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, ~~2017~~2023

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

For the transition period from to

Commission file number 001-36509

AMPHASTAR PHARMACEUTICALS, INC.

(Exact name of Registrant as specified in its charter)

Delaware

33-0702205

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

~~11570 6~~th ~~Street~~


11570 6^th Street
Rancho Cucamonga, CA		91730
(Address of principal executive offices)		(zip code)

~~Rancho Cucamonga, CA 91730~~(909) 980-9484

~~(Address of principal executive offices, including zip code)~~

~~(909) 980-9484~~

(Registrant’s telephone number, including area code)

Indicate by check mark whether the ~~Registrant~~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~~registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒⌧ No ◻ ◻



Indicate by check mark whether the ~~Registrant (1)~~registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the ~~Registrant~~registrant was required to submit ~~and post~~ such files). Yes ☒⌧ No ◻◻



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


Large accelerated filer	◻⌧	Accelerated filer	☒◻

Non-accelerated filer	◻ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	◻
			
		Emerging growth company	☒◻

If an emerging growth company, indicate by check mark if the ~~Registrant~~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~~registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻No ☒⌧

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

The number of shares outstanding of the ~~Registrant’s~~registrant’s only class of common stock as of November 2, ~~2017~~2023 was ~~45,975,746.~~47,907,411.

SPECIAL NOTE ABOUT FORWARD-LOOKING ~~STATEMENTS~~

STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains “forward-looking statements” that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the following words: “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these identifying words. Forward-looking statements relate to future events or future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by the forward-looking statements. These forward-looking statements include, but are not limited to, statements about:

●

our expectations regarding the sales and marketing of our ~~products,~~products;

●

our expectations regarding our newly acquired product, BAQSIMI^®, including with respect to our ability to increase our revenues and derive certain benefits as a result of our acquisition of BAQSIMI^®;

●

our ability to successfully acquire and integrate assets, including our ~~enoxaparin product following termination of our profit sharing agreement with Actavis;~~

ability to integrate BAQSIMI^®;

●

our expectations regarding our manufacturing and production and the integrity of our supply chain for our products, including the risks associated with our single source suppliers;

●

our business and operations in general, including: any resurgence of the COVID-19 pandemic, adverse impacts of the Russia-Ukraine conflict and related macroeconomic conditions on our business, financial condition, operations, cash flows and liquidity;

●

our ability to attract, hire, and retain highly skilled personnel;

●

interruptions to our manufacturing and production as a result of natural catastrophic events or other causes beyond our control such as power disruptions or widespread disease outbreaks, such as any resurgence of the COVID-19 pandemic and the Russia-Ukraine conflict;

●

global, national and local economic and market conditions, specifically with respect to geopolitical uncertainty, including the Russia-Ukraine conflict, the Israel-Hamas war, inflation and rising interest rates;

●

the timing and likelihood of U.S. Food and Drug Administration, or FDA, approvals and regulatory actions on our product candidates, manufacturing activities and product marketing activities;

●

our ability to advance product candidates in our platforms into successful and completed clinical trials and our subsequent ability to successfully commercialize our product candidates;

●

cost and delays resulting from the extensive pharmaceutical regulations to which we are subject;

●

our ability to compete in the development and marketing of our products and product candidates;

●

our expectations regarding the business of our Chinese subsidiary, Amphastar Nanjing Pharmaceuticals, Ltd., or ANP;

●

the potential for adverse application of environmental, health and safety and other laws and regulations on our operations;

●

our expectations for market acceptance of our new products and proprietary drug delivery technologies, as well as those of our active pharmaceutical ingredient, or API, customers;

●

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

effects of reforms in healthcare regulations and reductions in pharmaceutical pricing, reimbursement and coverage;

●

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

●

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

●

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

●

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

●

the potential for exposure to product liability claims;

●

~~future~~our ability to successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions, divestitures or investments, including the anticipated benefits of such acquisitions, divestitures or investments;

●

our ability to expand internationally;

●

economic and industry trends and trend analysis;

●

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

●

the impact of trade tariffs, export or import restrictions, or other trade barriers;

●

the impact of Patient Protection and Affordable Care Act (as amended) and other legislative and regulatory healthcare reforms in the countries in which we operate including the potential for drug price controls;

●

the impact of global and domestic tax reforms;

●

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

Amphastar facilities;

●

the timing and extent of share buybacks; and

●

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

Table of Contents

You should read this Quarterly Report and the documents that we reference elsewhere in this Quarterly Report completely and with the understanding that our actual results may differ materially from what we expect as expressed or implied by our forward-looking statements. In light of the significant risks and uncertainties to which our forward-looking statements are subject, you should not place undue reliance on or regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. We discuss many of these risks and uncertainties in greater detail in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, particularly in Item 1A. “Risk Factors.” These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report regardless of the time of delivery of this Quarterly Report, and such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report.

Unless expressly indicated or the context requires otherwise, references in this Quarterly Report to “Amphastar,” “the Company,” “we,” “our,” and “us” refer to Amphastar Pharmaceuticals, Inc. and our subsidiaries.

Table of Contents

PART I.I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	September 30,		December 31,
	2023		2022
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	266,778	$	156,098
Restricted cash		4,259		235
Short-term investments		33,098		19,664
Restricted short-term investments		2,200		2,200
Accounts receivable, net		118,990		88,804
Inventories		109,978		103,584
Income tax refunds and deposits		1,506		171
Prepaid expenses and other assets		6,196		7,563
Total current assets		543,005		378,319

Property, plant, and equipment, net		280,836		238,266
Finance lease right-of-use assets		610		753
Operating lease right-of-use assets		32,666		25,554
Investment in unconsolidated affiliate		1,026		2,414
Goodwill and intangible assets, net		619,351		37,298
Long-term investments		972		—
Other assets		25,299		20,856
Deferred tax assets		40,868		38,527
Total assets	$	1,544,633	$	741,987

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	222,719	$	84,242
Income taxes payable		31,092		4,571
Current portion of long-term debt		433		3,046
Current portion of operating lease liabilities		3,719		3,003
Total current liabilities		257,963		94,862

Long-term reserve for income tax liabilities		7,225		7,225
Long-term debt, net of current portion and unamortized debt issuance costs		638,206		72,839
Long-term operating lease liabilities, net of current portion		30,199		23,694
Deferred tax liabilities		201		144
Other long-term liabilities		15,699		14,565
Total liabilities		949,493		213,329
Commitments and contingencies
Stockholders’ equity:
Preferred stock: par value $0.0001; 20,000,000 shares authorized; no shares issued and outstanding		—		—
Common stock: par value $0.0001; 300,000,000 shares authorized; 59,220,178 and 47,898,466 shares issued and outstanding as of September 30, 2023 and 58,110,231 and 48,112,069 shares issued and outstanding as of December 31, 2022, respectively		6		6
Additional paid-in capital		477,880		455,077
Retained earnings		373,102		271,723
Accumulated other comprehensive loss		(8,411)		(8,624)
Treasury stock		(247,437)		(189,524)
Total equity		595,140		528,658
Total liabilities and stockholders’ equity	$	1,544,633	$	741,987

September 30,

December 31,

2017

2016

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$
66,920

$
72,354

Short-term investments

2,522

527

Restricted short-term investments

4,155

1,390

Accounts receivable, net

24,152

26,777

Inventories

69,640

79,754

Income tax refunds and deposits

443

22

Prepaid expenses and other assets

8,660

3,272

Total current assets

176,492

184,096

Property, plant, and equipment, net

173,046

152,944

Goodwill and intangible assets, net

45,731

50,307

Other assets

10,623

9,390

Deferred tax assets

31,874

31,001

Total assets

$
437,766

$
427,738

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$
9,590

$
16,196

Accrued liabilities

16,421

15,703

Income taxes payable

4,181

7,705

Accrued payroll and related benefits

17,344

13,847

Current portion of product return accrual

3,649

1,800

Current portion of long-term debt and capital leases

6,212

5,366

Total current liabilities

57,397

60,617

Long-term product return accrual

1,865

1,343

Long-term reserve for income tax liabilities

845

845

Long-term deferred revenue

1,215

97

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

42,232

32,356

Deferred tax liabilities

1,586

1,455

Other long-term liabilities

1,971

1,770

Total liabilities

107,111

98,483

Commitments and contingencies:

Stockholders’ equity:

Preferred stock: par value $0.0001; 20,000,000 shares authorized; no shares issued and outstanding

—

—

Common stock: par value $0.0001; 300,000,000 shares authorized; 48,991,134 and 45,896,393 shares issued and outstanding as of September 30, 2017 and 47,765,149 and 46,248,622 shares issued and outstanding as of December 31, 2016, respectively

5

5

Additional paid-in capital

303,208

283,123

Retained earnings

74,767

70,855

Accumulated other comprehensive loss

(2,595)

(4,696)

Treasury stock

(44,730)

(20,032)

Total stockholders’ equity

330,655

329,255

Total liabilities and stockholders’ equity

$
437,766

$
427,738

See Accompanying Notes to Condensed Consolidated Financial Statements.

-1-

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~OPERATIONS

(Unaudited; in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

Net revenues

$
57,916

$
64,223

$
179,773

$
191,622

Cost of revenues

37,275

36,611

109,557

107,394

Gross profit

20,641

27,612

70,216

84,228

Operating (income) expenses:

Selling, distribution, and marketing

1,756

1,291

4,831

3,975

General and administrative

11,665

10,801

35,237

31,129

Research and development

10,040

9,723

32,022

28,922

Gain on sale of intangible assets

—

—

(2,643)

—

Total operating expenses

23,461

21,815

69,447

64,026

Income (loss) from operations

(2,820)

5,797

769

20,202

Non-operating income (expense):

Interest income

124

63

302

187

Interest expense

(264)

(281)

(692)

(970)

Other income, net

969

422

2,307

150

Total non-operating income (expense), net

829

204

1,917

(633)

Income (loss) before income taxes

(1,991)

6,001

2,686

19,569

Income tax expense (benefit)

(2,166)

2,111

(354)

6,295

Net income

$
175

$
3,890

$
3,040

$
13,274

Net income per share:

Basic

$
0.00

$
0.09

$
0.07

$
0.29

Diluted

$
0.00

$
0.08

$
0.06

$
0.29

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

Basic

46,101

45,398

46,065

45,132

Diluted

48,215

47,953

48,046

46,365


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net revenues:
Product revenues, net	$	151,855	$	120,129	$	437,589	$	363,964
Other revenues		28,701		—		28,701		—
Total net revenues		180,556		120,129		466,290		363,964

Cost of revenues		72,153		61,619		211,309		186,272
Gross profit		108,403		58,510		254,981		177,692

Operating expenses:
Selling, distribution, and marketing		6,407		4,784		20,234		16,059
General and administrative		12,654		11,984		38,418		34,433
Research and development		16,664		18,514		53,322		57,535
Total operating expenses		35,725		35,282		111,974		108,027

Income from operations		72,678		23,228		143,007		69,665

Non-operating income (expenses):
Interest income		1,202		331		3,156		741
Interest expense		(13,702)		(566)		(17,702)		(1,318)
Other income (expenses), net		3,459		(397)		1,553		5,692
Total non-operating income (expenses), net		(9,041)		(632)		(12,993)		5,115

Income before income taxes		63,637		22,596		130,014		74,780
Income tax provision		14,025		6,559		27,160		16,187
Income before equity in losses of unconsolidated affiliate		49,612		16,037		102,854		58,593

Equity in losses of unconsolidated affiliate		(390)		(163)		(1,476)		(1,120)

Net income	$	49,222	$	15,874	$	101,378	$	57,473

Net income per share:
Basic	$	1.01	$	0.32	$	2.10	$	1.18

Diluted	$	0.91	$	0.30	$	1.91	$	1.09

Weighted-average shares used to compute net income per share:
Basic		48,701		48,904		48,368		48,635

Diluted		53,921		52,788		52,997		52,665

See Accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(Unaudited; in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net income	$	49,222	$	15,874	$	101,378	$	57,473

Other comprehensive income (loss), net of income taxes
Foreign currency translation adjustment		(87)		(1,222)		213		(3,166)
Total other comprehensive income (loss)		(87)		(1,222)		213		(3,166)

Total comprehensive income	$	49,135	$	14,652	$	101,591	$	54,307

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

Net income

$
175

$
3,890

$
3,040

$
13,274

Other comprehensive income (loss), net of income taxes

Foreign currency translation adjustment

625

109

2,101

(106)

Total other comprehensive income (loss)

625

109

2,101

(106)

Total comprehensive income

$
800

$
3,999

$
5,141

$
13,168

See Accompanying Notes to Condensed Consolidated Financial Statements.

-3-

Table of Contents

~~AMPHASTAR~~AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY

(Unaudited; in ~~thousands)~~thousands, except share data)


	Common Stock							Accumulated		Treasury Stock
				Additional				Other
				Paid-in		Retained		Comprehensive
	Shares	Amount		Capital		Earnings		loss		Shares	Amount		Total
Balance as of December 31, 2022	58,110,231	$	6	$	455,077	$	271,723	$	(8,624)	(9,998,162)	$	(189,524)	$	528,658
Net income	—		—		—		26,032		—	—		—		26,032
Other comprehensive income	—		—		—		—		356	—		—		356
Purchase of treasury stock	—		—		—		—		—	(263,131)		(8,015)		(8,015)
Issuance of common stock in connection with the Company's equity plans	330,300		—		(4,565)		—		—	—		—		(4,565)
Share-based compensation expense	—		—		6,111		—		—	—		—		6,111
Balance as of March 31, 2023	58,440,531	$	6	$	456,623	$	297,755	$	(8,268)	(10,261,293)	$	(197,539)	$	548,577
Net income	—		—		—		26,124		—	—		—		26,124
Other comprehensive loss	—		—		—		—		(56)	—		—		(56)
Purchase of treasury stock	—		—		—		—		—	(3,585)		(129)		(129)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(231)		—		—	15,207		231		—
Issuance of common stock in connection with the Company's equity plans	627,946		—		9,853		—		—	—		—		9,853
Share-based compensation expense	—		—		4,865		—		—	—		—		4,865
Balance as of June 30, 2023	59,068,477	$	6	$	471,110	$	323,880	$	(8,324)	(10,249,671)	$	(197,437)	$	589,235
Net income	—		—		—		49,222		—	—		—		49,222
Other comprehensive loss	—		—		—		—		(87)	—		—		(87)
Purchase of treasury stock	—		—		—		—		—	(1,072,041)		(50,000)		(50,000)
Issuance of common stock in connection with the Company's equity plans	151,701		—		2,126		—		—	—		—		2,126
Share-based compensation expense	—		—		4,644		—		—	—		—		4,644
Balance as of September 30, 2023	59,220,178	$	6	$	477,880	$	373,102	$	(8,411)	(11,321,712)	$	(247,437)	$	595,140


	Common Stock							Accumulated		Treasury Stock
				Additional				Other
				Paid-in		Retained		Comprehensive
	Shares	Amount		Capital		Earnings		loss		Shares	Amount		Total
Balance as of December 31, 2021	56,440,202	$	6	$	422,423	$	180,337	$	(6,765)	(8,725,290)	$	(150,479)	$	445,522
Net income	—		—		—		24,253		—	—		—		24,253
Other comprehensive loss	—		—		—		—		(480)	—		—		(480)
Purchase of treasury stock	—		—		—		—		—	(51,168)		(1,229)		(1,229)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(428)		—		—	33,231		428		—
Issuance of common stock in connection with the Company's equity plans	1,055,200		—		6,437		—		—	—		—		6,437
Share-based compensation expense	—		—		5,022		—		—	—		—		5,022
Balance as of March 31, 2022	57,495,402	$	6	$	433,454	$	204,590	$	(7,245)	(8,743,227)	$	(151,280)	$	479,525
Net income	—		—		—		17,346		—	—		—		17,346
Other comprehensive loss	—		—		—		—		(1,464)	—		—		(1,464)
Purchase of treasury stock	—		—		—		—		—	(189,840)		(6,118)		(6,118)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(430)		—		—	29,019		430		—
Issuance of common stock in connection with the Company's equity plans	400,935		—		5,783		—		—	—		—		5,783
Share-based compensation expense	—		—		4,235		—		—	—		—		4,235
Balance as of June 30, 2022	57,896,337	$	6	$	443,042	$	221,936	$	(8,709)	(8,904,048)	$	(156,968)	$	499,307
Net income	—		—		—		15,874		—	—		—		15,874
Other comprehensive loss	—		—		—		—		(1,222)	—		—		(1,222)
Purchase of treasury stock	—		—		—		—		—	(478,255)		(14,493)		(14,493)
Issuance of common stock in connection with the Company's equity plans	98,511		—		1,400		—		—	—		—		1,400
Share-based compensation expense	—		—		4,299		—		—	—		—		4,299
Balance as of September 30, 2022	57,994,848	$	6	$	448,741	$	237,810	$	(9,931)	(9,382,303)	$	(171,461)	$	505,165

Nine Months Ended

September 30,

2017

2016

Cash Flows From Operating Activities:

Net income

$
3,040

$
13,274

Reconciliation to net cash provided by operating activities:

Loss (gain) on disposal and impairment of long-lived assets

(2,283)

994

Depreciation of property, plant, and equipment

9,376

9,009

Amortization of product rights, trademarks, and patents

2,139

1,751

Share-based compensation expense

12,905

11,604

Changes in operating assets and liabilities:

Accounts receivable, net

2,909

6,756

Inventories

12,382

(19,477)

Prepaid expenses and other assets

(3,791)

173

Income tax refund, deposits, and payable

(5,213)

3,215

Accounts payable and accrued liabilities

(2,020)

(2,745)

Net cash provided by operating activities

29,444

24,554

Cash Flows From Investing Activities:

Business Acquisitions

—

(12,461)

Purchases and construction of property, plant, and equipment

(24,981)

(16,045)

Sale of intangible assets

2,000

—

Purchase of short-term investments

(5,645)

(2,270)

Maturity of short-term investments

3,650

1,414

Changes in restricted short-term investments

(2,765)

(105)

Payment of deposits and other assets

(885)

(2,921)

Net cash used in investing activities

(28,626)

(32,388)

Cash Flows From Financing Activities:

Net proceeds from equity plans

7,255

17,157

Purchase of treasury stock

(24,773)

(8,986)

Proceeds from issuance of long-term debt

18,983

10,198

Principal payments on long-term debt

(8,381)

(9,968)

Net cash provided by (used in) financing activities

(6,916)

8,401

Effect of exchange rate changes on cash

664

(43)

Net increase (decrease) in cash and cash equivalents

(5,434)

524

Cash and cash equivalents at beginning of period

72,354

66,074

Cash and cash equivalents at end of period

$
66,920

$
66,598

Noncash Investing and Financing Activities:

Equipment acquired under capital leases

$
—

$
1,263

Supplemental Disclosures of Cash Flow Information:

Interest paid, net of capitalized interest

$
1,334

$
1,381

Income taxes paid

$
4,876

$
3,263

See Accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)


	Nine Months Ended
	September 30,
	2023		2022
Cash Flows From Operating Activities:
Net income	$	101,378	$	57,473
Reconciliation to net cash provided by operating activities:
Loss (gain) on disposal of assets		474		(52)
Impairment of long-lived assets		2,700		—
Gain on interest rate swaps and foreign currency transactions, net		(1,019)		(1,124)
Depreciation of property, plant, and equipment		18,559		17,615
Amortization of product rights, trademarks, and patents		6,651		730
Operating lease right-of-use asset amortization		2,778		2,604
Amortization of discounts, premiums, and debt issuance costs		8,486		436
Equity in losses of unconsolidated affiliate		1,476		1,120
Share-based compensation expense		15,620		13,556
Changes in operating assets and liabilities:
Accounts receivable, net		(30,175)		1,423
Inventories		(6,537)		(12,922)
Prepaid expenses and other assets		105		1,342
Income tax refunds, deposits, and payable, net		25,185		(18,789)
Operating lease liabilities		(2,667)		(2,303)
Accounts payable and accrued liabilities		16,625		12,846
Net cash provided by operating activities		159,639		73,955

Cash Flows From Investing Activities:
BAQSIMI^® acquisition		(506,406)		—
Purchases and construction of property, plant, and equipment		(28,724)		(17,724)
Proceeds from the sale of property, plant and equipment		—		421
Purchase of investments		(52,802)		(30,568)
Maturity of investments		38,801		15,465
Deposits and other assets		3,064		(142)
Net cash used in investing activities		(546,067)		(32,548)

Cash Flows From Financing Activities:
Proceeds from equity plans, net of withholding tax payments		7,414		13,620
Purchase of treasury stock		(58,144)		(21,840)
Debt issuance costs		(24,589)		(404)
Proceeds from issuance of long-term debt		845,000		—
Principal payments on long-term debt		(268,506)		(1,653)
Net cash provided by (used in) financing activities		501,176		(10,277)

Effect of exchange rate changes on cash		(44)		(239)

Net increase in cash, cash equivalents, and restricted cash		114,704		30,891

Cash, cash equivalents, and restricted cash at beginning of period		156,333		126,588

Cash, cash equivalents, and restricted cash at end of period	$	271,037	$	157,479

Noncash Investing and Financing Activities:
Deferred payment for BAQSIMI^® acquisition	$	121,699	$	—
Capital expenditures included in accounts payable	$	4,496	$	3,431
Operating lease right-of-use assets in exchange for operating lease liabilities	$	9,890	$	2,166
Equipment acquired under finance leases	$	—	$	453

Supplemental Disclosures of Cash Flow Information:
Interest paid, net of capitalized interest	$	12,098	$	1,960
Income taxes paid	$	2,136	$	35,166

See Accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. General

~~Amphastar Pharmaceuticals, Inc., a California corporation, was incorporated on February 29, 1996 and merged with and into~~ Amphastar Pharmaceuticals, Inc., a Delaware corporation ~~in July 2004~~ (together with its subsidiaries, hereinafter referred to as ~~“the Company”~~the “Company”)~~. The Company~~ is a ~~specialty pharmaceutical~~bio-pharmaceutical company that focuses primarily ~~develops, manufactures, markets,~~on developing, manufacturing, marketing, and ~~sells~~selling technically challenging generic and proprietary injectable, inhalation, and intranasal products, including products with high technical barriers to market entry. Additionally, the Company sells insulin active pharmaceutical ingredient, or API, products. Most of the Company’s products are used in hospital or urgent care clinical settings and are primarily contracted and distributed through group purchasing organizations and drug wholesalers. The Company’s insulin API products are sold to other pharmaceutical companies for use in their own products and are being used by the Company in the development of injectable finished pharmaceutical products. The Company’s inhalation ~~products will be~~product, Primatene MIST^®, is primarily distributed through drug ~~retailers if they are approved and brought to market.~~retailers.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, ~~2016,~~2022 and the notes thereto as filed with the Securities and Exchange Commission, or SEC, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with United States generally accepted accounting principles, or GAAP, have been condensed or omitted from the accompanying condensed consolidated financial statements. The accompanying year-end condensed consolidated balance sheet was derived from the audited financial statements. The accompanying interim financial statements are unaudited, but reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the Company’s consolidated financial position, results of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the periods presented. Unless otherwise noted, all such adjustments are of a normal, recurring nature. The Company’s results of operations, comprehensive income (loss) and cash flows for the interim periods are not necessarily indicative of the results of operations and cash flows that it may achieve in future periods.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of the Company and its ~~wholly-owned~~ subsidiaries, and are prepared in accordance with GAAP. Certain prior period amounts have been reclassified within the ~~requirements~~operating activities of the ~~SEC for interim reporting. Certain amounts in the prior period~~ condensed consolidated statements of ~~operations and statement of~~ cash flows ~~have been reclassified~~ to conform to the current ~~quarter~~period presentation. All ~~significant~~ intercompany activity has been eliminated in the preparation of the condensed consolidated financial statements. Effective January 1, 2017, the Company prospectively adopted certain requirements of Auditing Standards Update, or ASU, No. 2016-09 to classify cash flows related to excess tax benefits in operating activities without adjusting prior periods. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, ~~(consisting only~~which are of a normal recurring ~~adjustments)~~nature, necessary to present fairly the consolidated financial position, results of operations, and cash flows of the Company.

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

Investments in Unconsolidated Affiliate

The Company applies the equity method of accounting for investments when it has significant influence, but not controlling interest in the investee. Judgment regarding the level of influence over each equity method investment includes key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company’s proportionate share of the earnings or losses resulting from these investments is reported as “Equity in losses of unconsolidated affiliate” in the accompanying consolidated

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

statements of operations. Investments accounted for using the equity method may be reported on a lag of up to three months if financial statements of the investee are not available in sufficient time for the investor to apply the equity method as of the current reporting date. The determination of whether an investee’s results are recorded on a lag is made on an investment-by-investment basis.

The carrying value of equity method investments is reported as “Investment in unconsolidated affiliate” in the accompanying consolidated balance sheets. The Company’s equity method investments are reported at cost and adjusted each period for the Company’s share of the investee’s earnings or losses and dividends paid, if any.

The Company assesses equity method investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. If the decline in value is considered to be other than temporary, the investment is written down to its estimated fair value, which establishes a new cost basis in the investment. No such impairment was identified for any of the periods presented.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual

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~~Table of Contents~~

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

results could differ from those estimates. The principal accounting estimates include: fair value of acquired assets, determination of allowances for ~~doubtful accounts and~~credit losses, fair value of financial instruments, allowance for discounts, provision for chargebacks and rebates, provision for product returns, adjustment of inventory to ~~their~~its net realizable ~~values,~~value, impairment of investments, long-lived and intangible assets and goodwill, ~~self-insured claims,~~accrual for workers’ compensation liabilities, litigation reserves, stock price ~~volatilities~~volatility for share-based compensation expense, valuation allowances for deferred tax assets, and liabilities for uncertain income tax positions.

Foreign Currency

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

The Company’s French subsidiary, AFP, maintains its ~~books~~book of record in ~~Euros. Its Chinese subsidiary, Letop, maintain its books of record in Chinese Yuan. Its U.K.~~euros. AUK’s subsidiary, IMS UK, maintains its ~~books~~book of record in ~~Great Britain Pounds.~~British pounds. These local currencies have been determined to be the subsidiaries’ respective functional currencies. ~~These books~~Activities in the statements of ~~record~~operations are translated ~~into~~to USD using average exchange rates during the period. Assets and liabilities are translated at the rate of exchange prevailing on the balance sheet date. Equity is translated at the prevailing rate of exchange at the date of the equity transactions. Translation adjustments are reflected in stockholders’ equity and are included as a component of other accumulated comprehensive income (loss). The unrealized gains or losses of intercompany foreign currency transactions that are of a long-term investment nature are reported in other accumulated comprehensive income (loss).

The unrealized gains and losses of intercompany foreign currency transactions that are of a long-term investment nature were a $0.9 million loss and a $0.4 million loss for the three and nine months ended September 30, ~~2017 were a $1.1 million gain and a $3.8 million gain, respectively, and for the three and nine months ended September 30, 2016 were a $0.3 million gain and a $0.6 million gain,~~2023, respectively.

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

~~Comprehensive Income (loss)~~

For the three and nine months ended September 30, ~~2017~~2022, the unrealized gains and ~~2016, the Company included~~losses of intercompany foreign currency transactions that are of a long-term investment nature were a $2.0 million loss and a $4.7 million loss, respectively.

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Comprehensive Income

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

Acquisitions

The Company evaluates acquisitions and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and substantive processes that have the ability to create outputs, which would meet the definition of a business.

Acquisitions meeting the definition of business combinations are accounted for using the acquisition method of accounting, which requires that the purchase price be allocated to the net assets acquired at their respective fair values. In a business combination, any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

For asset acquisitions, a cost accumulation model is used to determine the cost of an asset acquisition. Direct transaction costs are recognized as part of ~~its comprehensive income (loss).~~the cost of an asset acquisition. The cost of an asset acquisition, including transaction costs, is allocated to identifiable assets acquired and liabilities assumed based on a relative fair value basis, with the exception of non-qualifying assets. Goodwill is not recognized in an asset acquisition. When a transaction accounted for as an asset acquisition includes an in-process research and development, or IPR&D, asset, the IPR&D asset is only capitalized if it has an alternative future use other than in a particular research and development project. Asset acquisitions may include contingent consideration arrangements that encompass obligations to make future payments to sellers contingent upon the achievement of future financial targets. Contingent consideration, including assumed contingent considerations, is not recognized until all contingencies are resolved and the consideration is paid or becomes payable (unless contingent considerations meets the definition of a derivative, in which case the amount becomes part of the basis in the asset acquired), at which point the consideration is allocated to the assets acquired based on their relative fair values at the acquisition date, with the exception of non-qualifying assets.

Judgments are used in determining estimates of useful lives of long-lived assets. Useful life estimates are based on, among other factors, estimates of expected future net cash flows, the assessment of each asset’s life cycle, and the impact of competitive trends on each asset’s life cycle and other factors. These judgments can materially impact the estimates used to allocate purchase consideration to assets acquired and liabilities assumed, and the resulting timing and amounts charged to or recognized in current and future operating results. For these and other reasons, actual results may vary significantly from estimated results.

