with the Opana ER® antitrust litigation Preliminary Settlement Agreements (1) | 4,220 | 1,805 | 2,415 | — | — | ||||||||||||
| Total | $ | 154,220 | $ | 101,805 | $ | 52,415 | $ | — | $ | — | |||||||
(1) Refer to Note 13. Commitments and Contingencies for additional information.
The foregoing table does not include milestone payments potentially payable by the Company under its collaboration agreements and licenses. Such milestone payments are dependent upon the occurrence of specific and contingent events, and not the passage of time. A discussion of our significant contingent milestones is contained in Note 5. Alliance and Collaboration and Note 24. Related Party Transactions in our 2021 Annual Report on Form 10-K and Note 6. Alliance and Collaboration and Note 15. Related Party Transactions in this Form 10-Q.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2022.
Critical Accounting Policies and Estimates
For a discussion of the Company’s critical accounting policies and estimates, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K. There have been no material changes to the disclosures presented in our 2021 Annual Report on Form 10-K.
Recently Issued Accounting Standards
Recently issued accounting standards are discussed in Note 2. Summary of Significant Accounting Policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has not been any material change in our assessment of market risk as set forth in Item 7A. Quantitative and Qualitative Disclosures About Market Risk, in our 2021 Annual Report on Form 10-K.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
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Our management, with the participation of our Co-Chief Executive Officers and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Co-Chief Executive Officers and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2022.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2022, there were no changes in our internal control over financial reporting which materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Management, including our Co-Chief Executive Officers and Chief Financial Officer, does not expect that our disclosure controls and procedures or our system of internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can provide only reasonable, but not absolute, assurance that the objectives of the system of internal control are met. The design of our control system reflects the fact that there are resource constraints, and that the benefits of such control system must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control failures 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 simple error or mistake. Additionally, controls can be circumvented by the intentional acts of individuals, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part on certain assumptions about the likelihood of future events, and there can be no assurance that the design of any particular control will always succeed in achieving its objective under all potential future conditions.
Part II – OTHER INFORMATION
Item 1. Legal Proceedings
Information pertaining to legal proceedings can be found in Note 13. Commitments and Contingencies and is incorporated by reference herein.
Item 1A. Risk Factors
There have been no material changes to the disclosures presented in our 2021 Annual Report on Form 10-K under Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibit No. | Description of Document | |||||||
| 101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for each of the three and nine months ended September 30, 2022 and 2021, (ii) Consolidated Statements of Comprehensive Income (Loss) for each of the three and nine months ended September 30, 2022 and 2021, (iii) Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021, (v) Consolidated Statements of Changes in Stockholders' Equity for each of the three and nine months ended September 30, 2022 and 2021 and (vi) Notes to Consolidated Financial Statements.* | |||||||
| 104 | Cover Page Interactive Data File – The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 is formatted in Inline XBRL (included as Exhibit 101). | |||||||
| * | Filed herewith | |||||||
| ** | This certificate is being furnished solely to accompany the report pursuant to 18 U.S.C. 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. | |||||||
| † | Denotes management compensatory plan or arrangement. | |||||||
60
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.
| Date: November 7, 2022 | Amneal Pharmaceuticals, Inc. | |||||||
| (Registrant) | ||||||||
| By: | /s/ Anastasios Konidaris | |||||||
| Anastasios Konidaris | ||||||||
| Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | ||||||||
61
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Chirag Patel, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2022 of Amneal Pharmaceuticals, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| November 7, 2022 | By: | /s/ Chirag Patel | ||||||
| Chirag Patel | ||||||||
| President and Co-Chief Executive Officer (Co-Principal Executive Officer) | ||||||||
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Chintu Patel, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2022 of Amneal Pharmaceuticals, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| November 7, 2022 | By: | /s/ Chintu Patel | ||||||
| Chintu Patel | ||||||||
| Co-Chief Executive Officer (Co-Principal Executive Officer) | ||||||||
Exhibit 31.3
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Anastasios Konidaris, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2022 of Amneal Pharmaceuticals, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| November 7, 2022 | By: | /s/ Anastasios Konidaris | ||||||
| Anastasios Konidaris | ||||||||
| Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | ||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Amneal Pharmaceuticals, Inc. (the “Company”) for the fiscal quarter ended September 30, 2022 (the “Report”), Chirag Patel, President and Co-Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| November 7, 2022 | By: | /s/ Chirag Patel | ||||||
| Chirag Patel | ||||||||
| President and Co-Chief Executive Officer | ||||||||
| (Co-Principal Executive Officer) | ||||||||
A signed original of this written statement required by Section 906 has been provided to Amneal Pharmaceuticals, Inc. and will be retained by Amneal Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Amneal Pharmaceuticals, Inc. (the “Company”) for the fiscal quarter ended September 30, 2022 (the “Report”), Chintu Patel, Co-Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| November 7, 2022 | By: | /s/ Chintu Patel | ||||||
| Chintu Patel | ||||||||
| Co-Chief Executive Officer | ||||||||
| (Co-Principal Executive Officer) | ||||||||
A signed original of this written statement required by Section 906 has been provided to Amneal Pharmaceuticals, Inc. and will be retained by Amneal Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Amneal Pharmaceuticals, Inc. (the “Company”) for the fiscal quarter ended September 30, 2022 (the “Report”), Anastasios Konidaris, Executive Vice President and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| November 7, 2022 | By: | /s/ Anastasios Konidaris | ||||||
| Anastasios Konidaris | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
| (Principal Financial and Accounting Officer) | ||||||||
A signed original of this written statement required by Section 906 has been provided to Amneal Pharmaceuticals, Inc. and will be retained by Amneal Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.