Advertising Expense

Advertising expenses, primarily associated with Primatene MIST^®, are recorded as they are incurred, except for expenses related to the development of a major commercial or media campaign, which are expensed in the period in which the commercial or campaign is first presented, and are reflected as a component of selling, distribution and marketing in the Company’s condensed consolidated statements of operations. For the three and nine months ended September 30, 2023, advertising expenses were $1.9 million and $8.1 million, respectively. For the three and nine months ended September 30, 2022, advertising expenses were $1.6 million and $6.5 million, respectively.

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Financial Instruments

The carrying amounts of cash and cash equivalents, short-term investments, restricted cash and short-term investments, accounts receivable, accounts payable, accrued expenses, and short-term borrowings approximate fair value due to the short maturity of these items. ~~A majority~~The carrying value of the Company’s long-term obligations ~~consist of variable rate debt, and~~approximates their ~~carrying value approximates~~ fair value as the stated borrowing rates are comparable to rates currently offered to the Company for instruments with similar maturities. ~~However, the Company has one fixed-rate, long-term mortgage for which the carrying value differs from the fair value and is not remeasured on a recurring basis (see Note 12).~~ The Company at times enters into ~~fixed~~ interest rate swap contracts to manage its exposure to interest rate changes and its overall cost of long-term debt. The Company’s interest rate swap contracts exchange the variable interest rates for fixed interest rates.

From time to time, the Company may enter into forward currency contracts to lock in currency exchange rates ~~without the~~to manage its foreign currency exchange ~~of the underlying notional debt amounts. Such~~rate exposure. The Company’s interest rate ~~swap~~swaps and forward currency contracts have not been designated as hedging instruments and, therefore are recorded at their fair ~~values.~~values at the end of each reporting period with changes in fair value recorded in other income (expenses) on the condensed consolidated statements of operations. As of September 30, 2023, the Company did not have any unsettled forward currency contracts to purchase foreign currency. As of December 31, 2022, the Company had an unsettled forward currency contract to purchase foreign currency with a fair value of approximately $0.2 million, based on Level 2 inputs, which was recorded as a liability in the accounts payable and accrued liabilities line in the condensed consolidated balance sheets.

Cash and Cash Equivalents

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

Investments

Investments as of September 30, 2023 and December 31, 2022 consisted of certificates of deposit and investment grade corporate and municipal bonds with original maturity dates between three and fifteen months.

Restricted Cash

Restricted cash is collateral required for the Company to guarantee certain vendor payments in France and China. As of September 30, 2023 and December 31, 2022, the restricted cash balance was $4.3 million and $0.2 million, respectively.

Restricted Short-Term Investments

Restricted short-term investments consist of certificates of deposit that are collateral for standby letters of credit to qualify for workers’ compensation self-insurance. The certificates of deposit have original maturities greater than three months, but less than one year. As of September 30, 2023 and December 31, 2022, the balance of restricted short-term investments was $2.2 million.

Deferred Income Taxes

The Company utilizes the liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statements and the tax basis of assets and liabilities using

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~~Table of Contents~~

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

enacted tax rates. A valuation allowance is recorded when it is more likely than not that the deferred tax assets will not be realized.

~~Business Combinations~~

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

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

~~Recent Accounting Pronouncements~~

~~In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU, No. 2014-09~~ ~~Revenue from Contracts with Customers~~, which creates a single source of revenue guidance for companies in all industries. Subsequently, the FASB issued multiple updates. The new standard provides guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers, unless the contracts are within the scope of other accounting standards. It also provides a model for the measurement and recognition of gains and losses on the sale of certain nonfinancial assets. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required regarding customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). Based on ASU No. 2015-14 ~~Deferral of the Effective Date~~, issued in August 2015, this guidance will be effective for the Company beginning in the first quarter of 2018, including interim periods within the year. The Company expects to adopt the standard in 2018 using the modified retrospective transition method. The majority of the Company’s revenue relates to sale of pharmaceutical products to various customers, and the adoption of the new standard is not expected to have a material impact on these transactions. The Company is continuing to evaluate the impact of all transactions.

~~In February 2016, the FASB issued ASU No. 2016-02~~ ~~Leases~~, that is aimed at making leasing activities more transparent and comparable, and which requires substantially all leases be recognized by lessees on their balance sheets as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. This guidance will become effective for the Company’s interim and annual reporting periods during the year ending December 31, 2019, and all annual and interim reporting periods thereafter. Early adoption is permitted. The Company is required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements for the reporting periods in which the guidance is adopted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

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-9-

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Debt Issuance Costs

Debt issuance costs related to non-revolving debt are recognized as a reduction to the related debt balance in the accompanying condensed consolidated balance sheets and amortized to interest expense over the contractual term of the related debt using the effective interest method. Debt issuance costs associated with revolving debt are capitalized within other long-term assets on the condensed consolidated balance sheets and are amortized to interest expense over the term of the related revolving debt.

Convertible Debt

The Company accounts for its convertible debt instruments as a single unit of accounting, a liability, because the Company concluded that the conversion features do not require bifurcation as a derivative under ASC 815-15 and the Company did not issue its convertible debt instruments at a substantial premium. The Company records debt issuance costs as contra-liabilities in our consolidated balance sheets at issuance and amortizes them over the contractual term of the convertible debt instrument using the effective interest rate.

In ~~June 2016,~~accordance with ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, the ~~FASB issued ASU No. 2016-13~~ ~~Financial Instruments – Credit Losses, which~~Company evaluates convertible debt instruments to determine if the conversion feature is ~~aimed~~freestanding or embedded. If the conversion feature is embedded, the conversion feature is not bifurcated from the host instrument. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion features. If no beneficial conversion features exist that require separate recognition, convertible notes are accounted for as a single liability measured at ~~providing financial statement users with more useful information about~~its amortized cost as long as no other features require separation and recognition as derivatives.

Impairment of Long Lived Assets, including Identifiable Definite-Lived Intangible Assets

The Company assesses long-term and identifiable definite-lived intangible assets or asset groups for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If the sum of the expected ~~credit losses on financial instruments and other commitments to extend credit. The standard update changes~~future undiscounted cash flows is less than the carrying amount of the asset or an asset group, further impairment ~~model for financial assets~~analysis is performed. An impairment loss is measured ~~at amortized cost, requiring presentation at~~as the ~~net~~ amount ~~expected~~by which the carrying amount of the asset or asset groups exceeds the fair value (assets to be ~~collected.~~held and used) or fair value less cost to sell (assets to be disposed of). The ~~measurement~~Company also assesses the useful lives of ~~expected credit losses requires consideration~~its assets periodically to determine whether events and circumstances warrant a revision to the remaining useful life. Changes in the useful life are adjusted prospectively by revising the remaining period over which the asset is amortized.

Litigation, Commitments and Contingencies

Litigation, commitments and contingencies are accrued when management, after considering the facts and circumstances of each matter as then known to management, has determined it is probable a ~~broader~~liability will be found to have been incurred and the amount of the loss can be reasonably estimated. When only a range of ~~reasonable~~amounts is reasonably estimable and ~~supportable information to inform credit loss estimates. Available-for-sale debt securities with unrealized losses will be recorded through an allowance for credit losses. The guidance~~no amount within the range is ~~effective for~~more likely than another, the Company’s interim and annual reporting periods during the year ending December 31, 2020. Early adoption is permitted for interim or annual periods during the year ended December 31, 2019. The Company will be required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings aslow end of the ~~beginning~~range is recorded. Legal fees are expensed as incurred. Due to the inherent uncertainties surrounding gain contingencies, the Company generally does not recognize potential gains until they are realized.

Table of ~~the first reporting period in which the guidance is effective.~~ Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Recent Accounting Pronouncements

The Company does not believe that ~~the adoption of this accounting guidance will~~any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material ~~impact~~effect on ~~its~~the accompanying condensed consolidated financial ~~statements and related disclosures.~~statements.

Note 3. BAQSIMI^® Acquisition

On June 30, 2023, the Company completed its acquisition of BAQSIMI^® glucagon nasal powder, or BAQSIMI^® pursuant to an asset purchase agreement, or the Purchase Agreement, with Eli Lilly & Company, or Lilly, dated April 21, 2023. In ~~August 2016,~~connection with the ~~FASB issued ASU No. 2016-15~~ ~~Classification~~closing of ~~Certain Cash Receipts and Cash Payments, which~~the transaction, or the Closing, the Company paid Lilly $500.0 million in cash. In addition, the Company is ~~aimed at addressing certain issues regarding classifications~~required to pay Lilly a $125.0 million guaranteed payment on the first anniversary of the closing. The Company is also required to pay Lilly $4.0 million upon the assignment of certain ~~cash receipts and cash payments on~~contracts to the ~~statement~~Company after the first anniversary of ~~cash flows where diversity in practice was identified. The guidance is effective for~~ the ~~Company’s interim and annual reporting periods during~~Closing, but no later than 18 months after the ~~year ending December 31, 2018. Early adoption is permitted.~~Closing. The Company ~~will~~may also be required to ~~apply~~pay additional contingent consideration of up to $450.0 million to Lilly based on the ~~guidance retrospectively~~achievement of certain milestones. The Purchase Agreement provides that the contingent consideration that may become payable to Lilly would be achieved as follows: (i) a one-time payment of $100.0 million if the Company achieves annual net sales of $175.0 million or more of BAQSIMI^® and certain related products, or the Milestone Products, in any one year during the first ~~interim~~five years after the Closing; (ii) up to two payments of $100 million each if the Company achieves annual net sales of $200.0 million or more of Milestone Products in any one year during the first five years after the Closing; and ~~each~~(iii) a one-time payment of $150.0 million if the Company achieves total cumulative net sales of $950.0 million or more of the Milestone Products for the first five years after the Closing.

In addition, the Company assumed certain contingent consideration of Lilly, which would require the Company to pay up to an aggregate of $125.0 million based on the achievement of annual ~~period in which the guidance is adopted.~~ net sales milestones of $350.0 million, $400.0 million and $600.0 million.

The Company ~~does not believe that~~has accounted for the ~~adoption of this accounting guidance will have a material impact on the Company’s consolidated financial statements and related disclosures.~~

~~In October 2016, the FASB issued ASU No. 2016-16~~ ~~Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize the income tax consequences of intra-entity transfer of~~BAQSIMI^® acquisition as an asset ~~other than inventory when the transfer occurs. The guidance is effective for the Company's interim and annual reporting periods during the year ending December 31, 2018. Early adoption is permitted~~acquisition in accordance with Accounting Standard Codification, or ASC, 805, Business Combinations, as of the beginning of an annual reporting period for which financial statements, interim or annual, have not been issued. The amendments will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

~~In November 2016, the FASB issued ASU No. 2016-18~~ ~~Statement of Cash Flows: Restricted Cash~~, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, the Company will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is effective for the Company's interim and annual reporting periods during the year ending December 31, 2018. Early adoption is permitted, including adoption in an interim period. The amendments will be applied using a retrospective transition method to each period presented. The Company will be required to apply the guidance retrospectively when adopted. The Company does not believe that the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

~~In January 2017, the FASB issued ASU No. 2017-01~~ ~~Clarifying the Definition of a Business, which provides guidance to assist entities with evaluating when a set of transferred assets and activities is a business. Under the updated guidance, a set is not a business if~~ substantially all of the fair value of the ~~gross~~ assets acquired is concentrated in a single identifiable asset, orBAQSIMI^® product rights. The BAQSIMI^® product rights include the license for the BAQSIMI^® intellectual property, regulatory documentation, marketing authorizations, and domain names, which are considered a single asset as they are inextricably linked. As an asset acquisition, the cost to acquire the group of ~~similar assets. If the threshold~~assets, including transaction costs, is ~~not met, the update requires that, to be a business, the set must include, at a minimum, an input and a substantive process that together significantly contribute~~allocated to the ~~ability~~individual assets acquired based on their relative fair values, with the exception of non-qualifying assets.

The relative fair values of identifiable assets from the acquisition of BAQSIMI^® are based on estimates of fair value using assumptions that the Company believes are reasonable.

Manufacturing Services Agreement

In connection with the Closing, the Company entered into a Manufacturing Services Agreement, or the MSA, with Lilly, pursuant to ~~create outputs. The definition of outputs was also aligned with Accounting Standard Codification, or ASC, 606 by focusing on revenue-generating activities. The guidance is effective~~which Lilly has agreed, for ~~the Company’s interim and annual reporting periods during the year ending December 31, 2018, and prospectively applicable to any transactions occurring within the~~a period of ~~adoption. Early adoption is permitted. The~~time not to exceed 18 months, to provide certain manufacturing, packaging, labeling and supply services for BAQSIMI^® directly or through third-party contractors to the Company ~~is currently evaluating~~in connection with its operation of the ~~impact that~~development, manufacture, and commercialization of BAQSIMI^®. Upon termination of the ~~adoption~~MSA, the Company will be obligated to purchase all API, components, and finished goods on hand at prices agreed upon in the MSA.

Transition Services Agreement

In connection with the Closing, the Company entered into a Transition Services Agreement, or the TSA, with Lilly pursuant to which Lilly has agreed, for a period of ~~this guidance will have on its consolidated financial statements and related disclosures.~~

-8-

time not to exceed 18 months, to provide certain services to the

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Company to support the transition of BAQSIMI^® operations to the Company, including with respect to the conduct of certain clinical, regulatory, medical affairs, and commercial sales channel activities.

~~In January 2017,~~

The following table summarizes the ~~FASB issued ASU No. 2017-04~~ ~~Simplifying~~aggregate amount paid for the ~~Test~~assets acquired by the Company in connection with the acquisition of BAQSIMI^®:


	Fair Value
	(in thousands)
Cash payment	$	500,000
Fair value of deferred cash payments		121,699
Transaction costs		6,406
Total purchase price	$	628,105

The total purchase price was allocated to the acquired assets based on their relative fair values, as follow:


	Fair Value
	(in thousands)
Property, plant, and equipment	$	34,426
BAQSIMI^® product rights		591,338
Deferred tax assets		2,341
Total assets acquired	$	628,105

The Company is amortizing the acquired intangible asset on a straight line basis over its estimated useful life of 24 years (See Note 10 for ~~Goodwill Impairment, which eliminates the requirement to calculate the implied~~additional information).

The fair value of ~~goodwill. An entity should perform its annual,~~the deferred cash payment is being accreted to the full $129.0 million amount over a one-year period through interest expense. During the three and nine months ended September 30, 2023 $1.8 million of interest expense was recognized related to accretion of the deferred cash payments.

Credit Agreement

On June 30, 2023, in conjunction with the Company’s acquisition of BAQSIMI^®, the Company entered into a $700.0 million syndicated credit agreement, or ~~interim, goodwill impairment test~~the Credit Agreement, by ~~comparing~~and among the ~~fair value~~Company, certain subsidiaries of the Company, as guarantors, certain lenders, and Wells Fargo Bank, National Association, or Wells Fargo, as Administrative Agent (in such capacity, Agent), Swing line Lender and L/C Issuer.

The Credit Agreement provides for a ~~reporting unit with its carrying amount. An entity should recognize~~senior secured term loan, or the Wells Fargo Term Loan in an ~~impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total~~aggregate principal amount of ~~goodwill allocated to that reporting unit.~~$500.0 million. The ~~update~~Wells Fargo Term Loan matures on the June 30, 2028.

The Credit Agreement also ~~eliminated~~provides a senior secured revolving credit facility, or the ~~requirements for any reporting unit~~Revolving Credit Facility, in an aggregate principal amount of $200.0 million, with a ~~zero or negative carrying amount~~$15.0 million letter of credit sublimit and a $15.0 million swingline loan sublimit. The Revolving Credit Facility matures on June 30, 2028. As of September 30, 2023, the Company had no borrowings outstanding under the Revolving Credit Facility.

Proceeds from the Term Loan were used to ~~perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2~~finance the acquisition of the goodwill impairment test. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2020, and applied on a prospective basis. Early adoption is permitted for interim and annual goodwill impairment testing dates after January 1, 2017. The Company currently does not believe that the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.BAQSIMI^®.

~~In May 2017, the FASB issued ASU No. 2017-09~~ ~~Scope of Modification Accounting~~, that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance is effective for the Company’s interim and annual reporting periods during the year ending December 31, 2018, and applied prospectively to awards modified on or after the adoption date. Early adoption is permitted. The Company does not believe that the adoption of this accounting guidance will have a material impact on its consolidated financial statements and related disclosures.

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

~~Note~~ ~~3. Business Acquisitions~~

~~Acquisition of International Medication Systems (UK) Limited from UCB PHARMA GmbH~~

In August 2016, the Company’s UK subsidiary, AUK, acquired IMS UK, a UK-based subsidiary of UCB PHARMA GmbH, including its trademarks, assets related to the products, as well as marketing authorizations for 33 products in the UK, Ireland, Australia, and New Zealand, representing 11 different injectable chemical entities. The Company paid $7.7 million in cash as consideration for the transaction. The Company is in the process of transferring the manufacturing of the purchased products to its facilities in California. The transfer will require approval of the UK Medicines and Healthcare products Regulatory Agency and other related regulatory agencies before the products can be sold by the Company. The transaction is accounted for as a business combination in accordance with ASC 805.

The fair values of the assets acquired and liabilities assumed include marketing authorizations of $9.2 million, manufacturing equipment of $0.1 million, and deferred tax liability of $1.6 million. The acquired marketing authorizations intangible assets are subject to a straight-line amortization over a useful life of approximately 10 years.

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Acquisition of fourteen injectable products from Hikma Pharmaceuticals PLC~~Note 4. Revenue Recognition

Product revenues, net

In March 2016, the Company acquired 14 abbreviated new drug application, or ANDAs, representing 11 different injectable chemical entities from Hikma Pharmaceuticals PLC, or Hikma, for $4.0 million. This transaction was accounted for as a business combination in accordance with ASC ~~805. The ANDAs had an estimated fair value of $4.0 million, and were subject to a straight-line amortization over a useful life of approximately 15 years.~~

~~In February 2017,~~606 Revenue from Contracts with Customers, revenue is recognized at the ~~Company sold these products to an unrelated party (see Note 9).~~

~~Acquisition of Nanjing Letop Medical Technology Co. Ltd.~~

~~In January 2016,~~time that the Company’s Chinese subsidiary, ANP, acquired Nanjing Letop Medical Technology Co. Ltd. for $1.7 million consisting of $0.8 million in cash and a deposit of $0.9 million that ANP had previously paid to Letop and which was effectively eliminated upon the consummationcustomers obtain control of the transaction. The Company accounted for this transaction as a business combination in accordance with ASC 805. The Company recognized $1.4 million of acquired assets, $0.1 million of assumed liabilities, and $0.4 million of goodwill. Letop had previously supplied ANP with intermediates used in making various active pharmaceutical ingredients. In March 2016, the acquired subsidiary was renamed Nanjing Letop Fine Chemistry Co., Ltd.promised goods.

~~Acquisition of Merck’s API Manufacturing Business~~

On April 30, 2014, the Company completed the acquisition of the Merck Sharpe & Dohme’s API manufacturing business in Éragny-sur-Epte, France, or the Merck API Transaction, which manufactures porcine insulin API and recombinant human insulin API, or RHI API. The purchase price of the transaction totaled €24.8 million, or $34.4 million on April 30, 2014, subject to certain customary post‑closing adjustments and currency exchange rate fluctuations. The terms of the purchase include multiple payments over four years as follows (see Note 12):

U.S.

Euros

Dollars

(in thousands)

At Closing, April 2014

€
13,252

$
18,352

December 2014

4,899

5,989

December 2015

3,186

3,483

December 2016

3,186

3,427

December 2017

500

591

€
25,023

$
31,842

In order to facilitate the acquisition, the Company established AFP in France. The Company is continuing the current site manufacturing activities, which consist of the manufacturing of porcine insulin API and RHI API. As part of the transaction, the Company has entered into various additional agreements, including various supply agreements, as well as the assignment and/or licensing of patents under which Merck was operating at this facility. In addition, certain existing customer agreements have been assigned to AFP. Currently, the Company is in the process of transferring the manufacturing of starting material for RHI API from Merck to AFP. This process will require capital expenditures at AFP and is expected to take up to two years to complete.

~~Note~~ ~~4. Revenue Recognition~~

Generally, revenue is recognized at the time of product delivery to the Company’s customers. In some cases, revenue is recognized at the time of shipment when stipulated by the terms of the sale agreements.

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

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

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

Revenues derived from contract manufacturing services are recognized when third-party products are shipped to ~~customers, after the customer has accepted test samples of the products to be shipped. On June 30, 2016, the Company and Actavis, Inc., or Actavis,~~

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~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~amended the distribution agreement, which terminated the agreement in December 2016. Profit-sharing revenue under this agreement was recognized at the time Actavis sold the products to its~~ customers.

The Company does not recognize product revenue unless the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) transfer of title has occurred, (iii) the price to the customer is fixed or determinable, and (iv) collection is reasonably assured. Furthermore, the Company does not recognize revenue until all customer acceptance requirements have been met. The Company estimates and records reductions to revenue for discounts, product returns, and pricing adjustments, such as wholesaler chargebacks, in the same period that the related revenue is recorded.

The Company’s accounting policy is to review each agreement involving contract development and manufacturing services to determine if there are multiple revenue-generating activities that constitute more than one unit of accounting. Revenues are recognized for each unit of accounting based on revenue recognition criteria relevant to that unit. The Company does not have any revenue arrangements with multiple ~~deliverables.~~performance obligations.

Service revenues derived from research and development contracts are recognized over time based on progress toward satisfaction of the performance obligation. For each performance obligation satisfied over time, the Company assesses the proper method to be used for revenue recognition, either an input method to measure progress toward the satisfaction of services or an output method of determining the progress of completion of performance obligation. For the three and nine months ended September 30, 2023, revenues from research and development services at ANP were $0.8 million and $2.1 million, respectively. For the three and nine months ended September 30, 2022, revenues from research and development services at ANP were $0.8 million and $2.1 million, respectively.

Other revenues

Revenues related to sales of BAQSIMI^®, which was acquired on June 30, 2023 and was manufactured and sold by Lilly under the TSA during the three months ended September 30, 2023, were recorded on a net basis, similar to a royalty arrangement.

Provision for ~~Wholesaler~~ Chargebacks and Rebates

The provision for chargebacks and rebates is a significant estimate used in the recognition of revenue. ~~As part of its~~Wholesaler chargebacks relate to sales terms ~~with wholesale customers,~~under which the Company agrees to reimburse wholesalers for differences between the gross sales prices at which the Company sells its products to wholesalers ~~or list prices,~~ and the actual prices of such products ~~at the time~~ that

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

wholesalers resell ~~them~~ under the Company’s various contractual arrangements with third parties such as ~~retailers,~~ hospitals and group purchasing ~~organizations.~~organizations in the United States. Rebates include primarily amounts paid to retailers, payers, and providers in the United States, including those paid to state Medicaid programs, and are based on contractual arrangements or statutory requirements. The Company estimates chargebacks and rebates using the expected value method at the time of sale to wholesalers based on wholesaler inventory stocking levels, historic chargeback and rebate rates, and current contract pricing. ~~The settlement of chargebacks generally occurs within 30 days after the sale to wholesalers.~~

The provision for chargebacks and rebates is reflected inas a component of net revenues. ~~Accounts receivable and/or accrued liabilities are also reduced and/or increased by the chargebacks amount depending on whether the Company has the right of offset with the customer.~~ The following table is an analysis of the chargeback and rebate provision:


					Nine Months Ended
					September 30,
					2023		2022

	Nine Months Ended
	September 30,
	2017		2016
	(in thousands)
					(in thousands)
Beginning balance	$	37,820	$	15,217	$	26,606	$	20,167
Provision for chargebacks		115,824		105,772
Credits issued to third parties		(144,142)		(110,073)
Provision for chargebacks and rebates						200,317		147,899
Credits and payments issued to third parties						(201,650)		(144,233)
Ending balance	$	9,502	$	10,916	$	25,273	$	23,833

Changes in ~~chargeback~~the provision for chargebacks from period to period are primarily dependent on the Company’s sales to its wholesalers, the level of inventory held by ~~the~~ wholesalers, and on the ~~wholesaler’s~~wholesalers’ customer mix. Changes in the provision for rebates from period to period are primarily dependent on retailer’s and other indirect customers’ purchases. The approach that the Company uses to estimate chargebacks has been consistently applied for all periods presented. Variations in estimates have been historically small. The ~~chargeback provision has decreased in the nine months ended September 30, 2017, primarily due to a decrease in the list price of enoxaparin in the first half of 2017. The~~ Company continually monitors the provision for chargebacks and rebates and makes adjustments when it believes that the actual chargebacks and rebates may differ from the estimates. ~~Chargeback provisions~~The settlement of chargebacks and rebates generally occurs within 20 days to 60 days after the sale to wholesalers. The provision for chargebacks and rebates is recorded within accounts receivable and/or accounts payable and accrued liabilities depending on whether the Company has the right to offset with the customer.

Of the provision for chargebacks and rebates as of September 30, ~~2017~~2023 and ~~2016 are~~December 31, 2022, $18.9 million and $20.5 million were included as a reduction to ~~account receivables.~~accounts receivable, net, on the condensed consolidated balance sheets, respectively. The remaining provision as of September 30, 2023 and December 31, 2022 of $6.4 million and $6.1 million, respectively, which were included in accounts payable and accrued liabilities in the condensed consolidated balance sheets.

Accrual for Product Returns

The Company offers most customers the right to return qualified excess or expired inventory for partial credit; however, ~~products sold to Actavis and~~ API product sales are generally non-returnable. The Company’s product returns primarily consist of the returns of expired products from sales made in prior periods. Returned products cannot be resold. At the time product revenue is recognized, the Company records an accrual for product returns estimated ~~returns.~~using the expected value method. The accrual is based, in part, upon the

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~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

historical relationship of product returns to sales and customer contract terms. The Company also assesses other factors that could affect product returns including market conditions, product obsolescence, and ~~the introduction of~~ new competition. Although these factors do not normally give the Company’s customers the right to return products outside of the regular return policy, the Company realizes that such factors could ultimately lead to increased returns. The Company analyzes these situations on a case-by-case basis and makes adjustments to the product return reserve as appropriate.~~If the available information is not sufficient to estimate a reasonable product return accrual, revenues from the sales~~

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Table of the new product would not be recognized until the product is consumed by the end customer or rights of return granted under the return policy have expired. As of September 30, 2017 and December 31, 2016, cumulative sales of approximately $1.1 million and $0.5 million, respectively, for one of the Company’s products were not recognized in revenues, due to insufficient information available to estimate a reasonable product return accrual.Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


					Nine Months Ended
					September 30,
					2023		2022

	Nine Months Ended
	September 30,
	2017		2016
	(in thousands)
					(in thousands)
Beginning balance	$	3,143	$	2,621	$	19,451	$	21,677
Provision for product returns		4,196		958		2,750		3,086
Credits issued to third parties		(1,825)		(873)		(4,467)		(5,019)
Ending balance	$	5,514	$	2,706	$	17,734	$	19,744

Of the provision for product returns as of September 30, 2023 and December 31, 2022, $12.9 million and $14.9 million, were included in accounts payable and accrued liabilities on the condensed consolidated balance sheets, respectively. The remaining provision as of September 30, 2023 and December 31, 2022 of $4.8 million and $4.6 million, were included in other long-term liabilities, respectively. For the nine months ended September 30, ~~2017~~2023 and ~~2016~~, 2022, the Company’s aggregate product return rate was ~~1.2%~~1.1% and ~~1.1%~~ 1.4% of qualified sales, respectively.

Note 5. Net Income per Share

Basic net income per share is calculated based upon the weighted-average number of shares outstanding during the period. Diluted net income per share gives effect to all ~~potential~~potentially dilutive shares outstanding during the period, such as stock options, ~~nonvested deferred stock units and~~non-vested restricted stock units, ~~(collectively referred to herein as “RSUs”), and~~ shares issuable under the Company’s Employee Stock Purchase Plan, or ~~ESPP.~~ESPP, and potential common shares issued upon the conversion of Convertible Notes of the Company, due March 2029, or the 2029 Convertible Notes.

For the ~~three and~~ nine months ended September 30, ~~2017,~~2023, options to purchase ~~1,162,850 and 2,424,430~~45,934 shares of stock, with a weighted-average exercise price of ~~$27.87~~$46.01 per share ~~and $21.93 per share, respectively,~~ were excluded in the computation of diluted net income per share because the effect ~~from the assumed exercise of these options~~ would be anti-dilutive. The 2029 Convertible Notes had no impact on the computation of diluted net income per share as the average stock price during the period was less than the conversion price.

For the three and nine months ended September 30, ~~2016,~~2022, options to purchase ~~1,357,154 and 4,510,729~~704,483 shares of stock, with a weighted-average exercise price of ~~$29.31~~$34.79 per share, ~~and $19.84 per shares, respectively,~~ were excluded in the computation of diluted net income per share because the effect ~~from the assumed exercise of these options~~ would be anti-dilutive.

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~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

	(in thousands, except per share data)
Basic and dilutive numerator:
Net income	$	49,222	$	15,874	$	101,378	$	57,473
Denominator:
Weighted-average shares outstanding — basic		48,701		48,904		48,368		48,635

Net effect of dilutive securities:
Incremental shares from equity awards		5,220		3,884		4,629		4,030
Weighted-average shares outstanding — diluted		53,921		52,788		52,997		52,665
Net income per share — basic	$	1.01	$	0.32	$	2.10	$	1.18
Net income per share — diluted	$	0.91	$	0.30	$	1.91	$	1.09

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

(in thousands, except per share data)

Basic and dilutive numerator:













Net income

$
175

$
3,890

$
3,040

$
13,274

Denominator:

Weighted-average shares outstanding — basic

46,101

45,398

46,065

45,132

Net effect of dilutive securities:

Incremental shares from equity awards

2,114

2,555

1,981

1,233

Weighted-average shares outstanding — diluted

48,215

47,953

48,046

46,365

Net income per share — basic

$
0.00

$
0.09

$
0.07

$
0.29

Net income per share — diluted

$
0.00

$
0.08

$
0.06

$
0.29

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 6. Segment Reporting

The Company’s business is the development, manufacture, and marketing of pharmaceutical products. The Company has ~~established~~identified two reporting segments that each report to the Chief Operating Decision Maker, or CODM, as defined in ASC 280, Segment Reporting. The Company’s performance is assessed and resources are allocated by the CODM based on the following two reportable segments:

●

Finished pharmaceutical products

●

~~Active pharmaceutical ingredients, or API~~

APIs

The finished pharmaceutical products segment manufactures, markets and distributes Primatene MIST^®, glucagon, enoxaparin, naloxone, phytonadione, lidocaine, ~~as well as~~epinephrine, various ~~other~~ critical and non-critical care ~~drugs.~~drugs, as well as certain contract manufacturing and contract research revenues. The API segment manufactures and distributes recombinant human insulin API and porcine insulin API for external customers and internal product development.

-~~13-~~

~~Table~~Other revenues from the sale of ~~Contents~~BAQSIMI^® are accounted for as a component of the finished pharmaceutical products segment.

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Selected financial information by reporting segment is presented below:


									Three Months Ended				Nine Months Ended
									September 30,				September 30,
									2023		2022		2023		2022

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
	(in thousands)
									(in thousands)
Net revenues:
Finished pharmaceutical products	$	54,455	$	59,058	$	174,154	$	181,368	$	176,366	$	117,120	$	455,242	$	353,789
API		3,461		5,165		5,619		10,254		4,190		3,009		11,048		10,175
Total net revenues		57,916		64,223		179,773		191,622		180,556		120,129		466,290		363,964

Gross profit:

Gross profit (loss):
Finished pharmaceutical products		21,310		28,621		74,486		85,042		109,499		61,439		262,742		185,462
API		(669)		(1,009)		(4,270)		(814)		(1,096)		(2,929)		(7,761)		(7,770)
Total gross profit		20,641		27,612		70,216		84,228		108,403		58,510		254,981		177,692


Operating expenses		23,461		21,815		69,447		64,026		35,725		35,282		111,974		108,027

Income (loss) from operations		(2,820)		5,797		769		20,202
Non-operating income (expenses)		829		204		1,917		(633)

Income (loss) before income taxes	$	(1,991)	$	6,001	$	2,686	$	19,569

Income from operations										72,678		23,228		143,007		69,665
Non-operating income										(9,041)		(632)		(12,993)		5,115

Income before income taxes									$	63,637	$	22,596	$	130,014	$	74,780

The Company manages its business segments to the gross profit level and manages its operating and other costs on a company-wide basis. The Company does not identify total assets by segment for internal purposes, as the Company’s CODM does not assess performance, make strategic decisions, or allocate resources based on assets.

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


									Three Months Ended				Nine Months Ended
									September 30,				September 30,
									2023		2022		2023		2022

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
	(in thousands)
Finished pharmaceutical products net revenues:
									(in thousands)
Finished pharmaceutical products segment net revenues:
Glucagon									$	29,514	$	14,224	$	82,486	$	37,003
Primatene MIST^®										24,834		18,359		64,837		62,030
Epinephrine										20,199		19,502		57,004		52,777
Lidocaine										15,522		12,621		43,174		39,253
Phytonadione										7,449		13,978		33,017		37,834
Enoxaparin	$	6,549	$	15,363	$	25,247	$	51,049		7,702		7,983		25,441		27,138
Naloxone		12,709		12,407		33,909		38,222		4,715		6,818		14,774		21,424
Lidocaine		9,596		8,279		27,218		26,378
Phytonadione		9,352		8,667		27,242		23,555
Epinephrine		2,027		5,303		22,249		14,921
Other finished pharmaceutical products		14,222		9,039		38,289		27,243		37,730		23,635		105,808		76,330
Total finished pharmaceutical products net revenues	$	54,455	$	59,058	$	174,154	$	181,368		147,665		117,120		426,541		353,789
BAQSIMI^®										28,701		—		28,701		—
Total finished pharmaceutical products segment net revenues									$	176,366	$	117,120	$	455,242	$	353,789

~~Discontinuation~~The amount of ~~epinephrine injection, USP vial product~~

~~In February 2017, the U.S. Food~~depreciation and Drug Administration, or FDA, requested the Company to discontinue the manufacturing and distribution of its epinephrine injection, USP vial product, which has been marketed under the “grandfather” exception to the FDA’s “Prescription Drug Wrap-Up” program. The Company discontinued selling this product in the second quarter of 2017. For the year ended December 31, 2016, the Company recognized $18.6 million in net revenues for the sale of this product. A charge of $3.3 million wasamortization expense included in ~~the~~ cost of revenues, in its consolidated statements of operations for the year ended December 31, 2016 to adjust the related inventory and firm purchase commitments to their net realizable value due to the anticipated discontinuation of the product.by reporting segment, is presented below:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

	(in thousands)
Depreciation and amortization expense
Finished pharmaceutical products	$	8,616	$	2,517	$	13,143	$	6,370
API		1,003		904		2,938		2,789
Total depreciation and amortization expense	$	9,619	$	3,421	$	16,081	$	9,159

-~~14-~~

~~Table of Contents~~

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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


	Net Revenue								Long-Lived Assets
	Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,		December 31,
	2023		2022		2023		2022		2023		2022

	(in thousands)
United States⁽¹⁾	$	178,056	$	117,780	$	459,909	$	355,680	$	772,066	$	136,328
China		833		719		2,142		2,418		89,737		88,647
France		1,667		1,630		4,239		5,866		37,488		39,598
Total	$	180,556	$	120,129	$	466,290	$	363,964	$	899,291	$	264,573

Net Revenue

Long-Lived Assets

Three Months Ended

Nine Months Ended

September 30,

September 30,

September 30,

December 31,

2017

2016

2017

2016

2017

2016

(in thousands)

United States

$
55,346

$
62,691

$
175,075

$
188,865

$
105,311

$
104,110

China

—

—

—

—

39,639

35,085

France

2,570

1,532

4,698

2,757

28,004

13,659

United Kingdom

—

—

—

—

92

90

Total

$
57,916

$
64,223

$
179,773

$
191,622

$
173,046

$
152,944

⁽¹⁾	Includes revenue from the sales of BAQSIMI^®

Note 7. Customer and Supplier Concentration

Customer Concentrations

Three large wholesale drug distributors, AmerisourceBergen Corporation, or AmerisourceBergen, Cardinal Health, Inc., or Cardinal, and McKesson Corporation, or McKesson, are all distributors of the Company’s products, as well as

-17-

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

suppliers of a broad range of health care products. ~~Actavis had exclusive marketing rights~~Lilly currently manufactures and sells BAQSIMI^® on the Company’s behalf pursuant to the terms of the ~~Company’s enoxaparin product to the U.S. retail pharmacy market until December 2016.~~TSA (See Note 4 for additional information). The Company considers these four customers to be its major customers, as each individually, and these customers collectively, represented a significant percentage of the Company’s net revenue for the three and nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, and accounts receivable as of September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively. The following table provides accounts receivable and net revenue information for these major customers:

% of Total Accounts

% of Net

Receivable

Revenue

Three Months Ended

Nine Months Ended

September 30,

December 31,

September 30,

September 30,


2017

2016

2017

2016

2017

2016

Actavis(1)

—

1
%
—

16
%
—

19
%

AmerisourceBergen

12
%
30
%
24
%
19
%
27
%
19
%

Cardinal Health

23
%
28
%
25
%
19
%
25
%
20
%

McKesson

27
%
19
%
27
%
21
%
27
%
20
%

⁽¹⁾

~~The agreement with Actavis was terminated in December 2016.~~


	% of Total Accounts				% of Net
	Receivable				Revenue
					Three Months Ended				Nine Months Ended
	September 30,		December 31,		September 30,				September 30,
	2023		2022		2023		2022		2023		2022
McKesson	24	%	32	%	22	%	23	%	25	%	21	%
AmerisourceBergen	9	%	16	%	17	%	23	%	20	%	23	%
Cardinal Health	17	%	19	%	15	%	17	%	16	%	16	%
Lilly	24	%	—		16	%	—		6	%	—

Supplier Concentrations

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

-~~15-~~

~~Table of Contents~~

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Note 8. Fair Value Measurements

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

●

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

●

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

●

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

~~The fair values of the Company’s cash equivalents, short-term investments, and restricted short-term investments approximate their respective carrying amounts.~~

As of September 30, ~~2017 and December 31, 2016,~~2023, cash equivalents include money market accounts and ~~money market funds. Short-term investments consist of certificate of deposits~~corporate and ~~held-to-maturity~~ municipal bonds with original maturities ~~greater~~of less than three months. ~~The~~Investments consist of certificates of deposit as well as investment-grade corporate, agency and municipal bonds with original maturity dates between three and fifteen months. The certificates of deposit are carried at amortized cost in the Company’s condensed consolidated balance ~~sheet,~~sheets, which approximates their fair value determined based on Level 2 inputs. The ~~Company does not intend to~~corporate, agency and ~~will not be required to sell the investments before recovery of their~~municipal bonds are classified as held-to-maturity and are carried at amortized cost ~~basis. Restricted short-term investments consist~~net of ~~certificates~~allowance for credit losses, which approximates their fair value

-18-

Table of ~~deposits with original maturities great than three months.~~Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

determined based on Level 2 inputs. The restrictions ~~placed~~ on ~~the certificate of deposit accounts~~restricted cash and investments have ~~a negligible~~an immaterial effect on the fair value of these financial ~~assets; these funds are restricted to meet~~assets.

The fair value of the Company’s ~~obligation for workers’ compensation claims~~financial assets and ~~performance bonds.~~liabilities measured on a recurring basis as of September 30, 2023 and December 31, 2022, are as follows:


	Total		(Level 1)		(Level 2)		(Level 3)

	(in thousands)
Assets:
Cash equivalents	$	230,668	$	230,668	$	—	$	—
Restricted cash		4,259		4,259		—		—
Short-term investments		6,016		—		6,016		—
Restricted short-term investments		2,200		—		2,200		—
Corporate, agency and municipal bonds		33,632		—		33,632		—
Interest rate swaps related to variable rate loans		3,387		—		3,387		—
Total assets measured at fair value as of September 30, 2023	$	280,162	$	234,927	$	45,235	$	—


	Total		(Level 1)		(Level 2)		(Level 3)

Assets:	(in thousands)
Cash equivalents	$	130,199	$	130,199	$	—	$	—
Restricted cash		235		235		—		—
Short-term investments		4,600		—		4,600		—
Restricted short-term investments		2,200		—		2,200		—
Corporate, agency and municipal bonds		14,931		—		14,931		—
Interest rate swaps related to variable rate loans		6,048		—		6,048		—
Total assets measured at fair value as of December 31, 2022	$	158,213	$	130,434	$	27,779	$	—

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

Nonfinancial assets and liabilities are not measured at fair value on a recurring basis but are subject to fair value adjustments in certain circumstances. These items primarily include investments in unconsolidated affiliates, long-lived assets, goodwill, and intangible assets for which the fair value ~~of assets~~ is determined as part of ~~the related~~an impairment test. As of September 30, ~~2017~~2023, and December 31, ~~2016,~~2022, there were no significant adjustments to fair value for nonfinancial assets or liabilities.

The Company’s deferred compensation plan assets are valued using the cash surrender value of the life insurance policies and are not included in the table above.

-~~16-~~

-19-

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9. Investments

A summary of the Company’s investments that are classified as held-to-maturity are as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

	(in thousands)
Corporate and agency bonds (due within 1 year)	$	32,313	$	—	$	(23)	$	32,290
Corporate bonds (due within 1 to 3 years)		964		—		(1)		963
Municipal bonds (due within 1 year)		379		—		—		379
Total investments as of September 30, 2023	$	33,656	$	—	$	(24)	$	33,632

Corporate and agency bonds (due within 1 year)	$	21,612	$	—	$	(60)	$	21,552
Municipal bonds (due within 1 year)		1,903		—		(2)		1,901
Total investments as of December 31, 2022	$	23,515	$	—	$	(62)	$	23,453

At each reporting period, the Company evaluates securities for impairment when the fair value of the investment is less than its amortized cost. The Company evaluated the underlying credit quality and credit ratings of the issuers, identifying neither a significant deterioration since purchase nor any other factors that would indicate a material credit loss.

The Company measures expected credit losses on held-to-maturity investments on a collective basis. All the Company’s held-to-maturity investments were considered to be one pool. The estimate for credit losses considers historical loss information that is adjusted for current conditions and reasonable and supportable forecasts. Expected credit losses on held-to-maturity investments were not material to the condensed consolidated financial statements.

Investment in unconsolidated affiliate

The Company accounts for its share of the earnings or losses of its unconsolidated affiliate (Nanjing Hanxin Biomedical Testing Service Co., Ltd., or Hanxin) with a reporting lag of three months, as the financial statements of Hanxin are not completed on a basis that is sufficient for the Company to apply the equity method on a current basis. The Company’s share of Hanxin’s losses for the three and nine months ended September 30, 2023 was $0.4 million and $1.5 million, respectively, which was recorded in the “Equity in losses of unconsolidated affiliate” line on the condensed consolidated statement of operations. The Company’s share of Hanxin’s losses for the three and nine months ended September 30, 2022, was $0.2 million and $1.1 million, respectively, which was recorded in the “Equity in losses of unconsolidated affiliate” line on the condensed consolidated statement of operations.

-20-

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9. 10. Goodwill and Intangible Assets

The table below shows the weighted-average life, original cost, accumulated amortization, and net book value by major intangible asset classification:


	Weighted-Average			Accumulated
	Life (Years)	Original Cost		Amortization		Net Book Value

	(in thousands)
Definite-lived intangible assets
BAQSIMI^®product rights⁽¹⁾	24	$	591,338	$	6,159	$	585,179
IMS (UK) international product rights⁽²⁾	10		8,462		8,462		—
Patents	12		486		372		114
Land-use rights	39		2,540		799		1,741
Subtotal	23		602,826		15,792		587,034
Indefinite-lived intangible assets
Trademark	*		29,225		—		29,225
Goodwill - Finished pharmaceutical products	*		3,092		—		3,092
Subtotal	*		32,317		—		32,317
As of September 30, 2023	*	$	635,143	$	15,792	$	619,351


	Weighted-Average			Accumulated
	Life (Years)	Original Cost		Amortization		Net Book Value

	(in thousands)
Definite-lived intangible assets
IMS (UK) international product rights⁽²⁾	10	$	8,462	$	5,430	$	3,032
Patents	12		486		362		124
Land-use rights	39		2,540		749		1,791
Subtotal	11		11,488		6,541		4,947
Indefinite-lived intangible assets
Trademark	*		29,225		—		29,225
Goodwill - Finished pharmaceutical products	*		3,126		—		3,126
Subtotal	*		32,351		—		32,351
As of December 31, 2022	*	$	43,839	$	6,541	$	37,298

Weighted-Average

Accumulated


Life (Years)

Original Cost

Amortization

Net Book Value

(in thousands)

Definite-lived intangible assets

Cortrosyn® product rights

12

$
27,134

$
25,797

$
1,337

IMS (UK) international product rights(1)

10

9,371

1,093

8,278

Patents

12

486

160

326

Land-use rights

39

2,540

403

2,137

Other intangible assets

4

69

42

27

Subtotal

12

39,600

27,495

12,105

Indefinite-lived intangible assets

Trademark

*

29,225

—

29,225

Goodwill - Finished pharmaceutical products

*

4,401

—

4,401

Subtotal

*

33,626

—

33,626

As of September 30, 2017

*

$
73,226

$
27,495

$
45,731

Weighted-Average

Accumulated


Life (Years)

Original Cost

Amortization

Net Book Value

(in thousands)

Definite-lived intangible assets

Cortrosyn® product rights

12

$
27,134

$
24,461

$
2,673

IMS (UK) international product rights(1)

10

8,632

359

8,273

Acquired ANDAs(2)

15

4,000

222

3,778

Patents

10

293

137

156

Land-use rights

39

2,540

354

2,186

Other intangible assets

1

574

534

40

Subtotal

12

43,173

26,067

17,106

Indefinite-lived intangible assets

Trademark

*

29,225

—

29,225

Goodwill - Finished pharmaceutical products

*

3,976

—

3,976

Subtotal

*

33,201

—

33,201

As of December 31, 2016

*

$
76,374

$
26,067

$
50,307

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

⁽¹⁾	See Note 3.

⁽²⁾	In June 2023, the Company recorded an impairment related to its IMS (UK) international product rights in the amount of $2.7 million. The Company recorded the impairment in the cost of revenue line in its condensed consolidated statement of operations for the nine months ended September 30, 2023

~~(1)~~In August 2016, the Company acquired International Medication Systems (UK) Limited from UCB PHARMA GmbH for $7.7 million. The fair value of the marketing authorization was $9.2 million as of the acquisition date (see Note 3).Goodwill

~~(2)In February 2017, the Company sold the 14 ANDAs it had acquired from Hikma to an unrelated party for $6.4 million.~~

~~Sale of Fourteen Injectable ANDAs~~

In February 2017, the Company sold the 14 ANDAs it acquired in March 2016 from Hikma to an unrelated party. The consideration included a purchase price of $6.4 million of which the amount of $1.0 million was received upon closing, $1.0 million was received in the second quarter of 2017 and the remaining $4.4 million will be paid upon certain milestones. If the purchaser is not able to achieve these milestones by December 31, 2017, the purchaser will pay the remaining payments within 30 days of December 31, 2017. In addition to the purchase price, the purchaser agreed to pay the Company a royalty fee equal to 2% of net sales derived from purchaser’s sales of the products for the period from February 2017 through February 2027. The Company has not recognized any royalty fees. The Company is also subject to

-~~17-~~

~~Table of Contents~~

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

certain indemnification liability payable to the purchaser, which is limited up to $0.6 million. The Company recognized a gain of $2.6 million within operating (income) expenses on its condensed consolidated statement of operations for the nine months ended September 30, 2017, and a receivable of $4.4 million in current other assets on its condensed consolidated balance sheet as of September 30, 2017.

~~Goodwill~~

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


	September 30,		December 31,
	2023		2022

	(in thousands)
Beginning balance	$	3,126	$	3,313
Currency translation		(34)		(187)
Ending balance	$	3,092	$	3,126

September 30,

December 31,

2017

2016

(in thousands)

Beginning balance

$
3,976

$
3,726

Goodwill related to acquisition of business

—

391

Currency translation and other adjustments

425

(141)

Ending balance

$
4,401

$
3,976

-21-

Table of Contents

~~Primatene~~® ~~Trademark~~AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Amortization

As of September 30, 2023, the expected amortization expense for all intangible assets during the next five fiscal years ended December 31 and thereafter is as follows:


	(in thousands)
2023	$	6,180
2024		24,718
2025		24,718
2026		24,718
2027		24,718
Thereafter		481,982
Total amortizable intangible assets		587,034
Indefinite-lived intangibles		32,317
Total intangibles (net of accumulated amortization)	$	619,351

Primatene^® Trademark

In January 2009, the Company acquired the exclusive rights to the trademark, domain name, website and domestic marketing, distribution and selling rights related to Primatene MIST^® ~~Mist,~~, an over-the-counter bronchodilator product, ~~which are~~ recorded at the allocated fair value of $29.2 million, which is its carrying value as of September 30, ~~2017.~~2023.

The trademark was determined to have an indefinite life. In determining its indefinite life, the Company considered the following: the expected use of the intangible; the longevity of the brand; the legal, regulatory and contractual provisions that affect their maximum useful life; the Company’s ability to renew or extend the asset’s legal or contractual life without substantial costs; effects of the regulatory environment; expected changes in distribution channels; maintenance expenditures required to obtain the expected future cash flows from the asset; and considerations for obsolescence, demand, competition and other economic factors.

BAQSIMI^® Product Rights

As ~~a result of environmental concerns about Chlorofluorocarbons, or CFCs, the FDA issued a final ruling on January 16, 2009 that required the CFC formulation of its Primatene~~® ~~Mist product to be phased out by December 31, 2011. The former formulation of Primatene~~® ~~Mist contained CFCs as a propellant; however,~~discussed in Note 3, in June 2023, the Company ~~intends~~acquired the BAQSIMI^® product rights. BAQSIMI^® is an emergency nasal spray used to ~~use~~treat severe hypoglycemia. The BAQSIMI^® product rights intangible asset is amortized over its estimated useful life of 24 years.

In determining the ~~trademark for a future version of Primatene~~BAQSIMI^® ~~that utilizes hydrofluoroalkane, or HFA, as a propellant.~~

~~In 2013,~~ product rights’ useful life, the Company ~~filed a new drug application,~~considered the following: the expected use of the intangible asset; the longevity of the brand; the legal, regulatory and contractual provisions that affect their maximum useful life; the Company’s ability to renew or ~~NDA, for Primatene~~® ~~Mist and received a Prescription Drug User Fee Act date set for May 2014. In May 2014,~~extend the ~~Company received a complete response letter,~~asset’s legal or ~~CRL,~~contractual life without substantial costs; effects of the regulatory environment; expected changes in distribution channels; maintenance expenditures required to obtain the expected future cash flows from the ~~FDA, which required additional non-clinical information, label revisions~~asset; and ~~follow-up studies (label comprehension, behavioral/human factors~~considerations for obsolescence, demand, competition and actual use) to assess consumers’ ability to use the device correctly to support approval of the product in the over-the-counter setting. The Company met with the FDA in October 2014 to discuss preliminary data results and to clarify the FDA requirements for further studies. The Company received further advice regarding its ongoing studies from the FDA in January 2016 and subsequently completed the process of generating the remaining data required by the CRL and plans to submit human factor studies accordingly. The Company submitted a responsive NDA amendment in June 2016 and received another CRL from the FDA in December 2016, which requires additional packaging and label revisions and follow-up studies to assess consumers’ ability to use the device correctly to support approval of the product in the over-the-counter setting. The Company intends to continue to work with the FDA during the post-action phase to address their concerns in the CRL and bring Primatene® ~~Mist back to the over-the-counter market. However, there can be no guarantee that any future amendment to the Company’s NDA will result in timely approval of Primatene~~® ~~Mist or approval at all.~~other economic factors.

~~Based on the Company’s filed version of Primatene~~® ~~Mist, the long history of the Primatene~~® ~~trademark (marketed since~~

-~~18-~~

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1963), and the Company’s perpetual rights to the trademark, the nature of the CRL received in December 2016, the plan that the HFA version will be marketed under the same trademark if approved by the FDA, and other factors previously considered, the trademark continues to have an indefinite useful life, and an impairment charge is not required based on the Company’s qualitative assessment as of September 30, 2017.Note 11. Inventories

~~Note~~ ~~10. Inventories~~

Inventories consist of the following:


					September 30,		December 31,
					2023		2022

	September 30,		December 31,
	2017		2016
	(in thousands)
					(in thousands)
Raw materials and supplies	$	22,008	$	36,209	$	55,180	$	47,607
Work in process		24,780		22,266		28,293		37,090
Finished goods		22,852		21,279		26,505		18,887
Total inventories	$	69,640	$	79,754	$	109,978	$	103,584

~~A charge~~Charges of ~~$2.2 million and $7.3~~$9.6 million were included in the cost of revenues in the Company’s condensed consolidated statements of operations for the ~~three and~~ nine months ended September 30, ~~2017, respectively,~~2023, to adjust the Company’s inventory and related firm purchase commitments to their net realizable ~~value, including a $2.0 million and $4.9 million charge in~~value. For the three and nine months ended September 30, ~~2017,~~2022, charges of $5.5 million and $14.1 million were included in the cost of revenues, respectively, to adjust the Company’s inventory and related firm purchase commitments to their net realizable value.

Losses on firm purchase commitments related to ~~enoxaparin inventory~~raw materials on order as ~~a result~~ of ~~a decrease~~September 30, 2023 and December 31, 2022 were $0.7 million and $2.7 million, respectively, which are recorded in cost of revenues in the ~~forecasted average selling price.~~Company’s condensed consolidated statement of operations.

Note ~~11.~~ 12. Property, Plant, and Equipment

Property, plant, and equipment consist of the following:


					September 30,		December 31,
					2023		2022

	September 30,		December 31,
	2017		2016
	(in thousands)
					(in thousands)
Buildings	$	87,313	$	85,283	$	131,488	$	130,726
Leasehold improvements		29,807		24,619		41,686		31,535
Land		7,092		6,857		7,438		7,451
Machinery and equipment		116,777		111,041		257,295		208,068
Furniture, fixtures, and automobiles		15,679		15,113		31,141		29,674
Construction in progress		46,759		32,044		49,540		50,842
Total property, plant, and equipment		303,427		274,957		518,588		458,296
Less accumulated depreciation		(130,381)		(122,013)		(237,752)		(220,030)
Total property, plant, and equipment, net	$	173,046	$	152,944	$	280,836	$	238,266

As of September 30, 2017 and December 31, 2016, the Company had $2.3 million and $2.6 million, respectively, in capitalized manufacturing equipment that is intended to be used specifically for the manufacture of Primatene® ~~Mist. The Company will continue to monitor developments with the FDA as it relates to its Primatene~~® ~~Mist indefinite lived intangible assets in determining if there is an impairment of these related fixed assets (see Note 9).~~

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 13. Accounts Payable and Accrued Liabilities

~~Note~~ ~~12. Debt~~

Accounts payable and accrued liabilities consisted of the following:


	September 30,		December 31,
	2023		2022

	(in thousands)
Accrued customer fees and rebates	$	16,261	$	14,198
Accrued payroll and related benefits		26,681		22,847
Accrued product returns, current portion		12,884		14,867
Accrued loss on firm purchase commitments		701		2,686
Accrued payments for BAQSIMI^®(see note 3)		123,894		—
Other accrued liabilities		10,328		9,143
Total accrued liabilities		190,749		63,741
Accounts payable		31,970		20,501
Total accounts payable and accrued liabilities	$	222,719	$	84,242

Note 14. Debt

Debt consists of the following:


	September 30,		December 31,
	2023		2022

	(in thousands)
Convertible Debt

2029 Convertible Notes	$	345,000	$	—

Term Loan

Wells Fargo Term Loan due June 2028		300,000		—
Capital One N.A. Term Loan paid off June 2023		—		68,250

Mortgage Loans

Mortgage payable with East West Bank due June 2027		8,060		8,188

Other Loans and Payment Obligations

French government loans due December 2026		209		204

Line of Credit Facilities

Line of credit facility with China Merchant Bank expired April 2023		—		—
Wells Fargo Revolving line of credit facility due June 2028		—		—
Capital One N.A. Revolving line of credit facility closed in June 2023		—		—

Equipment under Finance Leases		660		790
Total debt		653,929		77,432
Less current portion of long-term debt		433		3,046
Less: Loan issuance costs		15,290		1,547
Long-term debt, net of current portion and unamortized debt issuance costs	$	638,206	$	72,839

Table of Contents

~~Loans~~AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Credit Agreements

2029 Convertible Notes

In September 2023, the Company issued the 2029 Convertible Notes, in the aggregate principal amount of $345.0 million in a private offering pursuant to Section 4(a)(2) and Rule 144A under the Securities Act of 1933, as amended. The Company used portions of the net proceeds from the 2029 Convertible Notes to (i) repay approximately $200.0 million of the Company’s borrowings under the Wells Fargo Term Loan and (ii) repurchase $50.0 million of the Company’s common stock.

In connection with ~~East West~~the issuance of the 2029 Convertible Notes, the Company incurred approximately $10.8 million of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees. Unamortized debt issuance costs related to the 2029 Convertible Notes were $10.8 million as of September 30, 2023.

The 2029 Convertible Notes are general senior, unsecured obligations and bear an interest rate of 2.0% per year. The 2029 Convertible Notes were issued pursuant to an indenture, dated September 15, 2023, or the Indenture, between the Company and U.S. Bank Trust Company, National Association, as trustee.

~~Equipment Loan—Paid off April 2017~~The 2029 Convertible Notes will rank senior in right of payment to all of the Company’s indebtedness that is expressly subordinated in right of payment to the 2029 Convertible Notes; equal in right of payment to all of the Company’s unsecured indebtedness that is not so subordinated; effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness, including any amount outstanding under the Company’s credit facilities; and structurally junior to all indebtedness and other liabilities of the Company’s current or future subsidiaries, including trade payables.

Interest will be payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2024. The 2029 Convertible Notes may bear additional interest under specified circumstances relating to the Company’s failure to comply with its reporting obligations under the Indenture or if the 2029 Convertible Notes are not freely tradeable as required by the Indenture.

The 2029 Convertible Notes will mature on March 15, 2029, unless earlier converted, repurchased or redeemed.

Conversions of the 2029 Convertible Notes will be settled in cash up to the aggregate principal amount of the 2029 Convertible Notes to be converted, and cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, with respect to the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount.

Holders may convert their 2029 Convertible Notes at their option prior to the close of business on the business day immediately preceding December 15, 2028, in multiples of $1,000 principal amount, only under the following circumstances; (i) during any calendar quarter commencing after the calendar quarter ending on December 31, 2023 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2029 Convertible Notes on each applicable trading day, (ii) during the five business day period after any five consecutive trading day period in which the trading price, as defined in the Indenture, per $1,000 principal amount of the 2029 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day, (iii) if the Company calls the 2029 Convertible Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date, and (iv) upon the occurrence of specified corporate events defined in the Indenture.

-25-

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On or after December 15, 2028, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2029 Convertible Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.

The Company may redeem the 2029 Convertible Notes, at its option, in whole or in part (subject to certain limitations), on or after September 20, 2026 and prior to the 41^st scheduled trading day preceding the maturity date, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on and including the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2029 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

The initial conversion rate is 15.8821 shares of the Company’s common stock per $1,000 principal amount of the 2029 Convertible Notes, which represents an initial conversion price of approximately $62.96 per share of common stock. The initial conversion price of $62.96 represents a premium of approximately 35.0% over the last reported sale price of the Company’s common stock on Nasdaq Global Select Market on September 12, 2023. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture.

If a fundamental change, as defined in the Indenture, occurs at any time prior to the maturity date, then, subject to certain conditions, holders of the 2029 Convertible Notes may require the Company to repurchase for cash all or any portion of their 2029 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2029 Convertible Notes to be repurchased, plus any accrued and unpaid interest. In ~~March 2012,~~addition, following certain specified corporate events or if the Company issues a notice of redemption, the Company will, under certain circumstances, increase the conversion rate for holders who convert their 2029 Convertible Notes in connection with such corporate event or during a redemption period.

Syndicated Credit Agreement with Wells Fargo Bank, National Association - Due June 2028

In June 2023, in connection with the BAQSIMI^® acquisition, the Company entered into a syndicated credit agreement with Wells Fargo, or the Credit Agreement. Under the terms of the Credit Agreement, the Company borrowed $500.0 million in the form of a term loan, or the Wells Fargo Term Loan. Proceeds from the Wells Fargo Term Loan were used to finance the acquisition of BAQSIMI^®, repay certain of the Company’s and its subsidiaries’ existing third-party indebtedness, and pay fees and expenses incurred in connection with each of the foregoing. Outstanding borrowings with respect to the Wells Fargo Term Loan initially accrue interest, at the Company’s option, at a per annum rate equal to either (i) a base rate equal to the highest of (x) the federal funds rate, plus 0.50%, (y) the prime rate then in effect and (z) an adjusted daily one-month Secured Overnight Financing Rate, or SOFR, rate determined on the basis of a one-month interest period plus 1.00%, in each case, plus an applicable margin of 1.25%, or (ii) an adjusted Term SOFR rate, subject to a floor of 0.00%, plus an applicable margin of 2.25%. Following delivery of financial statements for the Company’s first fiscal quarter following payment in full of a $125.0 million guaranteed payment owed to Lilly on June 30, 2024, the applicable margin for outstanding borrowings with respect to the Wells Fargo Term Loan will range from 0.50% to 1.50% in the case of base rate loans and 1.50% to 2.50% in the case of Term SOFR rate loans, in each case, depending on the Company’s consolidated net leverage ratio as of the most recently ended fiscal quarter. The Wells Fargo Term Loan matures in June 2028.

The Wells Fargo Term Loan requires principal payments of $12.5 million for the first year, which increases to $25.0 million during the second year, and $37.5 million during the third, fourth and fifth years, with the remaining balance due at maturity. The loan is secured by substantially all of the Company’s and certain of its subsidiaries’ assets, subject to certain exceptions and limitations. In the third quarter of 2023, the Company repaid approximately $200.0 million of the borrowings under the Wells Fargo term Loan with the proceeds from the 2029 Convertible Notes, thereby satisfying all

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Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

of the current and future loan amortization payments required by the Wells Fargo Term Loan until maturity.

The Credit Agreement also provides for a $200.0 million Revolving Credit Facility and bears the same interest rate as the Wells Fargo Term Loan.

In conjunction with the Credit Agreement, the Company entered into an ~~$8.0~~interest rate swap agreement with Wells Fargo, with a notional amount of $250.0 million ~~revolving~~to exchange the variable rate on the Wells Fargo Term Loan for a fixed rate of 4.04%. The interest swap asset had a fair value of $3.2 million as of September 30, 2023.

For lenders that were part of the previous credit ~~facility. In March 2013,~~agreement with Capital One N.A. as well as the new Credit Agreement, the transaction was accounted for as a modification under ASC 470-50, Debt Modifications and Extinguishments, based on a comparison of the present value of the cash flows for each lender under the terms of the debt immediately before and after the transaction, which resulted in a change of less than 10%.

The Company ~~converted~~incurred approximately $14.3 million in issuance costs in connection with the ~~outstanding~~Credit Agreement, of which $3.0 million represented debt modification costs and were charged to interest expense in the Company’s condensed consolidated statement of operations for nine months ended September 30, 2023.

Debt issuance costs associated with the Credit Agreement (other than its Revolving Credit Facility component) are presented as a reduction to the carrying value of the related debt, while debt issuance costs associated with the Revolving Credit Facility are capitalized within other long-term assets on the condensed consolidated balance sheets. Unamortized debt issuance costs related to the Credit Agreement as of September 30, 2023 were $8.9 million which are being amortized over the term of the Credit Agreement using the effective interest rate method.

As a result of the $200.0 million repayment of the principal balance of ~~$4.9~~the Wells Fargo Term Loan, approximately $3.0 million ~~into an equipment loan. Borrowings under~~of unamortized debt issuance costs were written off during the ~~facility were secured by equipment. Borrowings under the facility bore a variable interest rate at the prime rate as published by~~ ~~The Wall Street Journal, plus 0.25%,~~three and nine months ended September 30, 2023.

Syndicated Credit Agreement with ~~a minimum interest rate of 3.50%.~~ Capital One N.A. – Paid off June 2023

In ~~April 2017, the Company repaid all outstanding amounts due under this loan.~~

~~Line of Credit Facility—Due December 2018~~

~~In March 2012,~~August 2021, the Company entered into a ~~$10.0~~$140.0 million ~~line~~credit agreement with Capital One N.A. acting as a lender and as agent for other lenders. Under the terms of the credit agreement, the Company borrowed $70.0 million in the form of a term loan, or the Capital One N.A. Term Loan. Proceeds from the loan were used to pay down certain of the Company’s outstanding loans and revolving lines of credit ~~facility, which bears~~with Cathay Bank and East West Bank. The interest rate on the Capital One N.A. Term Loan was based on a variable interest rate, atplus an applicable margin rate ranging between 0.5% and 2.5%, determined based on the ~~prime rate~~Company’s net leverage ratio as ~~published~~defined by ~~The Wall Street Journal. Borrowings~~the terms of the agreement. In June 2023, the Company repaid all amounts outstanding under the ~~facility are secured by inventory and accounts~~

-~~20-~~

~~Table of Contents~~Capital One N.A. Term Loan.

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Interest Rate Swap Contracts

~~(Unaudited)~~

receivable. This facility matured in March 2016. In March 2016, the facility was amended to increase the line of credit to $15.0 million and to extend the maturity date to September 2017. In May 2017, the Company amended the facility to extend the maturity date to December 2018. As of September 30, ~~2017, the Company did not have any amounts outstanding under this facility.~~

~~Equipment Loan—Due January 2019~~

~~In July 2013, the Company entered into an $8.0 million line of credit facility.~~

In January 2015, the Company drew down $6.2 million from the line of credit facility. Subsequently, the facility was converted into a term equipment loan with an outstanding principal balance of $6.2 million and a maturity date of January 2019. Borrowings under the facility are secured by equipment. As of September 30, 2017,2023, the fair value of the ~~loan approximates its book value. The interest rate used in the fair value estimation was determined to be a~~loans listed above approximated their carrying amount based on Level 2 ~~input. The~~inputs. For the mortgage loan with East West Bank, as well as the Wells Fargo Term Loan, the Company has entered into a fixed interest rate swap ~~contract on this facility~~contracts to exchange the variable interest ~~rate~~rates for a fixed interest ~~rate of 4.48% over the life of the facility without the exchange of the underlying notional debt amount.~~rates. The interest rate swap ~~contract does not qualify for hedge accounting and is~~contracts are recorded at fair value ~~for an immaterial amount based on Level 2 inputs.~~

~~Mortgage Payable—Due February 2021~~

~~The Company refinanced~~in the ~~mortgage term loan~~other assets line in ~~January 2016, which had an outstanding principal~~the condensed consolidated balance of $3.7 million at December 31, 2015, and a maturity date of February 2021. The refinanced loan is payable in monthly installments with a final balloon payment of $3.3 million. The refinanced loan is secured by one of the buildings at the Company’s Rancho Cucamonga, California, headquarters complex. The refinanced loan has a variable interest rate at the prime rate as published by ~~The Wall Street Journal. As of September 30, 2017, the fair value of the loan approximates its book value. The interest rate used~~sheets. Changes in the fair ~~value estimation was determined to be a Level 2 input. The Company has entered into a fixed~~values of interest rate ~~swap contract on this loan to exchange~~swaps were $4.9 million gain and $2.7 million gain for the variable interest rate for a fixed interest rate of 4.39% over the life of the loan without the exchange of the underlying notional debt amount. The interest rate swap contract does not qualify for hedge accounting,three and ~~is recorded at fair value for an immaterial amount based on Level 2 inputs.~~

~~Equipment Loan—Due June 2021~~

~~In March 2016, the Company entered into a $5.0 million equipment credit facility.~~

In May 2017, the Company converted the outstanding balance of $5.0 million into a term equipment loan which matures in June 2021. Borrowings under the loan are secured by equipment. The loan bears a variable interest rate at the prime rate as published by ~~The Wall Street Journal. As of~~nine months ended September 30, ~~2017, the fair value of the loan approximates its book value. The interest rate used~~2023, respectively. Changes in the fair ~~value estimation was determined to be a Level 2 input. The Company has entered into a fixed~~values of interest rate ~~swap contract on this facility to exchange~~swaps were $2.0 million gain and $5.9 million gain for the variable interest rate for a fixed interest rate of 4.86% over the life of the facility without the exchange of the underlying notional debt amount. The interest rate swap contract does not qualify for hedge accountingthree and ~~is recorded at fair value for an immaterial amount based on Level 2 inputs.~~

~~Equipment Credit Line—Due December 2022~~

In June 2017, the Company entered into an $8.0 million equipment credit line with an 18-month draw down period. Interest payments are due monthly through December 2018 at the prime rate as published by ~~The Wall Street Journal. After the draw down period, the outstanding principal balance converts into a 48-month term loan which bears a variable interest rate at the prime rate as published by~~ ~~The Wall Street Journal. The loan matures in December 2022, and the~~

-~~21-~~

~~Table of Contents~~

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~principal and interest payments are due monthly. Borrowings under the facility are secured by equipment. As of~~nine months ended September 30, ~~2017, the Company did not have any amounts outstanding under this facility.~~2022, respectively.

~~Mortgage Payable—Due October 2026~~Covenants

~~In September 2006, the Company entered into a mortgage term loan in the principal amount of $2.8 million, which matured in September 2016.~~

The Company refinanced the mortgage term loan in September 2016, which increased the principal amount to $3.6 million and extended the maturity date to October 2026. The refinanced loan is payable in monthly installments with a final balloon payment of $2.9 million. The refinanced loan was secured by one of the buildings at the Company’s Rancho Cucamonga, California, headquarters complex. The refinanced loan bears a variable interest rate at the one-month LIBOR rate plus 2.75%. As of September 30, 2017, the fair value of the loan approximates its book value. The interest rate used in the fair value estimation was determined to be a Level 2 input. Subsequently, the Company entered into a fixed interest rate swap contract on this loan to exchange the variable interest rate for a fixed interest rate of 4.15% until October 2021 without the exchange of the underlying notional debt amount. The interest rate swap contract does not qualify for hedge accounting, and is recorded at fair value for an immaterial amount based on Level 2 inputs.

~~Mortgage Payable—Due June 2027~~

In May 2017, the Company entered into a mortgage term loan in the principal amount of $9.0 million, which matures in June 2027. The loan is payable in monthly installments with a final balloon payment of $7.4 million plus interest. The loan is secured by one of the buildings at the Company’s Rancho Cucamonga, California, headquarters complex and two buildings at the Company’s Chino, California, facility. The loan bears a variable interest rate at the one-month LIBOR rate plus 2.5%. As of September 30, 2017, the fair value of the loan approximates its book value. The interest rate used in the fair value estimation was determined to be a Level 2 input. The Company entered into a fixed interest rate swap contract on this loan to exchange the variable interest rate for a fixed interest rate of 4.79% until June 2024 without the exchange of the underlying notional debt amount. The interest rate swap contract does not qualify for hedge accounting, and is recorded at fair value of approximately $0.2 million based on Level 2 inputs.

~~Loans with Cathay Bank~~

~~Line of Credit Facility—Due May 2018~~

In April 2012, the Company entered into a $20.0 million revolving line of credit facility. Borrowings under the facility are secured by inventory, accounts receivable, and intangibles held by the Company. The facility bears a variable interest rate at the prime rate as published by ~~The Wall Street Journal~~ with a minimum interest rate of 4.00%. In June 2016, the Company amended the facility to extend the maturity date from May 2016 to May 2018. As of September 30, 2017, the Company did not have any amounts outstanding under this facility.

~~Acquisition Loan with Cathay Bank—Due April 2019~~

On April 22, 2014, in conjunction with the Merck API Transaction, the Company entered into a secured term loan with Cathay Bank as lender. The principal amount of the loan is $21.9 million and bears a variable interest rate at the prime rate as published by ~~The Wall Street Journal~~, with a minimum interest rate of 4.00%. Beginning on June 1, 2014, and through the maturity date April 22, 2019, the Company must make monthly payments of principal and interest based on the then outstanding amount of the loan amortized over a 120‑month period. On April 22, 2019, all amounts outstanding under the loan become due and payable, which would be approximately $12.0 million based upon an interest rate of 4.00%. The loan is secured by 65% of the issued and outstanding shares of stock in AFP and certain assets of the Company, including accounts receivable, inventory, certain investment property, goods, deposit accounts, and general

-~~22-~~

~~Table of Contents~~

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

intangibles but not including the Company’s equipment and real property. As of September 30, 2017, the fair value of the loan approximates its book value. The interest rate used in the fair value estimation was determined to be a Level 2 input.

The loan includes customary restrictions on, among other things, the Company’s ability to incur additional indebtedness, pay dividends in cash or make other distributions in cash, make certain investments, create liens, sell assets, and make loans. The loan also includes customary events of defaults, the occurrence and continuation of any of which provide Cathay Bank the right to exercise remedies against the Company and the collateral securing the loan. These events of default include, among other things, the Company’s failure to pay any amounts due under the loan, the Company’s insolvency, the occurrence of any default under certain other indebtedness or material agreements, and a final judgment against the Company that is not discharged in 30 days.

~~Mortgage Payable—Due August 2027~~

In April 2014, the Company refinanced the mortgage term loan, which had a principal balance outstanding of $4.6 million. The loan was payable in monthly installments with a final balloon payment of $3.9 million. The loan was secured by the building at the Company’s Canton, Massachusetts location, and bore interest at a fixed rate of 5.42% and was to have matured in April 2021.

In August 2017, the Company refinanced the mortgage term loan, with a principal balance outstanding of $7.9 million. The loan is payable in monthly installments and is secured by the building at the Company’s Canton, Massachusetts location. The loan bears interest at a fixed rate of 4.70% for the first five years of the loan, thereafter; the loan bears a variable interest rate at the prime rate as published by ~~The Wall Street Journal~~ ~~and matures in June 2027. As of September 30, 2017, the fair value of the loan approximates its book value. The interest rate used in the fair value estimation was determined to be a Level 2 input.~~

~~Loans with Seine-Normandie Water Agency~~

In January 2015, the Company entered into three French government loans with the Seine-Normandie water agency in the aggregate amount of €0.6 million, or $0.7 million, subject to currency exchange fluctuations. The life of the loans range between three to six years, and includes annual equal payments and bears no interest over the life of the loans.

As of September 30, 2017, the payment obligation had an aggregate book value of €0.3 million, or $0.3 million, subject to currency exchange rate fluctuations, which approximates fair value. The fair value of the payment obligation was determined by using the interest rate associated with the Company’s acquisition loan with Cathay Bank that bears a variable interest rate at the prime rate as published by ~~The Wall Street Journal, with a minimum interest rate of 4.00%. Such interest rate is deemed to be a Level 2 input for measuring fair value.~~

~~Payment Obligation to Merck~~

~~Merck—Due December 2017~~

On April 30, 2014, in conjunction with the Merck API Transaction, the Company entered into a commitment obligation with Merck, in the principal amount of €11.6 million, or $16.0 million, subject to currency exchange rate fluctuations. The terms of the purchase price include annual payments over four years and bear a fixed interest rate of 3.00%. As of September 30, 2017, the payment obligation had a balance of €0.5 million, or $0.6 million, which approximates fair value. The fair value of the payment obligation was determined by using the interest rate associated with the Company’s acquisition loan with Cathay Bank that bears a variable interest rate at the prime rate as published by ~~The Wall Street Journal, with a minimum interest rate of 4.00%. Such interest rate is deemed to be a Level 2 input for measuring fair value.~~

-~~23-~~

~~Table of Contents~~

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Covenants~~

At September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, the Company was in compliance with all of its debt covenants, which include a minimum current ratio, minimum debt service coverage, minimum tangible net worth, maximum debt-to-effective-tangible-net-worth ratio, and minimum deposit requirement, computed on a consolidated basis.covenants.

-27-

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

~~Equipment under Capital Leases~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~The Company entered into leases for certain equipment under capital leasing arrangements, which will expire at various times through 2021. The cost~~

Long-Term Debt Maturities

As of ~~equipment under capital leases was $1.6 million and $2.0 million at~~ September 30, ~~2017 and~~2023, the principal amounts of long-term debt maturities during each of the next five fiscal years ending December 31 ~~2016, respectively.~~are as follows:


	Long-term
	Debt
	(in thousands)
2023	$	229
2024		241
2025		250
2026		7,548
2027		—
Thereafter		645,000
	$	653,268

The accumulated depreciation of equipment under capital leases was $0.1 million and $0.2 million at September 30, 2017 and December 31, 2016, respectively. Depreciation of assets recorded under capital leases is included in depreciation expense in the accompanying consolidated financial statements.

Note ~~13.~~15. Income Taxes

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

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

(in thousands)

Income (loss) before taxes

$
(1,991)

$
6,001

$
2,686

$
19,569

Income tax expense (benefit)

(2,166)

2,111

(354)

6,295

Net income

$
175

$
3,890

$
3,040

$
13,274

Income tax provision as a percentage of income before income taxes

108.8
%

35.2
%

(13.2)
%

32.2
%


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022

	(in thousands)
Income before taxes	$	63,637		$	22,596		$	130,014		$	74,780
Income tax provision		14,025			6,559			27,160			16,187
Income before equity in losses of unconsolidated affiliate	$	49,612		$	16,037		$	102,854		$	58,593
Income tax provision as a percentage of income before income taxes		22.0	%		29.0	%		20.9	%		21.6	%

The ~~Company has a full valuation allowance against its French deferred tax assets; however, a tax benefit is included~~change in the ~~annual~~Company’s effective tax rate computation due to the French entity reporting a year-to-date foreign exchange gain in other comprehensive income. The Company calculates an estimated annual effective income tax rate based upon its forecasted income. This estimated effective tax rate factors in various permanent differences, including domestic deductions, the impact of foreign operations, and various credits, as well as discrete tax items recognized during each period. Duringfor the three and nine months ended September 30, ~~2017,~~2023, was primarily due to differences in pre-tax income positions and timing of discrete tax items.

In connection with the purchase accounting for its acquisition of BAQSIMI^®, the Company recognized discrete tax benefits of $1.3 million and $1.4 million, respectively. During the three and nine months ended September 30, 2016, the Company recognized discrete tax benefits of $0.3 million and $0.3 million, respectively.

Effective January 1, 2017, the Company adopted ASU 2016-09, under which, differences between the tax deduction for share-based awards and the related compensation expenses recognized under ASC 718 are prospectively accounted for asrecorded a component of the provision for income taxes. In addition, ASU 2016-09 eliminated the requirement that excess tax benefits from share-based compensation reduce taxes payable prior to being recognized in the financial statements. As a result of the adoption of ASU 2016-09, the cumulative excess benefits of stock compensation of $0.9 million that was not previously recognized was established on the balance sheet resulting in an increase in deferred tax ~~assets and retained earnings.~~asset of $2.3 million.

The Company’s income tax return for the 2015 tax year is currently under examination by the Internal Revenue Service. There are differing interpretations of tax laws and regulations and, as a result, significant disputes may arise with tax authorities involving issues of timing and amount of deductions and allocations of income. Resolution of uncertain tax positions may have an impact on the results of operations for that period.

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~~Table of Contents~~

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Valuation Allowance

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

~~In 2015,~~During the nine months ended September 30, 2023, the Company ~~assessed the realizability of the deferred tax assets of AFP~~determined its U.K. subsidiaries, AUK and ~~determined that it was not~~IMS UK, more likely than not ~~that~~would not realize the ~~net~~benefits of their deferred tax ~~assets of AFP would be realized.~~assets. Therefore, the Company ~~established~~recorded a ~~full~~ valuation allowance expense of ~~$0.9 million as of December 31, 2015,~~an immaterial amount and will discontinue recognizing income tax benefits until sufficient taxable income is generated to realize their deferred tax assets.

The Company continues to ~~maintain~~record a full valuation allowance on ~~all~~AFP’s net deferred income tax assets and will continue to do so until AFP generates sufficient taxable income to realize its deferred income tax assets.

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company records a valuation allowance on net deferred income tax assets in states where it files separately and will continue to do so until sufficient taxable income is generated to realize these state deferred income tax assets.

Note 16. Stockholders' Equity

~~Note 14. Stockholders’ Equity~~

Share Buyback Program

~~A summary of~~

Pursuant to the ~~changes in stockholders’ equity for the nine months ended September 30, 2017, consisted of the following:~~

Nine Months Ended

September 30,

2017

(in thousands)

Stockholders’ equity as of December 31, 2016

$
329,255

Beginning balance adjustment to retained earnings as a result of the adoption of ASU 2016-09

872

Adjusted stockholders’ equity as of January 1, 2017

330,127

Net income

3,040

Other comprehensive income

2,101

Net proceeds from equity plans

7,255

Share-based compensation expense

12,905

Purchase of treasury stock

(24,773)

Stockholders’ equity as of September 30, 2017

$
330,655

~~2014 Employee Stock Purchase Plan~~

~~In June 2014,~~Company’s existing share buyback program, the Company adopted the Employee Stock Purchase Plan, or ESPP, in connection with its initial public offering. A total of 2,000,000 shares of common stock are reserved for issuance under this plan. The Company’s ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Under the ESPP, the Company may specify offerings with durations of not more than 27 months,purchased 1,072,041 and ~~may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which~~1,338,757 shares of its common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances. The price at which the stock is purchased is equal 85% of the lower of the fair market value of the common stock at the beginning of an offering period or on the date of purchase.

~~As of September 30, 2017, the Company has issued 320,623 shares of common stock under the ESPP and 1,679,377 shares of its common stock remained available for issuance.~~

~~For~~during the three and nine months ended September 30, ~~2017~~, ~~the Company recorded ESPP expense~~2023, for total consideration of ~~$0.1~~$50.0 million and ~~$0.4~~$58.1 million, ~~respectively~~. ~~For~~respectively. The Company purchased 478,255 and 719,263 shares of its common stock during the three and nine months ended September 30, ~~2016~~, ~~the Company recorded ESPP expense~~2022, for total consideration of ~~$0.1~~$14.5 million and ~~$0.4~~$21.8 million, ~~respectively~~.respectively.

-~~25-~~

~~Table of Contents~~

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Share Buyback Program~~

~~On November 6, 2014,~~In August 2023, the Company’s Board of Directors authorized a ~~$10.0~~$50.0 million share buyback program, which was completed in December 2015. On November 10, 2015, the Company’s Board of Directors authorized an additional $10.0 million to the Company’s share buyback program, which was completed in December 2016. On November 7, 2016, the Company’s Board of Directors authorized an increase ~~of $20.0 million to the Company’s share buyback program, which was completed in August 2017. On August 7, 2017, the Company’s Board of Directors authorized an additional $20.0 million~~ to the Company’s share buyback program, which is expected to continue for an indefinite period of time. Since the inception of the program, the Company’s Board of Directors have authorized a total of $285.0 million in the share buyback program. The primary goal of the program is to offset dilution created by the Company’s equity compensation programs.

Purchases are made through open market and private block transactions pursuant to Rule 10b5-1 plans, privately negotiated transactions or other means as determined by the Company’s management and in accordance with the requirements of the ~~SEC.~~SEC and applicable laws. The timing and actual number of treasury ~~stock~~ share purchases will depend on a variety of factors including price, corporate and regulatory requirements, and other conditions. These treasury ~~stock~~ share purchases are accounted for under the cost method and are included as a component of treasury stock in the Company’s condensed consolidated balance sheets.

~~Pursuant to the Company’s share buyback program, the Company purchased 472,379~~Amended and 1,584,661 shares of its common stock during the three and nine months ended September 30, 2017, for total consideration of $7.6 million and $24.8 million, respectively. The Company purchased 46,333 and 710,833 shares of its common stock during the three and nine months ended September 30, 2016, for total consideration of $0.8 million and $9.0 million, respectively.

Restated 2015 Equity Incentive Plan

In March 2015, the Board of Directors adopted the Company’s 2015 Equity Incentive Plan, or the 2015 Plan, which was approved by the Company’s stockholders in May 2015 and is set to expire in March 2025. The 2015 Plan is designed to meet the needs of a publicly traded company, including the requirements for granting “performance based compensation” under Section 162(m) of the Internal Revenue Code. The 2015 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, performance shares, and other stock or cash awards to employees of the Company and its subsidiaries, members of the Board of Directors and consultants.

The Company initially reserved 5,000,000 shares of common stock for issuance under the 2015 Plan. This number will be increased by the number of shares available for issuance under the Company’s prior equity incentive plans or arrangements that are not subject to options or other awards, plus the number of shares of common stock related to options or other awards granted under the Company’s prior equity incentive plans or arrangements that are repurchased, forfeited, expired, or cancelled on or after the effective date of the 2015 Plan. The 2015 Plan also contains an “evergreen provision” that allows for an annual increase in the number of shares available for issuance on January 1 of each year during the 10 year term of the 2015 Plan, beginning January 1, 2016. The annual increase in the number of shares shall be the lessor of (i) 3,000,000 shares, (ii) two and one-half percent (2.5%) of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares as determined by the Board of Directors. As of the effective date, there were 5,300,296 shares available for grant under the 2015 Plan.

~~In January 2017, an additional 1,156,216 shares were reserved under the 2015 Plan pursuant to the evergreen provision.~~ As of September 30, ~~2017,~~2023, the Company reserved an aggregate of ~~3,469,873~~6,776,746 shares of common stock for future issuance under the Amended and Restated 2015 Equity Incentive Plan, or the 2015 Plan, including 1,202,802 shares, which were reserved in January 2023 pursuant to the evergreen provision in the 2015 Plan.

2014 Employee Stock Purchase Plan

-~~26-~~

~~Table~~As of ~~Contents~~September 30, 2023, the Company has issued 1,155,478 shares of common stock under the ESPP and 844,522 shares of its common stock remain available for issuance under the ESPP.

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~In May 2023, the Company issued 65,933 shares at a purchase price of $25.52 per share under the ESPP. For the three and nine months ended September 30, 2023, the Company recorded ESPP expense of $0.2 million and $0.8 million, respectively. For the three and nine months ended September 30, 2022, the Company recorded ESPP expense of $0.2 million and $0.6 million, respectively.

~~(Unaudited)~~

Share-Based Award Activity and Balances

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

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The weighted-averages for key assumptions used in determining the fair value of options granted during the three and nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, are as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016

									Three Months Ended				Nine Months Ended
									September 30,				September 30,
									2023		2022		2023		2022
Average volatility	36.9	%	31.9	%	37.0	%	30.4	%	40.2	%	42.7	%	41.4	%	41.0	%
Risk-free interest rate	2.0	%	1.3	%	2.1	%	1.5	%
Average risk-free interest rate									4.4	%	2.9	%	4.1	%	2.3	%
Weighted-average expected life in years	6.3		6.3		5.5		5.5		6.3		6.3		6.2		6.1
Dividend yield rate	—	%	—	%	—	%	—	%	—	%	—	%	—	%	—	%

A summary of option activity under all plans for the nine months ended September 30, ~~2017,~~2023, is presented below:


				Weighted-Average
		Weighted-Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Options	Price		Term (Years)	Value⁽¹⁾
					(in thousands)
Outstanding as of December 31, 2022	7,929,150	$	17.66
Options granted	759,820		35.84
Options exercised	(786,891)		15.27
Options forfeited	(4,526)		29.60
Options expired	(543)		16.25
Outstanding as of September 30, 2023	7,897,010	$	19.65	4.78		208,046
Exercisable as of September 30, 2023	5,819,517	$	16.54	3.52		171,365
Vested and expected to vest as of September 30, 2023	7,703,355	$	19.37	4.68		205,029

Weighted-Average

Weighted-Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

Options

Price

Term (Years)

Value(1)

(in thousands)

Outstanding as of December 31, 2016

12,530,297

$
14.57






Options granted

1,815,813

14.23

Options exercised

(1,134,259)

11.60

Options cancelled

(44,473)

13.57

Options expired

(118,378)

25.48

Outstanding as of September 30, 2017

13,049,000

$
14.69

4.49

$
53,235

Exercisable as of September 30, 2017

8,683,400

$
15.22

3.05

$
34,772

(1)

⁽¹⁾

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the estimated fair value of the Company’s ~~common~~ stock for those awards that have an exercise price below the estimated fair value at September 30, ~~2017.~~

2023.

For the three and nine months ended September 30, ~~2017~~, 2023, the Company recorded ~~expenses~~expense of $1.9$2.2 million and $5.9$7.5 million, respectively, related to stock options granted ~~to employees under all plans and expenses of $0.2 million and $0.5 million, respectively, related to stock options granted to the Board of Directors~~ under all plans. For the three and nine months ended September 30, ~~2016~~, 2022, the Company recorded ~~expenses~~expense of ~~$1.8~~$2.0 million and ~~$6.2~~$6.5 million, respectively, related to stock options granted ~~to employees under all plans and expenses of $0.1 million and $0.5 million, respectively, related to stock options granted to the Board of Directors~~ under all plans.

-~~27-~~

~~Table of Contents~~

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Information relating to option grants and exercises is as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

	(in thousands, except per share data)
Weighted-average grant date fair value per share	$	21.49	$	14.40	$	16.76	$	14.75
Intrinsic value of options exercised		5,628		1,421		24,544		20,131
Cash received from options exercised		2,277		1,483		12,015		18,402
Total fair value of the options vested during the period		167		167		8,887		8,157

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

(in thousands, except per share data)

Weighted-average grant date fair value per option share

$
6.23

$
6.34

$
4.95

$
3.42

Intrinsic value of options exercised

1,668

4,998

4,730

5,980

Cash received from options exercises

782

14,331

9,521

17,584

Total fair value of the options vested during the year

779

2,688

6,984

7,948

-30-

Table of Contents

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A summary of the status of the Company’s non-vested options as of September 30, ~~2017,~~2023, and changes during the nine months ended September 30, ~~2017, is~~2023, are presented below:


		Weighted-Average
		Grant Date
	Options	Fair Value
Non-vested as of December 31, 2016	4,592,187	$	3.61

					Weighted-Average
					Grant Date
				Options	Fair Value
Non-vested as of December 31, 2022				2,378,453	$	9.48
Options granted	1,815,813		4.95	759,820		16.76
Options vested	(1,997,927)		3.50	(1,056,254)		8.41
Options forfeited	(44,473)		4.71	(4,526)		13.40
Non-vested as of September 30, 2017	4,365,600		4.21
Non-vested as of September 30, 2023				2,077,493		12.68

As of September 30, ~~2017,~~2023, there was ~~$12.9~~$18.9 million of total unrecognized compensation cost, net of forfeitures, related to non-vested stock option based compensation arrangements granted under all plans. The cost is expected to be recognized over a weighted-average period of ~~2.3~~2.7 years and will be adjusted for future changes in estimated forfeitures.

~~Deferred Stock Units/~~Restricted Stock Units

~~Beginning in 2007, the~~The Company ~~granted deferred~~grants restricted stock units, or ~~DSUs,~~RSUs, to certain employees and members of the Board of Directors with a vesting period of up to five ~~years, and commencing in 2015, such equity was issued as restricted stock units, or RSUs (such RSUs and DSUs are collectively referred to herein as RSUs).~~years. The grantee receives one share of common stock at a specified future date for each RSU awarded. The RSUs may not be sold or otherwise transferred until ~~certificates of common stock have been issued, recorded, and delivered to the participant.~~vested. The RSUs do not have any voting or dividend rights prior to the issuance ~~of certificates~~ of the underlying common stock. The share-based expense associated with these grants was based on the Company’s common stock fair value at the time of grant and is amortized over the requisite service period, which generally is the vesting period using the straight-line method. ~~During~~For the three and nine months ended September 30, ~~2017,~~2023, the Company recorded total expenses of ~~$1.7~~$2.2 million and ~~$5.4~~$7.3 million, respectively, related to RSU awards granted ~~to employees~~ under all ~~plans and expenses of $0.2 million and $0.5 million, respectively, related to RSU awards granted to the Board of Directors. During~~plans. For the three and nine months ended September 30, ~~2016,~~2022, the Company recorded expenses of ~~$1.4~~$2.0 million and ~~$3.9~~$6.4 million, respectively, related to RSU awards granted ~~to employees~~ under all ~~plans and expenses of $0.2 million and $0.5 million, respectively, related to RSU awards granted to the Board of Directors.~~plans.

As of September 30, ~~2017,~~2023, there was ~~$14.2~~$19.9 million of total unrecognized compensation cost, net of forfeitures, related to non-vested RSU-based compensation arrangements granted under all plans. The cost is expected to be recognized over a weighted-average period of ~~2.4~~2.7 years and will be adjusted for future changes in estimated forfeitures.

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~~Table of Contents~~

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Information relating to RSU grants and deliveries is as follows:


		Total Fair Market
	Total RSUs	Value of RSUs
	Issued	Issued⁽¹⁾
		(in thousands)
RSUs outstanding at December 31, 2022	1,007,052
RSUs granted	356,176	$	12,725
RSUs forfeited	(2,017)
RSUs vested⁽²⁾	(440,337)
RSUs outstanding at September 30, 2023	920,874

Total Fair Market

Value of RSUs

Issued

Total RSUs

as

Issued

Compensation(1)

(in thousands)

RSUs outstanding at December 31, 2016

1,215,786

RSUs granted

676,482

$
9,298

RSUs forfeited

(13,302)

RSUs vested(2)

(484,739)

RSUs outstanding at September 30, 2017

1,394,227

(1)

⁽¹⁾

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

(2)

⁽²⁾

Of the vested RSUs, ~~184,341~~168,007 shares of common stock were surrendered to ~~fulfil~~fulfill tax withholding obligations.

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Table of Contents

~~Equity Awards to Consultants and Advisory Board Members~~AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company pays certain consultants and advisory board members in the form of share-based awards. Such share-based compensation expense is recorded over the service period based on the estimated fair market value of the equity award at the date services are performed or upon completion of services. During the three and nine months ended September 30, 2017, the Company recorded expenses of $0.1 million and $0.3 million, respectively, in relation to such share-based compensation. During the three months ended September 30, 2016, the Company recorded an immaterial amount of expense in relation to such share-based compensation. During the nine months ended September 30, 2016, the Company recorded an expense of approximately $0.1 million in relation to such share-based compensation.(Unaudited)

Share-based Compensation Expense

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


									Three Months Ended				Nine Months Ended
									September 30,				September 30,
									2023		2022		2023		2022

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
	(in thousands)
									(in thousands)
Cost of revenues	$	815	$	675	$	2,843	$	2,245	$	1,004	$	915	$	3,868	$	3,238
Operating expenses:
Selling, distribution, and marketing		88		45		237		176		213		178		649		540
General and administrative		2,947		2,593		8,715		8,339		2,975		2,810		9,323		8,389
Research and development		306		242		1,110		844		452		396		1,780		1,389
Total share-based compensation	$	4,156	$	3,555	$	12,905	$	11,604	$	4,644	$	4,299	$	15,620	$	13,556

Note ~~15.~~17. Employee Benefits

401(k) Plan

The Company has a defined contribution 401(k) plan, or the Plan, whereby eligible employees voluntarily contribute up to a defined percentage of their annual compensation. The Company matches contributions at a rate of 50% on the first 6% of employee contributions, and pays the administrative costs of the Plan. ~~Employer contributions vest over four years.~~ Total employer contributions for the three and nine months ended September 30, ~~2017,~~2023 were approximately ~~$0.3~~$0.5 million and ~~$0.8~~$1.7 million, respectively, compared to the prior year expense of ~~$0.3~~$0.5 million and ~~$0.7~~$1.6 million for the three and nine months ended September 30, ~~2016,~~2022, respectively.

-~~29-~~

~~Table of Contents~~

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Defined Benefit Pension Plan

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

The liability under the plan is based on a discount rate of ~~1.60% and 1.75%~~3.8% as of September 30, ~~2017~~2023 and December 31, ~~2016, respectively.~~2022. The liability is included in ~~accrued~~other long-term liabilities in the accompanying condensed consolidated balance sheets. The plan is currently unfunded, and the benefit obligation under the plan was ~~$1.9~~$2.3 million and ~~$1.7~~$2.2 million at September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively. The Company recorded an immaterial amount of expense under the plan for each of the three ~~months ended September 30, 2017,~~ and ~~$0.1 million for the~~ nine months ended September 30, ~~2017.~~2023 and 2022.

Non-qualified Deferred Compensation Plan

In December 2019, the Company established a non-qualified deferred compensation plan. The plan allows certain eligible participants to defer a portion of their cash compensation and provides a matching contribution at the discretion of the Company. The plan obligations are payable upon retirement, termination of employment and/or certain other times in a lump-sum distribution or in installments, as elected by the participant in accordance with the plan. Participants can allocate their deferred compensation amongst various investment options with earnings accruing to the participant. The Company ~~recorded an immaterial amount of expense under~~has established a Rabbi Trust to fund the plan ~~for~~obligations and to hold the ~~three months ended~~plan assets. Eligible participants began contributing to the plan in January 2020. The plan assets were valued at approximately $5.5 million and $4.5 million as of September 30, ~~2016,~~2023 and ~~$0.1~~December 31, 2022, respectively. The plan liabilities were valued at approximately

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

$5.7 million ~~for the nine months ended~~and $4.6 million as of September 30, ~~2016.~~ 2023, and December 31, 2022, respectively. The plan assets and liabilities are included in other long-term assets and other long-term liabilities, respectively, on the Company’s condensed consolidated balance sheets.

Note ~~16.~~18. Commitments and Contingencies

~~Supply Agreement with MannKind Corporation~~

On July 31, 2014, the Company entered into a supply agreement with MannKind Corporation, or MannKind, or the Supply Agreement, pursuant to which the Company agreed to manufacture for and supply to MannKind certain quantities of RHI API for use in MannKind’s product Afrezza®. Under the Supply Agreement, MannKind agreed to purchase annual minimum quantities of RHI API in an aggregate amount of approximately €120.1 million, or approximately $146.0 million, over five years from calendar years 2015 through 2019. Specifically, the minimum annual purchase commitment was approximately €27.1 million in 2015 and approximately €23.3 million each year from 2016 through 2019.

In January 2015, the Company entered into a supply option agreement with MannKind, or the Option Agreement, pursuant to which MannKind will have the option to purchase RHI API, in excess of the minimum amounts specified in the Supply Agreement in calendar years 2016 through 2019. In the event MannKind elects not to exercise its minimum annual purchase option for any year under the Option Agreement, MannKind is obligated to pay the Company a specified capacity cancellation fee.

In October 2015, MannKind informed the Company that it was not exercising the option to purchase additional quantities of RHI API for 2016 under the Option Agreement and paid the Company the specified capacity cancellation fee of $0.8 million. Such capacity cancellation fee was recorded as net revenue in the Company’s consolidated statement of operations for the year ended December 31, 2015.

~~For the year ended December 31, 2016, sales of RHI API to MannKind totaled $6.8 million, which fulfilled the remaining unfulfilled 2015 commitment of RHI under the Supply Agreement.~~

In November 2016, the Company amended the Supply Agreement with MannKind, whereby MannKind’s aggregate total commitment of RHI API under the Supply Agreement has not been reduced; however, the annual minimum purchase commitments of RHI API under the Supply Agreement have been modified and extended through 2023, which timeframe had previously lapsed after calendar year 2019. Specifically, the minimum annual purchase commitment in calendar year 2016 has been cancelled, and the minimum annual purchase commitments in calendar years 2017 through 2023 have been modified to be €2.7 million of insulin in the fourth quarter of 2017, €8.9 million in 2018, €11.6 million in 2019, €15.5 million in 2020 and in 2021, and €19.4 million in 2022 and in 2023. MannKind may request to purchase additional quantities of RHI API in excess of its annual minimum purchase commitments. The Supply Agreement Amendment also (i) shortened the required expiry dates for RHI API delivered to MannKind pursuant to the Supply Agreement, (ii) modified the timing of MannKind’s payment for the minimum annual purchase commitment in calendar year 2017, and

-~~30-~~

~~Table of Contents~~

~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

(iii) added a pre-payment requirement for purchases of RHI API by MannKind in calendar years 2017 and 2018. The amendment can be renewed for additional, successive two-year terms upon 12 months’ written notice, given prior to the end of the initial term or any additional two-year term.

Concurrent with the amendment of the Supply Agreement, the Company amended the Option Agreement with MannKind, whereby the amendment to the Option Agreement extends the timing for payment of the capacity cancellation fee for 2017 and decreases the amounts payable as capacity cancellation fees for 2018 and 2019 in the event MannKind fails to exercise its minimum annual purchase option for any given year. The Company recognized the cancellation fee for 2017 of $1.5 million in net revenues in its consolidated statement of operations for the year ended December 31, 2016, and subsequently collected on this receivable. In August 2017, MannKind notified the Company that it would not exercise its minimum annual purchase option of RHI API for 2018. The Company recognized the cancellation fee for 2018 of $0.9 million in net revenues in its condensed consolidated statements of operations for the three and nine months ended September 30, 2017, and subsequently collected on this receivable.

In addition to, and in consideration of the amended timeframe and other amendments contained in the amendment to the Supply Agreement in the amendment to the Option Agreement, the Supply Agreement Amendment provided the Company right of first refusal to participate in the development and commercialization of Afrezza® ~~in China through a collaborative arrangement.~~

~~Collaboration Agreement with a Medical Device Manufacturer~~

In 2014, the Company entered into a collaboration agreement with a medical device manufacturer to develop a drug delivery system to be used by the Company for one of its pipeline products. As of September 30, 2017, the Company has paid an upfront payment of $0.5 million and has paid $1.5 million in milestone payments under this agreement, which were classified as research and development expense as the milestones were met. The Company is obligated to pay up to an additional $0.5 million if certain milestones are met. As of September 30, 2017, no such obligation existed. Pursuant to the collaboration agreement, if the medical device manufacturer is successful in the development of this drug delivery system and the Company’s pipeline products receive appropriate regulatory approval, the Company intends to enter into a commercial supply agreement with such medical device manufacturer for a minimum purchase of 1.0 million units during the first 12 months.

~~Operating Lease Agreements~~

The Company leases real and personal property, in the normal course of business, under various non-cancelable operating leases. The Company, at its option, can renew a substantial portion of its leases, at the market rate, for various renewal periods ranging from one to six years. Rental expense under these leases for the three and nine months ended September 30, 2017, was approximately $0.9 million and $2.6 million, respectively, compared to $0.8 million and $2.5 million for the three and nine months ended September 30, 2016, respectively.

Purchase Commitments

As of September 30, ~~2017,~~2023, the Company has entered into commitments to purchase equipment and raw materials for an aggregate amount of approximately ~~$48.4~~$72.8 million.

Note 19. Related Party Transactions

Investment in Hanxin

As of September 30, 2023, the Company has a 11.5% ownership in Hanxin that is accounted for as an equity method investment. The Company ~~anticipates that most~~maintains a seat on Hanxin’s board of ~~these commitments~~directors, and Henry Zhang, the son of Dr. Jack Zhang is an equity holder, the general manager, and the chairman of the board of directors of Hanxin. Additionally, Dr. Mary Luo and Dr. Jack Zhang, have an ownership interest in Hanxin through an affiliated entity. As a result, Hanxin is a related party.

Contract manufacturing agreement with Hanxin

In April 2022, ANP, entered into a ~~remaining term~~contract manufacturing agreement with Hanxin, whereby Hanxin will develop several active pharmaceutical ingredients and finished products for the Chinese market and will engage ANP to manufacture the products on a cost-plus basis. Hanxin will commit to purchase certain quantities from ANP subject to the terms and conditions set forth in ~~excess of one year will be fulfilled by 2018. In addition,~~the agreement, including Hanxin filing for and obtaining any required marketing authorizations.

During the three and nine months ended September 30, 2023, the Company ~~is obligated~~recognized an immaterial amount of revenue from manufacturing services provided to ~~pay a supplier certain payments up to $1.5 million based on its launch and sale~~Hanxin. As of ~~one~~September 30, 2023, the Company had an immaterial amount of ~~the Company’s pipeline products.~~receivables from Hanxin.

~~The~~Contract Research Agreement with Hanxin

In July 2022, the Company entered into ~~agreements~~a three-year contract research agreement with Hanxin, a ~~Chinese governmental entity~~related party, whereby Hanxin will develop Recombinant Human Insulin Research Cell Banks, or RCBs, for the Company and license the RCBs to ~~acquire land-use rights~~the Company subject to ~~real property in Nanjing, China. Under~~a fully paid, exclusive, perpetual, transferable, sub-licensable worldwide license. The RCBs will be used by the Company to make Master Cell Banks for one of its product candidates. Per the terms of ~~these agreements,~~the agreement with Hanxin, all title to the RCBs developed, prepared and produced by Hanxin in conducting research and development will belong to the Company. The Company will also own any confidential and proprietary information, technology regarding development and manufacturing of the RCBs, which shall include engineering, scientific and practical information and formula, research data, design, and procedures and others to develop and manufacture the RCBs, in use or developed by Hanxin. The total cost of the agreement to the Company ~~committed~~shall not exceed approximately $2.2 million, with payments adjusted based on the then current exchange rates. Any additional work or changes to ~~invest capital in its wholly-owned subsidiary, ANP, and~~the scope of work requested by the Company will be charged by Hanxin to ~~develop these properties as an API~~the Company on a cost plus basis, plus any applicable taxes.

In March 2023, the Company amended the agreement with Hanxin, whereby Hanxin will perform scale-up manufacturing ~~facility~~process development using the RCBs for the ~~Company’s pipeline products. In conjunction with these agreements, ANP modified its business license on July 3, 2012, to increase its authorized~~

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Company. Per the terms of the amended agreement the Company will own any confidential and proprietary information and technology produced during the scale-up manufacturing, which shall include engineering, scientific and practical information and formula, research data design

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~capital.~~and procedures and others to develop and manufacture the RCBs. The amendment agreement will remain in full force and effect until July 5, 2025. The total cost of the amended agreement to the Company shall not exceed approximately $0.5 million in additional payments beyond the $2.2 million in payments under the contract research agreement, with payments adjusted based on actual currency exchange rates. Any additional work or changes to the scope of work requested by the Company will be charged by Hanxin to the Company on a cost-plus basis, plus any applicable taxes.

During the three and nine months ended September 30, 2023, the Company paid $0.4 million and $1.4 million, respectively, under this agreement.

Supply Agreement with Letop

In November 2022, ANP, entered in to a supply agreement with Nanjing Letop Biotechnology Co., Ltd., or Letop, a subsidiary of Hanxin, whereby Letop will manufacture and deliver chemical intermediates for ANP on a cost-plus basis. The agreement is effective for three years and the total cost of the agreement shall not exceed approximately $1.5 million, with payments adjusted based on the then current exchange rates.

During the three months ended September 30, 2023, ANP did not have any payments under this agreement. During the nine months ended September 30, 2023, ANP paid $0.7 million, under this agreement. As of ~~December 31, 2016,~~September 30, 2023, the Company ~~had completed its investment of total registered capital commitment of $61.0 million~~did not have any amounts payable to ~~ANP. This investment in ANP resulted in cash being transferred from the U.S. parent company to ANP.~~Letop.

Per these agreements, in January 2010, the Company acquired certain land-use rights with a carrying value of $1.2 million. In addition, the Company purchased additional land-use rights in November 2012 for $1.3 million. The Company committed to spend approximately $15.0 million in land development. The agreements require the construction of fixed assets on the property and specified a timetable for the construction of these fixed assets. The current pace of development of the property is behind the schedules described in the purchase agreements and, per the purchase agreement, potential monetary penalties could result if the development is delayed or not completed in accordance with the guidelines stated in the purchase agreements. The Company is in discussions with the Chinese government regarding the development and believes that the likelihood of incurring any penalty is remote.Note 20. Litigation

~~Note 17.~~Hatch-Waxman Litigation

~~Enoxaparin~~Regadenoson (0.4 mg/5 mL, 0.08 mg/mL) Patent Litigation

~~In September 2011, Momenta Pharmaceuticals,~~On February 25, 2020, Astellas US LLC, Astellas Pharma US, Inc., ~~or Momenta,~~and Gilead Sciences, Inc. (collectively, “Astellas-Gilead”) filed a Boston‑based pharmaceutical company, and Sandoz Inc., or Sandoz, the generic division of Novartis, initiated litigation against the Company for alleged patent infringement of two patents related to testing methods for batch release of enoxaparin, which the Company refers to as the “‘886 patent” and the “‘466 patent.” The lawsuit was filedComplaint in the United States District Court for the District of Massachusetts, or the Massachusetts District Court. In October 2011, the Massachusetts District Court issued a preliminary injunction barring the Company from selling its generic enoxaparin product and also requiring Momenta and Sandoz to post a $100.1 million bond. The preliminary injunction was stayed by the United States Court of AppealsDelaware against IMS for ~~the Federal Circuit, or the Federal Circuit, in January 2012, and reversed by the Federal Circuit in August 2012.~~

~~In January 2013, the Company moved for summary judgment of non‑~~infringement of ~~both patents. Momenta~~U.S. Patent Nos. 8,106,183 (the “‘183 patent”), RE47,301 (the “‘301 patent”), and ~~Sandoz withdrew their allegations as~~8,524,883 (the “‘883 patent”) (collectively, “Astellas-Gilead Patents”) with regard to ~~the ‘466 patent,~~IMS’s ANDA No. 214,252 for approval to manufacture and ~~in July 2013, the Massachusetts District Court granted the Company’s motion for summary judgment~~sell 0.4 mg/5 mL (0.08 mg/mL) intravenous solution of ~~non‑infringement of the ‘886 patent and denied Momenta and Sandoz’s motion for leave to amend their infringement contentions.~~Regadenoson. On January 24, 2014, the Massachusetts District Court judge entered final judgment in the Company’s favor on both patents. Momenta and Sandoz also filed a motion to collect attorneys’ fees and costs relating to a discovery motion, which the Massachusetts District Court granted. On May 9, 2016, the Massachusetts District Court issued an order imposing fees and costs of approximately $0.4 million in relation to this discovery motion. This amount has been accrued in the general and administrative expense for the quarter ended March 31, 2016. On January 30, 2014, Momenta and Sandoz filed a notice of appeal to the Federal Circuit appealing the court’s final judgment including summary judgment denying Momenta and Sandoz’s motion for leave to amend their infringement contentions.

~~Following appeal briefing filed by the parties, the Federal Circuit held oral argument on May 4, 2015. On November 10, 2015, the Federal Circuit panel affirmed-in-part and vacated-in-part the decision of the~~ ~~Massachusetts~~ ~~District Court granting summary judgment of non-infringement as to~~26, 2022, the Company and ~~it remanded~~Astellas-Gilead reached an agreement to resolve the ~~case to~~lawsuit. Under the ~~Massachusetts~~ ~~District Court for further proceedings consistent with its opinion. The Federal Circuit panel affirmed~~terms of the ~~Massachusetts~~ ~~District Court’s holding in the Company’s favor that~~agreement, the Company does not infringe under 35 U.S.C. 271(g), and the panel vacated the grant of summary judgment to the extent it was based on the determination that the Company’s activities fall within the 35 U.S.C. 271(e)(1) safe harbor. The Federal Circuit panel also left to the ~~Massachusetts~~ District Court’s discretion whether to reconsider on remand its denial of leave for Momenta and Sandoz to amend their infringement contentions. On January 11, 2016, the Company filed a Petition for Rehearing En Banc with the Federal Circuit. On February 17, 2016, the Federal Circuit denied the Company’s Petition, and the Federal Circuit issued its mandate on February 24, 2016, whereby the case returned to the ~~Massachusetts~~ ~~District Court for further proceedings.~~

On March 18, 2016, the parties filed a joint status report with the Massachusetts District Court. On June 21, 2016, the Massachusetts District Court granted Momenta and Sandoz’s Motion for Leave to Amend its Infringement Contentions.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

In light of Momenta and Sandoz’s Amended Infringement Contentions and recent changes in Supreme Court precedent since the case was stayed in 2012, the Company sought to amend its Non-Infringement and Invalidity Contentions.

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

In parallel with the Massachusetts District Court proceedings, the Company appealed the Federal Circuit’s decision to vacate the grant of the Company’s summary judgment to the extent it was based on the determination that the Company’s activities are protected under the Safe Harbor. The Company filed a Petition for a Writ of Certiorari with the Supreme Court on May 17, 2016. Momenta and Sandoz initially waived their right to respond to the petition; however, on May 31, 2016, the Supreme Court requested a responsereceived $5.4 million from Momenta and Sandoz. The response from Momenta and Sandoz was initially due on June 30, 2016, but they requested an extension. Momenta and Sandoz filed their response on August 1, 2016. On October 3, 2016, the Supreme Court declined the Petition for a Writ of Certiorari.

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

Trial in the Massachusetts District Court on all claims and defenses began on July 10, 2017. On July 21, 2017, the jury returned a unanimous verdict finding that although the Company’s tests infringed the asserted patent, the patent was invalid for lack of enablement and lack of written description and the jury further found that Plaintiffs are entitled to zero ($0) damages. As for the Company’s defenses of implied waiver and equitable estoppel, the jury found that Plaintiffs waived their right to recover for infringement of the asserted patent and that Plaintiffs are estopped from enforcing the asserted patent against the Company. The verdict on these equitable defenses will be briefed by the parties and submitted to the court, which will render a final judgment on the matter.In the post-trial briefing, the Company has requested the Massachusetts District Court to adopt the findings of the jury on the equitable defenses, and has requested the Massachusetts District Court to set aside the jury’s finding of infringement. In Plaintiffs’ post-trial briefing, Plaintiffs have requested a new trial, and have requested the Massachusetts District Court to set aside the jury’s finding that the asserted patent was invalid for lack of enablement and lack of written description. Post-trial briefing on the issues of infringement, invalidity, the equitable defenses, and Plaintiffs’ request for a new trial concluded on October 25, 2017.

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~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The Company will continue to vigorously defend the jury’s verdict, including against any potential appeal by the Plaintiffs. The Company intends to attempt to collect the $100.1 million bond posted by Momenta and Sandoz following a final judgement by the~~ ~~Massachusetts~~ ~~District Court.~~

~~False Claims Act Litigation~~

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

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

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

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

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

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~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Aventis filed its reply brief in support of its cross-appeal of the District Court’s denial of attorneys’ fees. On November 10, 2016, the Ninth Circuit heard oral argument on the appeals.~~

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

~~Momenta/Sandoz Antitrust Litigation~~

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

On August 25, 2016, the Company filed with the First Circuit Court of Appeals a notice of appeal of the Massachusetts District Court’s dismissal of the antitrust case. On October 31, 2016, the Company filed ~~its appeal brief with the~~ First Circuit. On December 5, 2016, Defendants filed their response brief with the First Circuit Court of Appeals. On December 19, 2016, the Company filed its rely brief with the First Circuit Court of Appeals, which concluded the briefing on this appeal. On February 9, 2017, the First Circuit Court of Appeals heard oral arguments. On March 6, 2017, the First Circuit Court of Appeals issued its decision, in which it held 3 to 0 that the District Court of Massachusetts erred in dismissing the Company’s antitrust case and sent the case back to the District Court to consider additional arguments.

~~On April 6, 2017, the District Court held a status conference to address scheduling matters~~operations for the rest of the case. The Court set a briefing schedule for Defendants’ supplemental motion to dismiss and a full case schedule in the event that it denies Defendants’ supplemental motion to dismiss. On April 20, 2017, Defendants filed their supplemental motion to dismiss and the Company filed its opposition on May 4, 2017. No reply briefs are allowed. The Court promised to rule on the motion to dismiss by the end of May but did not do so. If the Court denies Defendants’ supplemental motion to dismiss, discovery will commence. Summary judgment arguments would be due on November 15, 2018; oppositions would be due on December 15, 2018; and replies would be due on January 15, 2019. Trial is currently scheduled for April 1, 2019.nine months ended September 30, 2022.

Other Litigation

The Company is also subject to various other claims, arbitrations, investigations, and lawsuits from ~~time-to-time~~time to time arising in the ordinary course of business. In addition, third parties may, from time to time, assert claims against the Company in the forms of letters and other communications.

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

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~~AMPHASTAR PHARMACEUTICALS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

defense and settlement costs, diversion of management resources, and other factors.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 21. Subsequent Events

On October 27, 2023, the Company made a principal payment of $50.0 million on its Wells Fargo Term Loan, reducing the balance to $250.0 million.

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

The following is a discussion and analysis of the consolidated operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the “Condensed Consolidated Financial Statements” and the related notes thereto included in this Quarterly Report on Form 10-Q, or Quarterly Report. This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements. These risks, uncertainties, and other factors include, among others, those identified under the “Special Note About Forward-Looking Statements,” above and described in greater detail elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, particularly in Item 1A. “Risk Factors”.

Overview

We are a ~~specialty pharmaceutical~~bio-pharmaceutical company ~~that~~ ~~focuses~~focusing primarily on developing, manufacturing, marketing and selling technically challenging generic and proprietary injectable, inhalation, and intranasal products, as well as insulin API products. We currently manufacture and sell 19over 20 products.

Our largest products by net revenues currently include BAQSIMI^®, Primatene MIST^®, glucagon, epinephrine, lidocaine, enoxaparin sodium, and phytonadione. In ~~addition, in September 2017,~~April 2022, the FDA ~~granted approval~~approved our ganirelix acetate injection 250mg/0.5mL prefilled syringe, which we launched in June 2022. In July 2022, the FDA approved our vasopressin injection, USP 20 Units/mL, 1 mL single-dose vial, which we launched in August 2022. In May 2022, the FDA approved our regadenoson injection, 0.08mg/mL, 5mL, single-dose prefilled syringe, which we launched in April 2023.

In March 2023, the FDA approved our naloxone hydrochloride nasal spray 4mg, REXTOVY^®, which we plan to launch in the first quarter of ~~our ANDA for Neostigmine Methylsulfate Injection, therapeutically equivalent to Avadel’s Bloxiverz~~®.2024.

We are currently developing a portfolio of 16 generic abbreviated new drug applications, or ANDAs, ~~three generic~~ biosimilar insulin product candidates and ~~six~~ proprietary product candidates, which are in various stages of development and target a variety of indications.~~With respect to these product candidates, we have six~~ Three of the ANDAs ~~and two NDAs~~are currently on file with the FDA.

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

~~Included in these acquisitions are marketing authorizations for 33 products~~Macroeconomic Trends and Uncertainties

The Russia-Ukraine conflict and resulting sanctions and other actions against Russia have led to uncertainty and disruption in the ~~UK, Ireland, Australia,~~global economy. Although the conflict has not had a direct material adverse impact on our revenues or other financial results, one of our insulin API customers in Western Europe, that previously bought our product and ~~New Zealand, representing 11 different injectable chemical entities,~~resold it into Russia, did not purchase API from ~~UCB Pharma GmbH.~~us in 2022 and has not purchased from us in 2023. We are closely monitoring the events of the Russia-Ukraine conflict and its impact on Europe and throughout the rest of the world. It is not clear at this time how long the conflict will endure, or if it will escalate further, which could further compound the adverse impact to the global economy and consequently affect our results of operations.

Certain other worldwide events and macroeconomic factors, such as international trade relations, new legislation and regulations, taxation or monetary policy changes, public sector budgetary cycles and funding authorization in the ~~process~~United States, political and civil unrest, global conflicts such as the Israel-Hamas war, supply chain disruptions, inflationary pressures, and rising interest rates, among other factors, also increase volatility in the global economy. For example, the United States has recently experienced historically high levels of ~~transferring~~inflation. The existence of inflation in the ~~manufacturing~~United States, and global economy has and may continue to result in higher interest rates and capital costs, increased costs of ~~these products~~labor, weakening exchange rates and other similar effects.

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See the “Risk Factors” section for further discussion of the possible impact of the Russia-Ukraine conflict and other macroeconomic factors on our business.

Recent Developments

BAQSIMI^® Acquisition

On June 30, 2023, we completed our acquisition of BAQSIMI^® glucagon nasal powder, or BAQSIMI^® pursuant to an Asset Purchase Agreement, or the Purchase Agreement, with Eli Lilly & Company, or Lilly, and Amphastar Medication Co., LLC, a wholly owned subsidiary of Amphastar, dated April 21, 2023. In connection with the closing of the transaction, or the Closing, we paid Lilly $500.0 million in cash. In addition, we are required to pay Lilly a $125.0 million guaranteed payment on the first anniversary of the closing. We may also be required to pay additional contingent consideration of up to $450.0 million to Lilly based on the achievement of certain milestones.

On June 30, 2023, in conjunction with our acquisition of BAQSIMI^®, we entered into a $700.0 million syndicated credit agreement, or the Credit Agreement by and among the Company, certain subsidiaries of the Company, as guarantors, certain lenders, and Wells Fargo Bank, National Association, or Wells Fargo, as Administrative Agent, (in such capacity, Agent), Swing Line Lender and L/C Issuer.

The Credit Agreement provides for a senior secured term loan in an aggregate principal amount of $500.0 million, or the Wells Fargo Term Loan. The Wells Fargo Term Loan matures on June 30, 2028. The Wells Fargo Term Loan was fully funded on June 30, 2023.

The Credit Agreement provides for a senior secured revolving credit facility, or the Revolving Credit Facility, in an aggregate principal amount of $200.0 million, with a $15.0 million letter of credit sublimit and a $15.0 million swingline loan sublimit. The Revolving Credit Facility matures on June 30, 2028. As of September 30, 2023, we had no borrowings outstanding under the Revolving Credit Facility. In September 2023, we repaid $200.0 million of the Wells Fargo Term Loan with the proceeds from the issuance of $345.0 million of the 2.00% Convertible Notes, or 2029 Convertible Notes. We repaid approximately $200.0 million of the borrowings under the Wells Fargo Term Loan with the proceeds from the 2029 Convertible Notes.

Revenues from the sales of BAQSIMI^®, under the Transition Services Agreement, or TSA, with Lilly during the three months ended September 30, 2023, were recognized on a net basis similar to a royalty arrangement. The impact of this revenue recognition method resulted in lower reported revenues relative to the revenue that would have been reported had we recognized gross revenues from sales of BAQSIMI^®. Once we assume distribution responsibilities to our ~~facilities in California,~~customers, we will begin recognizing gross revenues and cost of revenues from sales BAQSIMI^®, which will ~~require approvals from the UK Medicines~~be classified as product revenues, net and ~~Healthcare products Regulatory Agency before the product candidates can be re-launched by us.~~cost of revenues, respectively.

~~One~~For more information regarding our acquisition of ~~our largest products by net revenues is enoxaparin sodium injection, the generic equivalent of Sanofi S.A.’s Lovenox~~BAQSIMI^®~~. Enoxaparin is a difficult~~, see “Part I – Item 1. Financial Statements – Notes to ~~manufacture injectable form of low molecular weight heparin that is used as an anticoagulant and has multiple indications, including the prevention and treatment of deep vein thrombosis.~~Condensed Consolidated Financial Statements – Note 3. BAQSIMI^® Acquisition.”

We have agreements with established group purchasing organizations and wholesaler networks to distribute enoxaparin, which is marketed under our own label for the hospital and clinic market. Since December 2016, we have been distributing enoxaparin directly in the U.S. retail market under our own label.

Business Segments

~~Our~~As of June 30, 2023, our performance is assessed and resources are allocated based on the following two reportable segments: (1) finished pharmaceutical products and (2) API products. The finished pharmaceutical products segment ~~currently~~ manufactures, markets and distributes Primatene MIST^®, epinephrine, glucagon, phytonadione, lidocaine, enoxaparin, ~~Cortrosyn~~®~~, Amphadase~~®, naloxone, ~~lidocaine,~~ as well as various other critical and non-critical care drugs. Revenues from the sale of BAQSIMI^® are also accounted for as a component of the finished pharmaceutical product segment. The API segment ~~currently~~ manufactures and distributes RHI API and porcine insulin ~~API.~~API for external customers and internal product development. Information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. Factors used to identify our segments include markets, customers and products.

For more information regarding our segments, see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 6. Segment ~~Reporting”.~~

Reporting.”

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Table of Contents

Results of Operations

Three Months Ended September 30, ~~2017~~2023 Compared to Three Months Ended September 30, ~~2016~~2022

Net revenues


											Three Months Ended
											September 30,						Change
											2023			2022			Dollars		%

	Three Months Ended
	September 30,						Change
	2017			2016			Dollars		%
	(in thousands)
											(in thousands)
Net revenues
Finished pharmaceutical products	$	54,455		$	59,058		$	(4,603)	(8)	%	$	147,665		$	117,120		$	30,545	26	%
API		3,461			5,165			(1,704)	(33)	%		4,190			3,009			1,181	39	%
Total product revenues, net												151,855			120,129			31,726	26	%
Other revenues												28,701			—			28,701	N/A
Total net revenues	$	57,916		$	64,223		$	(6,307)	(10)	%	$	180,556		$	120,129		$	60,427	50	%
Cost of revenues
Finished pharmaceutical products	$	33,145		$	30,438		$	2,707	9	%	$	66,867		$	55,681		$	11,186	20	%
API		4,130			6,173			(2,043)	(33)	%		5,286			5,938			(652)	(11)	%
Total cost of revenues	$	37,275		$	36,611		$	664	2	%	$	72,153		$	61,619		$	10,534	17	%
Gross profit	$	20,641		$	27,612		$	(6,971)	(25)	%	$	108,403		$	58,510		$	49,893	85	%
as % of net revenues		36	%		43	%						60	%		49	%

The increase in net revenues of the finished pharmaceutical products for the three months ended September 30, ~~2017,~~2023 was due to the following changes:


									Three Months Ended
									September 30,				Change
									2023		2022		Dollars		%

	Three Months Ended
	September 30,				Change
	2017		2016		Dollars		%
	(in thousands)
									(in thousands)
Finished pharmaceutical products net revenues
Glucagon									$	29,514	$	14,224	$	15,290	107	%
Primatene MIST^®										24,834		18,359		6,475	35	%
Epinephrine										20,199		19,502		697	4	%
Lidocaine										15,522		12,621		2,901	23	%
Enoxaparin	$	6,549	$	15,363	$	(8,814)	(57)	%		7,702		7,983		(281)	(4)	%
Phytonadione										7,449		13,978		(6,529)	(47)	%
Naloxone		12,709		12,407		302	2	%		4,715		6,818		(2,103)	(31)	%
Lidocaine		9,596		8,279		1,317	16	%
Phytonadione		9,352		8,667		685	8	%
Epinephrine		2,027		5,303		(3,276)	(62)	%
Other finished pharmaceutical products		14,222		9,039		5,183	57	%		37,730		23,635		14,095	60	%
Total finished pharmaceutical products net revenues	$	54,455	$	59,058	$	(4,603)	(8)	%	$	147,665	$	117,120	$	30,545	26	%

Product Revenues, net

The ~~decrease~~increase in sales of ~~enoxaparin~~glucagon was ~~driven by lower~~primarily due to an increase in unit volumes, which resulted in a decrease of approximately $5.8 million, as well as lower average selling prices, which resulted in a decrease of approximately $3.0 million. We expect that the average selling price and unit volumes of enoxaparin will continue to fluctuate in the near term as a result of ~~competition.~~

two suppliers discontinuing their glucagon injection products at the end of 2022. Primatene MIST^® sales increased due to an increase in unit volumes. The increase in sales of lidocaine was primarily ~~driven by higher~~due to an increase in unit ~~volumes.~~volumes, as a result of supplier shortages. The decrease in sales of ~~epinephrine~~phytonadione was due to a decrease in unit volumes, as a result of ~~the discontinuation~~increased competition. The decrease in sales of ~~our epinephrine injection, USP vial product~~naloxone was primarily due to a decrease in ~~the second quarter of 2017~~unit volumes. The increase in ~~accordance with the FDA’s request. Our epinephrine injection, USP vial product, was marketed under the “grandfather” exception to the FDA’s “Prescription Drug Wrap-Up” program. Sales of~~ other finished pharmaceutical products ~~rose~~was primarily due to ~~an increase in units shipped, resulting from competitor shortages.~~

~~Sales~~higher unit volumes of ~~RHI API decreased because there were no shipments~~dextrose, atropine, calcium chloride, and sodium bicarbonate, due to ~~MannKind~~increased demand caused by supplier shortages during the ~~period.~~ quarter, as well as a full quarter of sales for vasopressin, which were launched in August 2022, and the launch of regadenoson in April 2023.

We anticipate that sales of ~~our API business~~naloxone and enoxaparin will continue to fluctuate ~~and will likely decrease~~in the future due to ~~the inherent uncertainties related to~~competitive dynamics. We also anticipate that sales of ~~RHI API to MannKind. In addition, most of our API sales are denominated in Euros,~~epinephrine and ~~the fluctuation in the value of the Euro versus the dollar has had, and~~other finished pharmaceutical products will continue to fluctuate

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Table of Contents

depending on the ability of our competitors to supply market demands. Sales of medroxyprogesterone have ~~an impact~~essentially been halted as of August 2023 as our API supplier has discontinued making this product. We are currently in the process of qualifying our subsidiary ANP to make this API. However, we do not know when the Drug Master File, or DMF, to approve this as our new API supply will be approved by the FDA. Therefore, we are not sure when we will be able to return to selling this product. Sales of medroxyprogesterone totaled $0.7 million in the three months ended September 30, 2023 compared to $7.2 million in the three months ended September 30, 2022.

Sales of API primarily depend on ~~API~~the timing of customer purchases.

Other Revenues

Other revenues includes revenues from the sales of BAQSIMI^® of $28.7 million during the three months ended September 30, 2023, based on total BAQSIMI^® sales of $48.7 million as reported to us by Lilly, which was recognized on a net basis similar to a royalty arrangement. Currently, BAQSIMI^® is being sold by Lilly on our behalf under the TSA, whereby Lilly would provide certain services to support the transition of the BAQSIMI^® operations to us. The transfer of the BAQSIMI^® marketing authorizations to us is anticipated to occur at different points in time depending on the jurisdiction, with the United States being the first that is expected to transfer to us in the first quarter of 2024. Upon the assumption of distribution responsibilities, we will begin to recognize gross revenues and cost of revenues in their respective lines on the near term. In August 2017, MannKind notified us that it would not exercise its minimum annual purchase option of RHI API for 2018. We recognized the cancellation fee for 2018 of $0.9 million in net revenues in our condensed consolidated statements of ~~operations~~comprehensive income.

Backlog

A significant portion of our customer shipments in any period relate to orders received and shipped in the same period, generally resulting in low product backlog relative to total shipments at any time. As of September 30, 2023, we experienced an immaterial amount of backlog for various products, primarily as a result of competitor shortages and supplier constraints. Historically, our backlog has not been a meaningful indicator in any given period of our ability to achieve any particular level of overall revenue or financial performance.

Gross margins

The increase in sales of glucagon and Primatene MIST^®, which are higher-margin products, the sales of ganirelix and vasopressin, both of which we launched last year, as well as the sales of regadenoson, which we launched in April 2023, helped increase our gross margins for the three months ended September 30, ~~2017, and subsequently collected~~2023. Additionally, as a result of the TSA with Lilly, revenues from sales of BAQSIMI^® are reported on ~~this receivable.~~

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~~Table of Contents~~

~~Cost of revenues~~

~~The increase in~~a net basis similar to a royalty arrangement with no amount reported as cost of ~~revenue was primarily due to a charge~~revenues.

We are experiencing increased costs for labor and certain purchased components. Additionally, the cost of $2.0 million to adjust enoxaparin inventory to their net realizable value. Gross margins decreased due to lower selling prices for enoxaparin as well as due to the discontinuation of our epinephrine vial product in the second quarter of 2017 in accordance with the FDA’s request.

~~Declining average selling prices and unit volume of enoxaparin and the discontinuation of our epinephrine injection, USP vial product will continue to~~heparin may fluctuate, which could put downward pressure on our gross margins. However, we believe that this trend will be ~~partially~~ offset by ~~increases in prices and unit volumes~~increased sales of ~~several other finished pharmaceutical~~our higher-margin products, including Primatene MIST^®, glucagon, vasopressin, ganirelix, regadenoson and new ~~product launches. As a result, gross margin is expected to fluctuate depending on revenue mix.~~products we anticipate launching in 2024.

Selling, distribution and marketing, and general and administrative


									Three Months Ended
									September 30,				Change
									2023		2022		Dollars		%

	Three Months Ended
	September 30,				Change
	2017		2016		Dollars		%
	(in thousands)
									(in thousands)
Selling, distribution, and marketing	$	1,756	$	1,291	$	465	36	%	$	6,407	$	4,784	$	1,623	34	%
General and administrative	$	11,665	$	10,801	$	864	8	%	$	12,654	$	11,984	$	670	6	%

The increase in selling, distribution and marketing expenses was primarily due to expenses related to the expansion of our sales force related to BAQSIMI^®, as well as an increase in advertising spending for Primatene MIST^®. The increase in general and administrative ~~expenses~~expense was primarily due to an increase in ~~legal~~salary and personnel-related expenses, ~~relating to our July 2017 patent trial (see Note 17~~as well as costs related to the ~~condensed consolidated financial statements for more information).~~ acquisition of BAQSIMI^®, which was partially offset by a decrease in legal fees.

~~We expect that general and administrative expenses will increase on an annual basis~~-39-

Table of Contents

Legal fees may fluctuate from period to period due to ~~increased costs associated with ongoing compliance with public company reporting obligations.~~the timing of patent challenges and other litigation matters.

Research and development


									Three Months Ended
									September 30,				Change
									2023		2022		Dollars		%

	Three Months Ended
	September 30,				Change
	2017		2016		Dollars		%
	(in thousands)
									(in thousands)
Salaries and personnel-related expenses	$	3,392	$	3,955	$	(563)	(14)	%	$	7,007	$	6,217	$	790	13	%
Pre-launch inventory										460		—		460	N/A
Clinical trials		13		248		(235)	(95)	%		673		2,726		(2,053)	(75)	%
FDA fees		15		14		1	7	%		45		29		16	55	%
Testing, operating and lab supplies		4,579		3,313		1,266	38	%
Materials and supplies										3,664		5,217		(1,553)	(30)	%
Depreciation		1,093		1,174		(81)	(7)	%		2,452		2,473		(21)	(1)	%
Other expenses		948		1,019		(71)	(7)	%		2,363		1,852		511	28	%
Total research and development expenses	$	10,040	$	9,723	$	317	3	%	$	16,664	$	18,514	$	(1,850)	(10)	%

The decrease in research and development expenses is primarily due to the timing of clinical trials. Additionally, materials and supplies expense decreased as a result of a ramp-up of expense in 2022 for AMP-018 and our insulin pipeline products. This was partially offset by an increase in salary and personnel-related expenses.

Research and development ~~costs~~expenses consist primarily of costs associated with the research and development of our product candidates such as salaries and other personnel related expenses for employees involved with research and development activities, manufacturing pre-launch inventory, clinical trials, FDA fees, testing, operating and lab supplies, depreciation and other related expenses.including the cost of developing APIs. We expense research and development costs as incurred.

~~Testing, operating and lab supplies increased due to expenditures on materials for our pipeline products.~~

We have made, and expect to continue to make, substantial investments in research and development to expand our product portfolio and grow our business. ~~These costs~~We expect that research and development expenses will ~~fluctuate significantly from quarter~~increase on an annual basis due to ~~quarter based on the timing of various~~increased clinical trials cost related to our insulin and inhalation product candidates. These expenditures will include costs of APIs developed internally as well as APIs purchased externally, the ~~pre-launch~~cost of purchasing reference listed drugs and the costs ~~associated with new products, and FDA filing fees.~~of performing the clinical trials. As we undertake new and challenging research and development projects, we anticipate that the associated ~~annual~~ costs will increase significantly over the next several quarters and years.

Other income (expenses), net


	Three Months Ended
	September 30,				Change
	2023		2022		Dollars		%

	(in thousands)
Other income (expenses), net	$	3,459	$	(397)	$	3,856	NM

-39-

~~Table~~Other income (expenses), net is primarily a result of ~~Contents~~

foreign currency fluctuation, as well as the mark-to-market adjustments relating to our interest rate swap contracts during the three months ended September 30, 2023.

~~Provision~~

Income tax provision


	Three Months Ended
	September 30,						Change
	2023			2022			Dollars		%

	(in thousands)
Income tax provision	$	14,025		$	6,559		$	7,466	114	%
Effective tax rate		22	%		29	%

Our effective tax rate for ~~income tax expense (benefit)~~

Three Months Ended

September 30,

Change


2017

2016

Dollars

%

(in thousands)

Income tax expense (benefit)

$
(2,166)

$
2,111

$
(4,277)

NM

Effective tax rate

109
%

35
%

~~The difference~~the three months ended September 30, 2023 decreased in ~~income tax expense (benefit) was~~comparison to the three months ended September 30, 2022, primarily due to ~~the change~~differences in pre-tax income positions and timing of discrete tax ~~benefits recognized (see~~items. For more information regarding our income taxes, see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note ~~13 to the condensed consolidated financial statements for more information)~~15. Income Taxes”.

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Table of Contents

Nine Months Ended September 30, ~~2017~~2023 Compared to Nine Months Ended September 30, ~~2016~~2022

Net revenues


											Nine Months Ended
											September 30,						Change
											2023			2022			Dollars		%

	Nine Months Ended
	September 30,						Change
	2017			2016			Dollars		%
	(in thousands)
											(in thousands)
Net revenues
Finished pharmaceutical products	$	174,154		$	181,368		$	(7,214)	(4)	%	$	426,541		$	353,789		$	72,752	21	%
API		5,619			10,254			(4,635)	(45)	%		11,048			10,175			873	9	%
as % of net revenues	$	179,773		$	191,622		$	(11,849)	(6)	%
Total product revenues, net												437,589			363,964			73,625	20	%
Other revenues												28,701			—			28,701	N/A
Total net revenues											$	466,290		$	363,964		$	102,326	28	%
Cost of revenues
Finished pharmaceutical products	$	99,668		$	96,326		$	3,342	3	%	$	192,500		$	168,327		$	24,173	14	%
API		9,889			11,068			(1,179)	(11)	%		18,809			17,945			864	5	%
Total cost of revenues	$	109,557		$	107,394		$	2,163	2	%	$	211,309		$	186,272		$	25,037	13	%
Gross profit	$	70,216		$	84,228		$	(14,012)	(17)	%	$	254,981		$	177,692		$	77,289	43	%
as % of net revenues		39	%		44	%						55	%		49	%

The ~~decrease~~increase in net revenues of the finished pharmaceutical products for the nine months ended September 30, ~~2017,~~2023, was due to the following changes:


									Nine Months Ended
									September 30,				Change
									2023		2022		Dollars		%

	Nine Months Ended
	September 30,				Change
	2017		2016		Dollars		%
	(in thousands)
									(in thousands)
Finished pharmaceutical products net revenues
Glucagon									$	82,486	$	37,003	$	45,483	123	%
Primatene MIST^®										64,837		62,030		2,807	5	%
Epinephrine										57,004		52,777		4,227	8	%
Lidocaine										43,174		39,253		3,921	10	%
Phytonadione										33,017		37,834		(4,817)	(13)	%
Enoxaparin	$	25,247	$	51,049	$	(25,802)	(51)	%		25,441		27,138		(1,697)	(6)	%
Naloxone		33,909		38,222		(4,313)	(11)	%		14,774		21,424		(6,650)	(31)	%
Lidocaine		27,218		26,378		840	3	%
Phytonadione		27,242		23,555		3,687	16	%
Epinephrine		22,249		14,921		7,328	49	%
Other finished pharmaceutical products		38,289		27,243		11,046	41	%		105,808		76,330		29,478	39	%
Total finished pharmaceutical products net revenues	$	174,154	$	181,368	$	(7,214)	(4)	%	$	426,541	$	353,789	$	72,752	21	%

Product Revenues, net

The increase in sales of glucagon was primarily due to an increase in unit volumes, as a result of two suppliers discontinuing their glucagon injection products at the end of 2022. Primatene MIST^® sales increased due to an increase in average selling price contributing $3.5 million, which was partially offset by a reduction in unit volume, as a result of inventory drawdowns by retailers, amounting to $0.7 million. The increase in sales of epinephrine and lidocaine was primarily due to an increase in unit volumes, due to an increase in demand caused by supplier shortages. The decrease in sales of phytonadione was due to a decrease in unit volumes, as a result of increased competition. The decrease in sales of enoxaparin was ~~driven by lower unit volumes, which resulted in~~primarily due to a decrease in unit volumes. The decrease in sales of ~~approximately $18.6 million,~~naloxone was due to both a decrease in unit volumes, as well as a lower average selling ~~prices, which resulted~~price. The increase in ~~a decrease of approximately $7.2 million. We expect that the average selling price and~~other finished pharmaceutical products was primarily due to higher unit volumes of dextrose, atropine, calcium chloride, and sodium bicarbonate, due to increased demand caused by supplier shortages, as well as a full period of sales for ganirelix and vasopressin, which were launched in June 2022 and August 2022, respectively, and the launch of regadenoson in April 2023.

We anticipate that sales of naloxone and enoxaparin will continue to fluctuate in the ~~near term as a result~~future due to competitive dynamics.

-41-

Table of ~~competition.~~Contents

~~Lower unit volumes of naloxone led to a decrease in sales of approximately $3.9 million, while lower average selling price caused a decrease in sales of approximately $0.4 million.~~ We also anticipate that sales of epinephrine and other finished pharmaceutical products will continue to fluctuate depending on the ability of our competitors to supply market demands. Sales of medroxyprogesterone have essentially been halted as of August 2023 as our API supplier has discontinued making this ~~product may fluctuate due~~product. We are currently in the process of qualifying our subsidiary ANP to ~~increased competition driven~~make this API. However, we do not know when the Drug Master File, or DMF, to approve this as our new API supply will be approved by ~~future competitor launches.~~

-40-

~~Table~~the FDA. Therefore, we are not sure when we will be able to return to selling this product. Sales of ~~Contents~~

~~The increase in phytonadione sales was primarily the result of higher unit volumes. An increase in average selling prices of epinephrine caused an increase of approximately $9.6~~medroxyprogesterone totaled $10.7 million in net revenues, which was partially offset by the decrease in unit volumes which was primarily a result of the discontinuation of our epinephrine injection, USP vial product in the second quarter of 2017 in accordance with the FDA’s request. Our epinephrine injection, USP vial product, was marketed under the “grandfather” exception to the FDA’s “Prescription Drug Wrap-Up” program. For the nine months ended September 30, ~~2017, we recognized $17.9~~2023, compared to $19.8 million in ~~net revenues for~~ the ~~sale of this product.~~nine months ended September 30, 2022.

Sales of ~~RHI~~ API ~~decreased because there were no shipments to MannKind~~primarily depend on the timing of customer purchases.

Other Revenues

Other revenues includes revenues from the sales of BAQSIMI^® of $28.7 million during the ~~period. We anticipate that~~nine months ended September 30, 2023, based on total BAQSIMI^® sales of ~~API will continue~~$48.7 million as reported to ~~fluctuate and will likely decrease due~~us by Lilly, which was recognized on a net basis similar to a royalty arrangement. Currently, BAQSIMI^® is being sold by Lilly on our behalf under the ~~inherent uncertainties related~~TSA, whereby Lilly would provide certain services to ~~sales~~support the transition of ~~RHI API~~the BAQSIMI^® operations to ~~MannKind. In addition, most~~us. The transfer of ~~our API sales are denominated~~the BAQSIMI^® marketing authorizations to us is anticipated to occur at different points in ~~Euros, and~~time depending on the ~~fluctuation~~jurisdiction, with the United States being the first that is expected to transfer to us in the ~~value~~first quarter of 2024. Upon the ~~Euro versus the dollar has had,~~assumption of distribution responsibilities, we will begin to recognize gross revenues and ~~will continue to have, an impact on API sales~~cost of revenues in their respective lines on the near term. In August 2017, MannKind notified us that it would not exercise its minimum annual purchase option of RHI API for 2018. We recognized the cancellation fee for 2018 of $0.9 million in net revenues in our condensed consolidated statements of ~~operations~~comprehensive income.

Backlog

Gross margins

The increase in sales of glucagon, Primatene MIST^®, and epinephrine, which are higher-margin products, the sales of ganirelix and vasopressin, both of which we launched last year, as well as the sales of regadenoson, which we launched in April 2023, helped increase our gross margins for the nine months ended September 30, ~~2017, and subsequently collected~~2023. Additionally, as a result of the TSA with Lilly, the revenues relating to BAQSIMI^® is reported on ~~this receivable.~~

~~Cost~~a net basis similar to a royalty arrangement with no amount reported as cost of ~~revenues~~

~~The increase~~revenues. These increases in gross margins were partially offset by an impairment charge of $2.7 million in June 2023 relating to the impairment of the IMS (UK) international product rights, as well as charges included in cost of ~~revenues was primarily due to an increase in unabsorbed manufacturing expense and a charge of $7.3 million~~revenue to adjust ~~certain~~our inventory and related purchase commitments to their net realizable ~~value, including $4.9 million~~value.

We are experiencing increased costs for ~~enoxaparin inventory due to a decrease in~~labor and certain purchased components. Additionally, the ~~forecasted average selling price. Gross margins decreased primarily due to lower pricing~~cost of ~~enoxaparin.~~

~~Declining average selling prices and unit volume of enoxaparin and the discontinuance of our epinephrine injection, USP vial product will continue to~~heparin may fluctuate, which could put downward pressure on our gross margins. However, we believe that this trend will be ~~partially~~ offset by ~~increases~~increased sales of our higher-margin products, including glucagon, vasopressin, ganirelix, regadenoson and new products we anticipate launching in ~~prices~~2023 and ~~unit volumes of several other finished pharmaceutical products. As a result, gross margin is expected to fluctuate depending on revenue mix.~~2024.

Selling, distribution and marketing, and general and administrative


	Nine Months Ended
	September 30,				Change
	2023		2022		Dollars		%

	(in thousands)
Selling, distribution, and marketing	$	20,234	$	16,059	$	4,175	26	%
General and administrative	$	38,418	$	34,433	$	3,985	12	%

Nine Months Ended


September 30,

Change


2017

2016

Dollars

%

(in thousands)

Selling, distribution, and marketing

$
4,831

$
3,975

$
856

22
%

General and administrative

$
35,237

$
31,129

$
4,108

13
%

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We expect that selling, distribution and marketing expenses will continue to increase due to the increase in marketing expenditures for ~~more information)~~Primatene MIST^®. Legal fees may fluctuate from period to period due to the timing of patent challenges and other litigation matters.

Research and development


									Nine Months Ended
									September 30,				Change
									2023		2022		Dollars		%

	Nine Months Ended
	September 30,				Change
	2017		2016		Dollars		%
	(in thousands)
									(in thousands)
Salaries and personnel-related expenses	$	10,862	$	10,911	$	(49)	(0)	%	$	21,653	$	18,767	$	2,886	15	%
Pre-launch inventory		711		—		711	N/A			460		—		460	N/A
Clinical trials		2,064		1,246		818	66	%		3,430		3,905		(475)	(12)	%
FDA fees		115		2,416		(2,301)	(95)	%		142		86		56	65	%
Testing, operating and lab supplies		12,341		7,741		4,600	59	%
Materials and supplies										13,556		21,747		(8,191)	(38)	%
Depreciation		3,278		3,571		(293)	(8)	%		7,282		7,647		(365)	(5)	%
Other expenses		2,651		3,037		(386)	(13)	%		6,799		5,383		1,416	26	%
Total research and development expenses	$	32,022	$	28,922	$	3,100	11	%	$	53,322	$	57,535	$	(4,213)	(7)	%

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~~Table~~The decrease in research and development expenses is primarily due to a decrease in materials and supply expense, as a result of ~~Contents~~

a ramp-up of expenses in 2022 for AMP-018 and other insulin pipeline products. This was partially offset by an increase in salary and personnel-related expenses.

~~Pre-launch inventory expense increased due to purchases related to Primatene~~® Mist. Testing, operating and lab supplies increased due to expenditures on materials for our pipeline products, particularly production of APIs for our pipeline at our ANP facility. Clinical trials expense increased due to external studies related to our generic product pipeline. This increase was partially offset by a decrease in FDA fees pertaining to the NDA filing of our intranasal naloxone product candidate that was submitted in the second quarter of 2016.

We have made, and expect to continue to make, substantial investments in research and development to expand our product portfolio and grow our business. ~~These costs~~We expect that research and development expenses will ~~fluctuate significantly from quarter~~increase on an annual basis due to ~~quarter based on the timing of various~~increased clinical trials costs related to our insulin and inhalation product candidates. These expenditures will include costs of APIs developed internally as well as APIs purchased externally, the ~~pre-launch~~cost of purchasing reference listed drugs and the costs ~~associated with new products, and FDA filing fees.~~of performing the clinical trials. As we undertake new and challenging research and development projects, we anticipate that the associated ~~annual~~ costs will increase significantly over the next several quarters and years.

~~Gain on sale~~Other income (expenses), net


	Nine Months Ended
	September 30,				Change
	2023		2022		Dollars		%

	(in thousands)
Other income (expenses), net	$	1,553	$	5,692	$	(4,139)	NM

Other income (expenses), net is primarily a result of ~~intangible assets~~foreign currency fluctuation, as well as the mark-to-market adjustments relating to our interest rate swap contracts during the nine months ended September 30, 2023. For the nine months ended September 30, 2022, we received a settlement of $5.4 million in connection with the Regadenoson patent litigation. For more information regarding our litigation matters, see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 20. Litigation”.

Nine Months Ended

September 30,

Change


2017

2016

Dollars

%

(in thousands)

Gain on sale of intangible assets

$
(2,643)

$
—

$
(2,643)

N/A

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Income tax provision

~~In February 2017, we sold~~


	Nine Months Ended
	September 30,						Change
	2023			2022			Dollars		%

	(in thousands)
Income tax provision	$	27,160		$	16,187		$	10,973	68	%
Effective tax rate		21	%		22	%

Our effective tax rate for the ~~ANDAs that we acquired~~nine months ended September 30, 2023 decreased in ~~March 2016 and recognized a gain of $2.6 million (see Note 3 and Note 9~~comparison to the ~~condensed consolidated financial statements for more information).~~

~~Provision for income tax expense (benefit)~~

Nine Months Ended

September 30,

Change


2017

2016

Dollars

%

(in thousands)

Income tax expense (benefit)

$
(354)

$
6,295

$
(6,649)

NM

Effective tax rate

(13)
%

32
%

~~The difference in income tax expense (benefit) was~~nine months ended September 30, 2022, primarily due to ~~the change~~differences in pre-tax income positions and timing of discrete tax ~~benefits recognized (see~~items. For more information regarding our income taxes, see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note ~~13 to the condensed consolidated financial statements for more information)~~15. Income Taxes”.

Liquidity and Capital Resources

Cash Requirements and Sources

We need capital resources to maintain and expand our business. We expect our cash requirements to increase significantly in the foreseeable future as we sponsor clinical trials for, seek regulatory approvals of, and develop, manufacture and market our current ~~development‑~~development stage product candidates and pursue strategic acquisitions of businesses or assets. Our future capital expenditures include projects to upgrade, expand, and improve our manufacturing facilities in the United States and China, ~~and France.~~including a significant increase in capital expenditures over the next few years. We plan to fund this facility expansion with cash flows from operations. Our cash obligations include the principal and interest payments due on our existing loans and lease payments, as described below and throughout this Quarterly ~~Report on Form 10-Q.~~ Report.

As of September 30, ~~2017,~~2023, our foreign subsidiaries collectively held ~~$22.5~~$5.8 million in cash and cash equivalents. ~~We do not plan to repatriate foreign earnings to the United States.~~ Cash or cash equivalents held at foreign subsidiaries are not available to fund the parent company’s operations in the United States. We believe that our cash reserves, operating cash flows, and borrowing availability under our credit facilities will be sufficient to fund our operations for at least the next 12 ~~months.~~ months from the date of filing of this Quarterly Report on Form 10-Q. We expect additional cash flows to be generated in the longer term from future product introductions,

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~~Table~~ including from sales of ~~Contents~~

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

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

Working capital ~~decreased~~increased by ~~$4.4~~$1.5 million to ~~$119.1~~$285.0 million at September 30, ~~2017,~~2023, compared to ~~$123.5~~$283.5 million at December 31, ~~2016.~~2022.

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Cash Flows from Operations

The following table summarizes our cash flows used in operating, investing, and financing activities for the nine months ended September 30, ~~2017~~:2023 and 2022:


			Nine Months Ended September 30,
			2023		2022

	Nine Months Ended
	September 30, 2017
	(in thousands)
			(in thousands)
Statement of Cash Flow Data:
Net cash provided by (used in)
Operating activities	$	29,444	$	159,639	$	73,955
Investing activities		(28,626)		(546,067)		(32,548)
Financing activities		(6,916)		501,176		(10,277)
Effect of exchange rate changes on cash		664		(44)		(239)
Net increase in cash and cash equivalents	$	(5,434)
Net increase in cash, cash equivalents, and restricted cash			$	114,704	$	30,891

Sources and Use of Cash

Operating Activities

Net cash provided by operating activities was ~~$29.4~~$159.6 million for the nine months ended September 30, ~~2017,~~2023, which included net income of ~~$3.0~~$101.4 million. Non-cash items ~~were~~ comprised primarily of ~~$11.5~~$36.5 million of depreciation and amortization, ~~$12.9~~$15.6 million of share-based compensation expense, ~~a $5.2~~and an impairment charge of $2.7 million ~~change in tax related items, and a gain~~relating to the impairment of ~~$2.3 million on~~ the ~~sale of long-lived assets.~~IMS (UK) international product rights.

~~Over~~Additionally, for the nine months ended September 30, ~~2017,~~2023, there was a net cash inflow from changes in operating assets and liabilities of $2.5 million, which resulted from an increase in accounts ~~receivable declined~~payable and accrued liabilities, which was partially offset by ~~approximately $2.9 million~~an increase in accounts receivables and inventories. Accounts payable and accrued liabilities increased primarily due to the timing of ~~customer purchases and payments, inventories decreased by approximately $12.4 million~~payments. The increase in accounts receivables was primarily due to the timing of ~~component~~the payment from Lilly for BAQSIMI^® during the quarter, which was received subsequent to the quarter end.

Net cash provided by operating activities was $74.0 million for the nine months ended September 30, 2022, which included net income of $57.5 million. Non-cash items comprised primarily of $21.4 million of depreciation and amortization and $13.6 million of share-based compensation expense. Additionally, for the nine months ended September 30, 2022, there was a net cash outflow from changes in operating assets and liabilities of $18.4 million, which resulted from an increase in inventories, due to increased purchases of certain raw ~~material purchases~~materials and ~~sales deliveries as well as a non-cash charge~~components, which was partially offset by an increase in accounts payable and accrued liabilities. Accounts payable and accrued liabilities increased primarily due to the timing of ~~$7.3 million to adjust certain inventory items to their net realizable value.~~payments.

Investing Activities

Net cash used in investing activities was ~~$28.6~~$546.1 million for the nine months ended September 30, ~~2017,~~2023, primarily as a result of ~~$25.0~~$506.4 million relating to the BAQSIMI^®acquisition, $28.7 million in purchases of property, ~~machinery,~~plant, and equipment, ~~including~~which included $19.5 million incurred in the ~~associated capitalized labor and interest on self-constructed assets, an increase of $2.0~~United States, $1.7 million in ~~short-term investments, an increase of $2.8~~France, and $7.5 million in ~~restricted~~China.

Net cash used in investing activities was $32.5 million for the nine months ended September 30, 2022, primarily as a result of $17.7 million in purchases of property, plant, and equipment, which included $11.1 million incurred in the United States, $0.9 million in France, and $5.7 million in China. Additionally, net cash outflows from short-term ~~investment. The~~investing activities during the period was $15.1 million.

Financing Activities

Net cash ~~used~~provided by financing activities was $501.2 million for the nine months ended September 30, 2023, primarily due to our entry into the Credit Agreement with Wells Fargo and the issuance of the 2029 Convertible Notes, which was

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partially offset by $268.5 million in principal payments of our long-term debt and $24.6 million in debt issuance cost. Additionally, we received $7.4 million in net proceeds from the settlement of share-based compensation awards under our equity plan, which was partially offset by the ~~receipt of the $2.0~~$58.4 million ~~initial payment relating~~used to ~~the sale of the various ANDAs in February 2017 (see Note 9 to the condensed consolidated financial statements for more information).~~purchase treasury stock.

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~~Table of Contents~~

~~Financing Activities~~

Net cash used in financing activities was ~~$6.9~~$10.3 million for the nine months ended September 30, ~~2017,~~2022, primarily as a result of ~~$24.8~~purchases of $21.8 million ~~used to purchase~~of treasury stock, which was partially offset by ~~$7.3~~$13.6 million in net proceeds from the settlement of ~~proceeds received from~~share-based compensation awards under our equity ~~plans.~~plan. Additionally, we ~~received proceeds of $19.0 million from borrowings on a mortgage loan and an equipment line of credit, and~~also made ~~$8.4~~$1.7 million in principal payments on our long-term ~~debts.~~debt.

Indebtedness

For more information regarding our outstanding indebtedness, see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 14. Debt”.

~~Contractual Obligations~~

There have been no material changes outside the ordinary course of our business in the contractual obligations disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016, except that o~~ur outstanding debt obligations have changed as follows:~~

September 30,

December 31,


2017

2016

Change

(in thousands)

Short-term debt and current portion of long-term debt

$
6,212

$
5,366

$
846

Long-term debt

42,232

32,356

9,876

Total debt

$
48,444

$
37,722

$
10,722

~~As of September 30, 2017, we had $43.0 million in unused borrowing capacity under revolving lines of credit with Cathay Bank and East West Bank.~~

~~Collaboration Agreement with a Medical Device Manufacturer~~

In 2014, we entered into a collaboration agreement with a medical device manufacturer to develop a drug delivery system to be used by us for one of our pipeline products. As of September 30, 2017, we have paid an upfront payment of $0.5 million and have paid $1.5 million in milestone payments under this agreement, which were classified as research and development expense as the milestones were met. We are obligated to pay up to an additional $0.5 million if certain milestones are met. As of September 30, 2017, no such obligation existed. Pursuant to the collaboration agreement, if the medical device manufacturer is successful in the development of this drug delivery system and our pipeline products receive appropriate regulatory approval, we intend to enter into a commercial supply agreement with such medical device manufacturer for a minimum purchase of 1.0 million units during the first 12 months.

Critical Accounting Policies

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and ~~the~~ notes to the financial statements. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. A summary of our critical accounting policies is presented in Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022. There ~~were~~have been no material changes to our critical accounting policies ~~during~~as compared to the ~~nine months~~critical accounting policies as described in our Annual Report on Form 10-K for the year ended ~~September 30, 2017.~~December 31, 2022.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, ~~refer to Note 2 in the accompanying “Notes~~see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial ~~Statements” in this Quarterly Report.~~Statements – Note 2. Summary of Significant Accounting Policies”.

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~~Off-Balance Sheet Arrangements~~

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

Government Regulation

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

From ~~November 29, 2016~~February 6 through ~~December 7, 2016,~~February 16, 2023, our IMS facility in South El Monte, California was subject to anpre-approval inspection by the FDA. The inspection included a review of ~~our~~ compliance with ~~cGMP~~FDA regulations ~~and verification~~to support one of ~~corrective actions implemented from a previous inspection in July 2015.~~our pending applications. The inspection resulted in multiple observations on Form 483, an FDA form on which deficiencies are noted after an FDA inspection. We responded to those observations on December 29, 2016. A follow up letter to the FDA District Office was additionally sent on January 31, 2017, outlining additional progress on our corrective action plan submitted in December. We believe that our responses to the observations satisfied the requirements of the FDA and the inspection is considered closed.

From January 30, 2017 through February 09, 2017, our IMS facility in South El Monte, California was subject to a preapproval inspection by the FDA. The inspection included a review of our corrective actions taken from the recent cGMP inspection as well as review of data to support our pending application. The inspections resulted in multipletwo observations on Form 483. We responded to those ~~observations on February 14, 2017.~~observations. We believe that our ~~responses to the observations will satisfy the requirements of the FDA and that no significant further actions will be necessary.~~

From March 13, 2017 through March 31, 2017, our Amphastar facility in Rancho Cucamonga, California was subject to a preapproval inspection by the FDA. The inspection included a review of our corrective actions taken from the previous cGMP inspection in July 2014 as well as review of data to support our pending applications. The inspections resulted in multiple observations on Form 483. We fully responded to those observations on April 22, 2017. We believe that our responsesresponse to the observations will satisfy the requirements of the FDA and that no significant further actions will be necessary.

From April 24, 2017 through April 28, 2017, our facility in Nanjing, China was subject to an inspection by the FDA. The purpose was a pre-approval inspection for the manufacture of API. The inspection resulted in several observations on Form 483. We responded to those observations on May 19, 2017, and believe that our responses to the observations satisfied the requirements of the FDA and the inspection is considered closed.

On October 20, 2017, a representative from the U.S. Department of Agriculture, or USDA inspected our facility in Chino, California. The inspection covered compliance with USDA regulations regarding laboratory animal handling and well-being. No citations were made.

From October 23, 2017 through October 26, 2017, our facility in Nanjing, China was subject to an inspection by the FDA. The purpose was a general cGMP inspection to cover the facility for FDA fiscal year 2018. The inspection included a review of Quality Systems, Production Controls, Laboratory Controls, Material Management, and Facilities and Equipment Maintenance. The inspection also included a review of our corrective actions taken from the previous inspection in April 2017. There were no Form 483 observations issued.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

~~The following discussion provides forward-looking quantitative~~Except for the broad, ongoing macroeconomic challenges facing the global economy and ~~qualitative~~financial markets, there have been no material changes in market risk from the information ~~about~~provided in our ~~potential exposure~~Annual Report on Form 10-K for the year ended December 31, 2022. We are exposed to market ~~risk.~~risk in the ordinary course of business. Market risk represents the potential loss arising from adverse changes in the value of financial instruments. The risk of loss is assessed based on the likelihood of adverse changes in fair values, cash flows or future earnings. We are exposed to market risk for changes in the market values of our investments (Investment Risk), the impact of interest rate changes (Interest Rate Risk), and the impact of foreign currency exchange changes (Foreign Currency Exchange Risk).

~~Investment Risk~~

We regularly review the carrying value of our investments and identify and recognize losses, for income statement purposes when events and circumstances indicate that any declines in the fair values of such investments below our accounting basis are other than temporary. As of September 30, 2017, we did not have any such investments.

~~As of September 30, 2017, we had $13.6 million~~ deposited in five banks located in China, $8.7 million deposited in one bank located in France, and $0.2 million deposited in one bank located in the United Kingdom. We also maintained $36.9 million in cash equivalents that include money market accounts and money market funds, as of September 30, 2017. The remaining amounts of our cash equivalent as of September 30, 2017, are in non-interest bearing accounts.

~~Interest Rate Risk~~

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

As of September 30, 2017, we had $48.4 million in long-term debts and capital leases outstanding. Of this amount, $15.6 million had variable interest rates which were not locked-in through fixed interest rate swap contracts. The debt with variable interest rate exposure had a weighted-average interest rate of 4.3% at September 30, 2017. An increase in the index underlying these rates of 1% (100 basis points) would increase our annual interest expense on the debts with variable interest rate exposure by approximately $0.2 million per year.

~~Foreign Currency Exchange Risk~~

Our products are primarily sold in the U.S. domestic market, and for the three and nine months ended September 30, 2017 and 2016, foreign sales were minimal. Therefore, we have little exposure to foreign currency price fluctuations. However, as a result of our acquisition of the API manufacturing business in Éragny-sur-Epte, France, we are exposed to market risk related to changes in foreign currency exchange rates. Specifically, our insulin sales contracts are primarily denominated in Euros, which are subject to fluctuations relative to the USD. We do not currently hedge our foreign currency exchange rate risk. At this time, an immediate 10% change in currency exchange rates would not have a material effect on our financial position, results of operations or cash flows.

Our Chinese subsidiary, ANP, maintains their books of record in Chinese Yuan. These books are remeasured into the functional currency of USD, using the current or historical exchange rates. The resulting currency remeasurement adjustments and other transactional foreign exchange gains and losses are reflected in our statement of operations.

Our French subsidiary, AFP, maintains their books of record in Euros. Our U.K. subsidiary, IMS UK, maintain its books of record in Great Britain Pounds. These books are translated to USD at the average exchange rates during the period. Assets and liabilities are translated at the rate of exchange prevailing on the balance sheet date. Equity is translated at the prevailing exchange rate at the date of the equity transactions. Translation adjustments are reflected in stockholders’ equity and are included as a component of other comprehensive income (loss). We do not undertake hedging transactions to cover our foreign currency exposure.

~~As of September 30, 2017, we had cash balances denominated in foreign currencies in the amount of $9.0 million.~~

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~~Table of Contents~~

ITEM 4. CONTROLS AND ~~PROCEDURES~~PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the ~~three months~~quarter ended September 30, ~~2017,~~2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting ~~(as~~(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

Inherent Limitations of Internal Controls

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

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Table of Contents

PART II. OTHER ~~INFORMATION~~INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For information regarding legal proceedings, ~~refer to Litigation in Note 17 in the accompanying “Notes~~see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial ~~Statements” in this Quarterly Report.~~Statements – Note 20. Litigation.”

ITEM 1A. RISK ~~FACTORS~~FACTORS

Except as noted below, there were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, filed with the ~~SEC~~Securities and Exchange Commission on March ~~15, 2017.~~ 1, 2023.

~~Some of our products are marketed without FDA approval~~Our actual financial and ~~may be subject to enforcement actions~~operating results could differ materially from any expectations or guidance provided by ~~the FDA.~~

A number of our prescription products are marketed without FDA approval. These products, like many other prescription drugs on the market that FDA has not formally evaluated as being effective, contain active ingredients that were first marketed priorus concerning future results with respect to the ~~enactment of the Federal Food, Drug, and Cosmetic Act, or FFDCA. The FDA has assessed these products in a program known~~Acquisition.

Although we currently expect to realize increased revenues as the “Prescription Drug Wrap-Up” and has stated that these drugs cannot be lawfully marketed unless they comply with certain “grandfather” exceptions to the definition of “new drug” in the FFDCA. These exceptions have been strictly construed by FDA and by the courts, and the FDA has stated that it is unlikely that any of the unapproved prescription drugs on the market, including certain of our drugs, qualify for the exceptions. At any time, the FDA may require that some or all of our unapproved prescription drugs be submitted for approval and may direct that we recall these products and/or cease marketing the products until they are approved. The FDA may also take enforcement actions based on our marketing of these unapproved products, including but not limited to the issuance of an untitled letter or a warning letter, and a judicial action seeking injunction, product seizure and civil or criminal penalties. The enforcement posture could change at any time and our ability to market such drugs could terminate with little or no notice. Moreover, if our competitors seek and obtain approval and market FDA-approved prescription products that compete against our unapproved prescription products, we would be subject to a higher likelihood that FDA may seek to take action against our unapproved products. Such competitors have brought and may bring claims against us alleging unfair competition or related claims.

As a result of our ~~meetings with~~acquisition of BASQIMI^®, the ~~FDA in 2009,~~expectations and guidance we decided to discontinue all of our products that were subject to the Prescription Drug Wrap-Up program, with the exception of epinephrine in vial form. These products were all produced at our subsidiary, IMS. During the third quarter of 2010, the FDA requested that we reintroduce several of the withdrawn products to cope with a drug shortage, while we prepared and filed applications for approval of the products. Between August and October, 2010, we reintroduced atropine, calcium chloride, morphine, dextrose, epinephrine prefilled syringes, ~~epinephrine injection, USP vial~~, and sodium bicarbonate injections. For the years ended December 31, 2016, 2015, and 2014, we recorded net revenues of $46.2 million, $35.6 million, and $22.5 million, respectively, from unapproved products. For the nine months ended September 30, 2017 and 2016, we recorded net revenues of $43.3 million, $29.5 million, respectively. The FDA requested us to discontinue the manufacturing and distribution of our epinephrine injection, USP vial product, which had been marketed under the “grandfather” exception to the FDA’s “Prescription Drug Wrap-Up” program. We discontinued selling this product in the second quarter of 2017. For the nine months ended September 30, 2017 and for the year ended December 31, 2016, we recognized $17.9 million and $18.6 million, in net revenues for the sale of this product, respectively. The charge of $3.3 million was included in the cost of revenues in our consolidated statements of operations for the year ended December 31, 2016, to adjust the related inventory and firm purchase commitments to their net realizable value due to the anticipated discontinuation of the product. ~~In September 2017, the FDA granted approval of our ANDA for Sodium Bicarbonate injections. We~~ have ~~filed three ANDAs and are preparing additional applications~~provided, with respect to the potential financial impact of the Acquisition, are subject to numerous assumptions including assumptions derived from our diligence efforts concerning the status of and prospects for BAQSIMI^® business, which we did not control at the time such assumptions were made, and assumptions relating to the near-term prospects for glucagon products generally and the markets for BAQSIMI^® in particular. Additional assumptions we have made relate to numerous matters, including (without limitation) the following:

•

projections of BAQSIMI^®’s future revenues;

the amount of intangibles that will result from the Acquisition;

certain other ~~products~~purchase accounting adjustments that we expect to record in ~~order~~our financial statements in connection with the Acquisition;

acquisition costs, including transaction costs payable to ~~mitigate all~~our financial, legal, and accounting advisors;

•

our ability to maintain, develop, and deepen relationships with BAQSIMI^® customers and suppliers;

other financial and strategic risks of the Acquisition, including the possible impact of our reduced liquidity resulting from deal-related cash outlays, the credit risk associated ~~with~~from the ~~marketing of unapproved drug products. In~~debt facility described below, and continued uncertainty arising from the ~~interim,~~global economic downturn; and

the FDA approval process is time-consuming and complicated, and we ~~continue to operate~~may not obtain the FDA approval required for a product within the ~~FDA Compliance Policy Guide, CPG Sec. 440.100 Marketed New Drugs Without Approved NDAs~~timeline we desire, or at all.

We cannot provide any assurances with respect to the accuracy of our assumptions, including our assumptions with respect to future revenues or revenue growth rates, if any, of BAQSIMI^®, and ~~ANDAs.~~we cannot provide assurances with respect to our ability to realize the cost savings that we currently anticipate. There are a variety of risks and uncertainties, some of which are outside of our control, which could cause our actual financial and operating results to differ materially from any expectations or guidance provided by us, concerning our future results with respect to the Acquisition.

We may fail to realize the projected revenue and other benefits expected from the Acquisition, which could adversely affect the value of our common stock.

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Our ~~reported financial results~~ability to realize the projected revenue and other benefits from the Acquisition will depend, in part, on our ability to integrate BAQSIMI^® into our current business. If we are not able to achieve the projected revenue or other benefits within the anticipated time frame, or at all, or if the projected revenue or other benefits take longer to realize than expected, then the value of our common stock may be adversely ~~affected by changes in accounting principles generally accepted~~affected.

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It is possible that the integration process following the Acquisition could result in the ~~United States.~~

~~Generally accepted accounting principles,~~disruption of our business or ~~U.S. GAAP~~ongoing business associated with BAQSIMI^®. We may also identify inconsistencies in standards, controls, procedures and policies between the United States are subject to interpretation by the Financial Accounting Standards Board, or FASB, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. For example, in May 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers (Topic 606), (as amended in June 2016, by ASU No. 2016-12-Revenue-Narrow-Scope Improvements and Practical Expedients, and in December 2016, by ASU No. 2016-20-Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP and becomes effective for us beginning the first quarter of fiscal 2018. In addition, were we to change our critical accounting estimates, our results of operations could be significantly impacted. These or other changes in accounting principlestwo businesses that could adversely affect our ~~financial results. See Note 2~~ability to maintain relationships with our customers, suppliers, distributors, creditors, lessors, clinical trial investigators or managers or to achieve the anticipated benefits of BAQSIMI^®.

Specifically, in order to realize the anticipated benefits of the ~~Notes~~Acquisition, we will:

•

rely on Lilly for manufacturing services and transition services, including for performance of clinical and commercial activities, relating to BAQSIMI^® and transfer of the corresponding activities to Amphastar;

be required to ~~Condensed Financial Statements~~enter into our own arrangements with certain suppliers/manufacturers in ~~Part I, Item 1~~the supply chain;

•

be required to set up distribution and sales arrangements for BAQSIMI^® including payor and other agreements; and

•

transfer regulatory approvals relating to BAQSIMI^® to us following the closing of the Acquisition.

Integration efforts between us and the business associated with BAQSIMI^® will also divert management attention and resources. In addition, the actual integration of this Quarterly Report on Form 10-Q for information regarding the effect of new accounting pronouncements on our financial statements. Any difficulties in implementing these pronouncements could cause us to fail to meet our financial reporting obligations, which couldBAQSIMI^® may result in ~~regulatory discipline~~additional and ~~harm investors’ confidence~~unforeseen expenses or liabilities (including those that may be assumed in ~~us. Furthermore,~~connection with the ~~adoption~~Acquisition), and any anticipated benefits of ~~Topic 606 is expected~~the integration plan may not be realized. If we are not able to ~~impact~~adequately address these challenges, we may be unable to successfully integrate BAQSIMI^® into our business, or to realize some or any of the ~~amount and timing~~anticipated benefits of ~~revenue recognized and~~ the ~~related disclosures on our financial statements and will also require that we defer all incremental commission costs to obtain a customer contract; as such~~Acquisition.

Delays encountered in the ~~adoption~~integration process could have a material adverse effect on our revenues, expenses, operating results and financial ~~position~~condition. Although we expect significant benefits, such as increased sales revenues, from the Acquisition, there can be no assurance that we will realize these or any other anticipated benefits.

Our current and future indebtedness has and may continue to adversely affect our operating results and cash flows.

The Acquisition was financed with proceeds of the Wells Fargo Term Loan. The material increase in our indebtedness as a result of the Credit Agreement and the 2029 Convertible Notes has and may continue to adversely affect our operating results, cash-flows and our ability to use cash generated from operations as we satisfy our materially increased underlying interest and principal payment obligations under the Credit Agreement and the 2029 Convertible Notes, as applicable.

Specifically, our materially increased indebtedness could have important consequences to investors in our common stock, including any or all of the following:

we could be subject to substantial variable interest rate risk because interest rates applicable to certain of our indebtedness are based on a fixed margin over an indexed rate or an adjusted base rate. If interest rates were to further increase substantially it could have a material adverse effect on our operating results and could affect our ability to service the indebtedness;

our ability to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements, or other purposes may be limited or financing may be unavailable;

a substantial portion of our cash flows must be dedicated to the payment of principal and interest on our indebtedness and other obligations and will not be available for use in our business;

our level of indebtedness could limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate or place us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital;

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our high degree of indebtedness will make us more vulnerable to changes in general economic conditions and/or a downturn in our business, thereby making it more difficult for us to satisfy our obligations; and

any conversion of the 2029 Convertible Notes could dilute the interests of existing investors in our common stock.

Our ability to make scheduled payments of the principal and interest when due, or to refinance our borrowings under the Credit Agreement and/or the 2029 Convertible Notes, will depend on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.

Our business may not continue to generate cash flow from operations in the future sufficient to satisfy our obligations under our indebtedness, and any future indebtedness we may incur and to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our existing or future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default under the Credit Agreement, the 2029 Convertible Notes or future indebtedness.

If we fail to make required payments under our existing or future indebtedness, we would be in default under the terms of these agreements. Subject to customary cure rights, any default would permit the holders of the indebtedness to accelerate repayment of this debt and could cause defaults under other indebtedness that we have, any of which could have a material adverse effect on the trading price of our common stock.

Our outstanding loan agreements contain restrictive covenants that may limit our operating flexibility.

Our loan agreements are collateralized by substantially all of our presently existing and subsequently acquired assets and subject us to certain affirmative and negative covenants, including limitations on our ability to transfer or dispose of assets, merge with or acquire other companies, make investments, pay dividends, incur additional indebtedness and liens and conduct transactions with affiliates. For example, the Credit Agreement contains financial and operational covenants that may adversely affect our operational freedom or ability to pursue strategic transactions that we would otherwise consider to be in the best interests of stockholders, including obtaining additional indebtedness to finance such transactions.

We are also subject to certain covenants that require us to maintain certain financial ratios and are required under certain conditions to make mandatory prepayments of outstanding principal. As a result of these covenants and ratios, we have certain limitations on the manner in which we can conduct our business, and we may be restricted from engaging in favorable business activities or financing future operations or capital needs until our current debt obligations are paid in full or we obtain the consent of our lenders, which we may not be able to obtain. For example, the Credit Agreement contains financial and operational covenants that may adversely affect our ability to engage in certain activities, including certain financing and acquisition transactions, stock repurchases, guarantees, and similar transactions, without obtaining the consent of the lenders, which may or may not be forthcoming including without limitation, covenants requiring compliance with a maximum consolidated net leverage ratio test and a minimum consolidated interest coverage ratio test.

We may not be able to generate sufficient cash flow or revenue to meet the financial covenants or pay the principal and interest on our debt. In addition, upon the occurrence of an event of default, our lenders, among other things, can declare all indebtedness due and payable immediately, which would adversely impact our liquidity and reduce the availability of our cash flows to fund working capital needs, capital expenditures and other general corporate purposes. An event of default includes our failure to pay any amount due and payable under the loan agreements, the occurrence of a material adverse change in our business as defined in the loan agreements, our breach of any covenant in the loan agreements, or an involuntary insolvency proceeding. Additionally, a lender could exercise its lien on substantially all of our assets and our future working capital, borrowings or equity financing may not be available to repay or refinance any such debt.

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We may not have sufficient cash to settle conversions of the 2029 Convertible Notes in cash, to repurchase the 2029 Convertible Notes upon a fundamental change, or to repay the principal amount of the 2029 Convertible Notes in cash at their maturity, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the 2029 Convertible Notes.

Holders of the 2029 Convertible Notes will have the right to require us to repurchase all or a portion of the 2029 Convertible Notes upon the occurrence of a fundamental change, as defined in the Indenture, before the applicable maturity date at a repurchase price equal to 100% of the principal amount of such 2029 Convertible Notes to be repurchased, plus accrued and unpaid interest or special interest, if any, as described in the Indenture governing the 2029 Convertible Notes. In addition, upon conversion of the 2029 Convertible Notes, we will be required to settle a portion or all of its conversion obligation in respect of the 2029 Convertible Notes being converted in cash, as described in the Indenture. Moreover, we will be required to repay the 2029 Convertible Notes in cash at their maturity unless earlier converted, redeemed or repurchased. However, we may not have enough available cash on hand or be able to obtain financing at the time we are required to make repurchases of the 2029 Convertible Notes surrendered therefor or pay cash with respect to the 2029 Convertible Notes being converted or at their respective maturity.

In addition, our ability to repurchase the 2029 Convertible Notes or to pay cash upon conversions of the 2029 Convertible Notes or at their maturity may be limited by law, regulatory authority or agreements governing our future indebtedness. Our failure to repurchase the 2029 Convertible Notes at a time when the repurchase is required by the indenture governing the 2029 Convertible Notes or to pay cash upon the conversion of the 2029 Convertible Notes or at their maturity as required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our existing and future indebtedness. Moreover, the occurrence of a fundamental change under the indenture could constitute an event of default under any such agreement. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness, which would have a material adverse effect on our business, results of operations and financial condition.

The conditional conversion feature of the 2029 Convertible Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the 2029 Convertible Notes is triggered, holders of the 2029 Convertible Notes will be entitled under the Indenture to convert the 2029 Convertible Notes at any time during the specified periods at their option. Upon such event, if one or more holders elect to convert their 2029 Convertible Notes, we would be required to settle a portion or all of the conversion obligation in cash, which could adversely affect our liquidity. In addition, even if holders of the 2029 Convertible Notes do not elect to convert their 2029 Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of such 2029 Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

Our business relationships, including customer relationships, and those of the business related to BAQSIMI^® may be subject to disruption due to uncertainty associated with the Acquisition.

Suppliers, vendors, and other third parties with whom we or the business related to BAQSIMI^® do business or otherwise have relationships may experience uncertainty associated with the Acquisition, and this uncertainty could materially affect their decisions with respect to existing or future business relationships with us. As a result, we are currently unable to predict the effect of the Acquisition on certain assumed contractual rights and obligations, including intellectual property rights.

Contracts, agreements, licenses, permits, authorizations and other arrangements related to the BAQSIMI^® business that contain provisions giving counterparties certain rights (including, in some cases, termination rights) in the event of an “assignment” of such agreement or a “change in control” of Lilly or its subsidiaries. The definitions of “assignment” and “change in control” vary from contract to contract and, in some cases, the “assignment” or “change in control” provisions may be implicated by the Acquisition. If an “assignment” or “change in control” occurs, a counterparty may

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be permitted to terminate its contract with respect to BAQSIMI^®.

We cannot predict the effects, if any, if the Acquisition is deemed to constitute an assignment or change in control under certain of the contracts and other arrangements related to BAQSIMI^®, including the extent to which cancellation rights or other rights would be exercised, if at all, or the effect on our financial condition, results of operations or cash flows.

Our business may be adversely affected by resurgence of COVID-19 cases or other public health outbreaks that result in business disruptions or related challenging macroeconomic conditions globally.

While the U.S. government ended the COVID-19 public health emergency on May 11, 2023, any resurgence of COVID-19 cases or other public health outbreaks or disruptions could continue to impact worldwide economic activity and financial markets and present challenges to our business. Mass and rapid production of the vaccines, for example, has placed increased pressure on the availability of supplies that are also used in our products, such as glass vials and needles. Such outbreaks may also disrupt the operations of our customers, suppliers and partners for an indefinite period of time, including as a result of travel restrictions and/or business shutdowns, all of which could negatively impact our business and results of operations, including cash flows. Disruptions to our manufacturing partners and suppliers could result in disruption to the production of our products and failure to satisfy demand. More generally, any extended public health outbreaks or emergencies could adversely affect economies and financial markets globally and nationally, including inflationary pressures and changes in interest rates, which have and could continue to decrease spending and adversely affect demand for our products and harm our business and results of operations. To the extent macroeconomic uncertainty persists or if a resurgence of COVID-19 cases or macroeconomic conditions worsen, we may experience a continuing adverse effect on the demand for some of our products. The degree of impact of any pandemic and the related challenging macroeconomic conditions globally on our business will depend on several factors, such as the duration and the extent of the pandemic, as well as actions taken by governments, businesses, and consumers in response to the pandemic and the challenging macroeconomic conditions globally, all of which continue to evolve and remain uncertain at this time.

During the COVID-19 pandemic, FDA has issued various COVID-19 related guidance documents applicable to biopharmaceutical manufacturers and clinical trial sponsors many of which have expired or were withdrawn with the expiration of the COVID-19 public health emergency declaration in May 2023, although some COVID-19 related guidance documents continue in effect. These and future guidance documents and regulatory requirements, including future legislation, have and may continue to require us to develop and implement new policies and procedures, make significant adjustments to our clinical trials, or increase the amount time and resources needed for regulatory compliance, which may impact our clinical development plans and timelines.

Certain suppliers delayed shipments to us in 2022. These delays may have been caused by manufacturing disruptions due to the COVID-19 pandemic. For example, in the first quarter of 2022, increases in COVID-19 cases in Shanghai, China, led to shutdowns and delays at the ports in Shanghai, which led to temporary delays in shipping certain APIs and starting materials. Future shutdowns could have an adverse impact on our operations.

Any of the negative impacts of any ongoing pandemic, including any resurgence of COVID-19 cases, and the related challenging macroeconomic conditions, including, among others, those described above, alone or in combination with others, may have a material adverse effect on our business and operations, results of operations, financial condition, and cash flows. It is not possible at this time to estimate the complete impact that the COVID-19 pandemic and the related challenging economic conditions could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted.

Macroeconomic conditions may continue to worsen leading to changes in monetary policy and other responses from governmental bodies, infections may resurge or become more widespread and the limitation on our ability to travel and timely sell and distribute our products, as well as any closures or supply disruptions, may be enacted or extended for longer periods of time, each of which alone or in combination with others, would have a negative impact on our business, financial condition and operating results. We will continue to monitor the impact of the COVID-19 pandemic, any resurgence of COVID-19 cases, and related challenging macroeconomic conditions on all aspects of our business.

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Because a portion of our manufacturing takes place in China, a significant disruption in the construction or operation of our manufacturing facility in China, political unrest in China, tariffs, impact of outbreaks of health epidemics, such as the COVID-19 pandemic, or changes in social, political, trade, health, economic, environmental, or climate-related conditions or in laws, regulations and policies governing foreign trade could materially and adversely affect our business, financial condition and results of operations.

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

●

disruptions in the construction of the manufacturing facility;

●

interruptions to our operations in China or the inability of our manufacturing facility to produce adequate quantities of raw materials or APIs to meet our needs as a result of natural catastrophic events or other causes beyond our control such as power disruptions or widespread disease outbreaks, including the recent outbreaks that impact animal-derived products, such as the importation of pig-derived crude heparin from countries impacted by the African swine flu, and the ongoing COVID-19 pandemic, which has resulted in and may in the future result in, business closures, transportation restrictions, import and export complications, and otherwise cause shortages in the supply of raw materials or cause disruptions in our manufacturing capability;

●

product supply disruptions and increased costs as a result of heightened exposure to changes in the policies of the Chinese government, political unrest or unstable economic conditions in China, including China’s policies with respect to COVID-19;

●

the imposition of additional tariffs, export controls or other trade barriers as a result of changes in social, political, and economic conditions or in laws, regulations, and policies governing foreign trade, including U.S. and foreign export controls such as U.S. controls preventing the export of a wide-range of items to Russia, new controls impacting the ability to send certain products and technology, specifically related to semi-conductor manufacturing and supercomputing to China without an export license, and the addition of new China-based entities to certain U.S. restricted party lists including the Entity List and Unverified List, trade sanctions and import laws and regulations, the tariffs previously implemented and additional tariffs that have been proposed by the U.S. government on various imports from China and by the Chinese government on certain U.S. goods, the scope and duration of which, if implemented, remain uncertain;

●

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

●

interruptions to our manufacturing or business operations resulting from geo-political actions, including war and terrorism such as the war in Ukraine, natural disasters including earthquakes, typhoons, floods, and fires, or outbreaks of health epidemics or outbreaks in livestock or animals that impact or restrict importation, use, or distribution of animal-derived products.

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

We are actively monitoring and assessing the ongoing impact of the COVID-19 pandemic on our business. This includes evaluating the impact on our employees, suppliers, and logistics providers as well as evaluating governmental actions being taken to curtail the spread of the virus. For example, in the first quarter of 2022, increases in COVID-19 cases in Shanghai, China, led to shutdowns and delays at the ports in Shanghai. However, the extent of any future shutdown or delay is highly uncertain and difficult to predict. Any material adverse effect on our employees, suppliers, and logistics providers could have a material adverse effect on our manufacturing operations in China or the supply of raw materials or APIs originating from China.

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The FDA approval process for changes to existing products (such as change of components or API supplier) is time-consuming and complicated, and we may not obtain the FDA approval required for a such changes within the timeline we desire, or at all.

The development, testing, manufacturing, marketing and sale of generic and proprietary pharmaceutical products and biological products are subject to extensive federal, state and local regulation in the U.S. and other countries. Satisfaction of all regulatory requirements, which typically takes years for drugs that require regulatory approval in ANDAs, NDAs, biological license applications, or BLAs, or biosimilar applications is dependent upon the type, complexity and novelty of the product candidate and requires the expenditure of substantial resources for research (including qualification of suppliers and their supplied materials), development, in vitro and in vivo (including nonclinical and clinical trials) studies, manufacturing process development and commercial scale up. Some of our products are drug-device combination products that are regulated as drug products by the FDA, with consultation from the FDA’s Center for Device and Radiological Health. These combination products require the submission of drug applications to the FDA. All of our products are subject to compliance with the FFDCA and/or the Public Health Service Act, or PHSA, and with the FDA’s implementing regulations. Failure to adhere to applicable statutory or regulatory requirements by us or our business partners would have a material adverse effect on our operations and financial condition. In addition, in the event we are successful in developing product candidates for distribution and sale in other countries, we would become subject to regulation in such countries. Such foreign regulations and product approval requirements are expected to be time consuming and expensive as well.

We may encounter delays or agency rejections during any stage of the regulatory review and approval process based upon a variety of factors, including without limitation the failure to provide clinical data demonstrating compliance with the FDA’s requirements for safety, efficacy and quality. Those requirements may become more stringent prior to submission of our applications for approval or during the review of our applications due to changes in the law or changes in FDA policy or the adoption of new regulations. After submission of an application, the FDA may refuse to file the application, deny approval of the application or require additional testing or data. The FDA can convene an Advisory Committee to assist the FDA in examining specific issues related to the application. For example, we initially filed an NDA, for our Primatene MIST^® product in July 2013, but FDA approval was not granted until November 2018 due to delays caused by the FDA’s requirement that we provide additional non-clinical information, label revision and follow-up studies (including label comprehension and behavioral/human factor studies), and that we make packaging and label revisions. Additionally, we received Complete Response Letters, or CRLs, from the FDA asking for more information before they could approve the ANDA for our epinephrine vial product. These CRLs have delayed the approval of this product.

Under various user fee enactments, the FDA has committed to timelines for its review of NDAs, ANDAs, BLAs and biosimilar applications. However, the FDA’s timelines described in its guidance on these statutes are flexible and subject to changes based on workload and other potential review issues that may delay the FDA’s review of an application. Further, the terms of approval of any applications may be more restrictive than our expectations and could affect the marketability of our products.

The FDA also has the authority to revoke or suspend approvals of previously approved products for cause, to debar companies and individuals from participating in the approval process for ANDAs, to request recalls of allegedly violative products, to seize allegedly violative products, to obtain injunctions that may, among other things, close manufacturing plants that are not operating in conformity with cGMP and stop shipments of potentially violative products and to prosecute companies and individuals for violations of the FFDCA.

We were informed that one of our API suppliers has discontinued manufacturing an API included in one of our commercial products. We are currently in the process of qualifying one of our subsidiaries to supply the necessary API, and are required to obtain FDA approval of our new API supply. In the event the FDA does not grant approval or any additional approvals for the new API supply are delayed, such actions would temporarily force us to stop manufacturing our impacted commercial product, potentially for a considerable period of time. If we are forced to stop manufacturing this commercial product or any of our commercial products in the future, for any length of time, it could have a material effect on our operating results and financial condition.

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Our business may be affected by new sanctions and export controls targeting Russia and other responses to Russia’s invasion of Ukraine.

As a result of Russia's invasion of Ukraine, the U.S., the U.K. and the EU governments, among others, have developed coordinated sanctions and export-control measure packages.

Based on the public statements to date, these packages include:

●

comprehensive financial sanctions against major Russian banks (including SWIFT cut off);

●

designations of individuals and entities involved in Russian military activities;

●

additional designations of Russian individuals including but not limited to those with significant business interests and government connections; and

●

enhanced export controls and trade sanctions targeting Russia’s imports of a wide range of goods as a whole, including potentially tighter controls on exports and reexports of items previously subject to only a low level of control, stricter licensing policy with respect to issuing export licenses, and/or increased use of “end-use” controls to block or impose licensing requirements on exports.

Prior to Russia’s invasion of Ukraine, we sold APIs indirectly to Russian customers. The imposition of enhanced export controls and economic sanctions on transactions with Russia and Russian entities by the U.S., the U.K., and/or the EU could prevent us from selling our products to Russian customers. In addition, even if a Russian entity is not formally subject to sanctions, customers of such Russian entity may decide to reevaluate, or cancel projects with such entity, and such actions could have a similar impact on us as if sanctions were applied directly as described above. Depending on the extent and breadth of new sanctions or export controls that may be imposed against Russia, it is possible that our business, results of operations and financial condition could be adversely affected.

The Affordable Care Act and certain legislation and regulatory proposals may increase our costs of compliance and negatively impact our profitability over time.

In March 2010, former President Barack Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, which we refer to collectively as the Affordable Care Act. The Affordable Care Act made extensive changes to the delivery of health care in the United States. We expect that the rebates, discounts, taxes and other costs resulting from the Affordable Care Act over time will have a negative effect on our expenses and profitability in the future. Furthermore, the Independent Payment Advisory Board created by the Affordable Care Act to reduce the per capita rate of growth in Medicare spending could potentially limit access to certain treatments or mandate price controls for our products. Moreover, expanded government investigative authority and increased disclosure obligations may increase the cost of compliance with new regulations and programs.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, or ACA. In June 2021, the United States Supreme Court held that Texas and other challengers had no legal standing to challenge the ACA, dismissing the case without specifically ruling on the constitutionality of the ACA. Accordingly, the ACA remains in effect in its current form. It is unclear how this Supreme Court decision, future litigation, or healthcare measures promulgated by the Biden administration will impact our business, financial condition and results of operations. Complying with any new legislation or changes in healthcare regulation could be time-intensive and expensive, resulting in material adverse effect on our business.

In addition, there have been a number of other legislative and regulatory proposals aimed at changing the pharmaceutical industry. For example, in November 2013, Congress passed the Drug Quality and Security Act, or the DQSA. The DQSA establishes federal pedigree tracking standards requiring drugs to be labeled and tracked at the lot level, preempts state drug pedigree requirements, and will eventually require all supply-chain stakeholders to participate in an electronic, interoperable prescription drug track and trace system. The DQSA also establishes new requirements for drug wholesale

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distributors and third-party logistics providers, including licensing requirements in states that had not previously licensed such entities. As a result of these and other new proposals, we may determine to change our current manner of operation, provide additional benefits or change our contract arrangements, any of which could have a material adverse effect on our business, financial condition and results of operations.

Former President Barack Obama also signed into law the Food and Drug Administration Safety and Innovation Act. The law and related agreements make several significant changes to the FFDCA and FDA’s processes for reviewing marketing applications that could have a significant impact on the pharmaceutical industry, including, among other things, the following:

●

reauthorizes the Prescription Drug User Fee Act, which increases the amount of associated user fees, and, for certain types of applications, increases the expected time frame for FDA review of new drug applications, or NDAs;

●

permanently reauthorizes and makes some revisions to the Best Pharmaceuticals for Children Act and the Pediatric Research Equity Act, which provide for pediatric exclusivity and mandated pediatric assessments for certain types of applications, respectively;

●

revises certain standards and requirements for FDA inspections of manufacturing facilities and the importation of drug products from foreign countries;

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creates incentives for the development of certain antibiotic drug products;

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modifies the standards for accelerated approval of certain new medical treatments;

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expands the reporting requirements for potential and actual drug shortages;

●

requires the FDA to issue a report on, among other things, ensuring the safety of prescription drugs that have the potential for abuse;

●

requires the FDA to hold a public meeting regarding the potential rescheduling of drug products containing hydrocodone, which was held in October 2012; and

●

requires electronic submission of certain marketing applications following the issuance of final FDA regulations.

The full impact of new laws and regulations and changes to any existing regulations by the Biden administration is uncertain; however, we anticipate that it will have an adverse effect on our results of operations.

There has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which has resulted in several congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For example, under the American Rescue Plan Act of 2021, effective January 1, 2024, the statutory cap on Medicaid Drug Rebate Program rebates that manufacturers pay to state Medicaid programs will be eliminated. Elimination of this cap may require pharmaceutical manufacturers to pay more in rebates than it receives on the sale of products, which could have a material impact on our business. In July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at increasing competition for prescription drugs. In August 2022, Congress passed the Inflation Reduction Act of 2022, which includes prescription drug provisions that have significant implications for the pharmaceutical industry and Medicare beneficiaries, including allowing the federal government to negotiate a maximum fair price for certain high-priced single source Medicare drugs, imposing penalties and excise tax for manufacturers that fail to comply with the drug price negotiation requirements, requiring inflation rebates for all Medicare Part B and Part D drugs, with limited exceptions, if their drug prices increase faster than inflation, and redesigning Medicare Part D to reduce out-of-pocket prescription

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drug costs for beneficiaries, among other changes. Various industry stakeholders, including pharmaceutical companies, the U.S. Chamber of Commerce, the National Infusion Center Association, the Global Colon Cancer Association, and the Pharmaceutical Research and Manufactures of America, have initiated lawsuits against the federal government asserting that the price negotiation provision of the Inflation Reduction Act are unconstitutional. The impact of these judicial challenges, legislative, executive, and administrative actions and any future healthcare measures and agency rules implemented by the government on us and the pharmaceutical industry as a whole is unclear. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our approved products.

At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. For example, in September 2020, the Governor of California signed legislation that brings California one step closer to establishing its own generic drug label, which could have significant impact on the generic drug industry and generic drug pricing. A number of states are also considering or have recently enacted state drug price transparency and reporting laws that could substantially increase our compliance burdens and expose us to greater liability under such state laws.

Additionally, we encounter similar regulatory and legislative issues in most other countries. In the European Union, or EU, and some other international markets, the government provides health care at low cost to consumers and regulates pharmaceutical prices, patient eligibility or reimbursement levels to control costs for the government-sponsored health care system. This international system of price regulations may lead to inconsistent prices.

If significant additional reforms are made to the U.S. health care system, or to the health care systems of other markets in which we operate, those reforms could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, ~~AND~~ USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

(c)Issuer Purchases of Equity Securities

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


				Total Number of Shares	Maximum Number of
		Average		Purchased as Part of	Shares that May Yet Be
	Total Number of Shares	Price Paid		Publicly Announced Plans	Purchased Under the Plans
Period	Purchased ⁽¹⁾	per Share		or Programs	or Programs
July 1 – July 31, 2023	—	$	—	—	—
August 1 – August 31, 2023	—		—	—	—
September 1 – September 30, 2023	1,072,041		46.64	1,072,041	—

Total Number of Shares

Maximum Number of

Average

Purchased as Part of

Shares that May Yet Be

Total Number of Shares

Price Paid

Publicly Announced Plans

Purchased Under the Plans

Period

Purchased (1)

per Share

or Programs

or Programs

July 1 – July 31, 2017

66,100

$
17.86

66,100

—

August 1 – August 31, 2017

209,079

15.61

209,079

—

September 1 – September 30, 2017

197,200

15.90

197,200

—

(1)

⁽¹⁾

~~During the third quarter of 2017,~~On August 28, 2023, we ~~repurchased shares of our common stock as part of the share buyback program authorized by~~announced that our Board of Directors ~~on November 7, 2016 and August 7, 2017.~~authorized an increase of $50.0 million to our share buyback program. As of September 30, ~~2017, $15.1~~2023, $35.5 million remained available for repurchase under such program.

The share buyback program does not have an expiration date.

ITEM 3. DEFAULTS UPON SENIOR ~~SECURITIES~~SECURITIES

Not applicable.

ITEM 4. MINE SAFETY ~~DISCLOSURES~~DISCLOSURES

Not applicable.

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Table of Contents

ITEM 5. OTHER ~~INFORMATION~~INFORMATION

~~Not applicable.~~Securities Trading Plans of Directors and Executive Officers

During our last fiscal quarter, noneofour officers or directors, as defined in Rule 16a-1(f), adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement, each as defined in Regulation S-K Item 408.

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Table of Contents

ITEM 6. ~~EXHIBITS~~EXHIBITS

Exhibit No.		Description
4.1		Indenture, dated September 15, 2023, between Amphastar Pharmaceuticals, Inc. and U.S. Bank Trust Company, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2023)
Exhibit No.		~~Description~~
4.2		Form of 2.00% Convertible Notes due 2029 (incorporated by reference to Exhibit 4.2 (included in Exhibit 4.1) of the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2023)

10.1		~~Business Loan~~Purchase Agreement, dated ~~August 14, 2017, between Armstrong~~September 12, 2023, among Amphastar Pharmaceuticals, Inc. and ~~Cathay Bank in~~Jefferies LLC, J.P. Morgan Securities LLC, Wells Fargo Securities LLC and BofA Securities Inc. (incorporated by reference to Exhibit 10.1 of the ~~original principal sum of $7,865,000~~Company’s Current Report on Form 8-K filed with the SEC on September 15, 2023)

31.1		Certification ~~of Chief Executive Officer~~ pursuant to ~~Rules~~Rule 13a-14(a) ~~and 15d-14(a)~~or 15d-14a of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of ~~Chief Financial Officer~~ pursuant to ~~Rules~~Rule 13a-14(a) ~~and 15d-14(a)~~or 15d-14a of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1#		Certification of ~~Chief~~Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2#		Certification of ~~Chief~~Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definitions Linkbase Document

104		Cover Page Interactive File (Formatted as Inline XBRL and contained in Exhibit 101)

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

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

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Table of Contents

SIGNATURES

~~SIGNATURES~~

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

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

Date: November ~~9, 2017~~8, 2023

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

Date: November ~~9, 2017~~8, 2023

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Part I. FINANCIAL INFORMATION
		PAGE
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2023 and December 31, ~~2016~~2022		1
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022		2
Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the Three and Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022		3
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022		4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022		4 5
Notes to Condensed Consolidated Financial Statements		5 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		37 36
Item 3. Quantitative and Qualitative Disclosure about Market Risk		46 47
Item 4. Controls and Procedures		47
Part II. OTHER INFORMATION
Item 1. Legal Proceedings		48
Item 1A. Risk Factors		48
Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds and, Issuer Purchases of Equity Securities		49 57
Item 3. Defaults Upon Senior Securities		49 57
Item 4. Mine Safety Disclosures		49 57
Item 5. Other Information		49 58
Item 6. Exhibits		50 59
Signatures		51 60


			U.S.
	Euros		Dollars
	(in thousands)
At Closing, April 2014	€	13,252	$	18,352
December 2014		4,899		5,989
December 2015		3,186		3,483
December 2016		3,186		3,427
December 2017		500		591
	€	25,023	$	31,842


	Net Revenue								Long-Lived Assets
	Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,		December 31,
	2017		2016		2017		2016		2017		2016
	(in thousands)
United States	$	55,346	$	62,691	$	175,075	$	188,865	$	105,311	$	104,110
China		—		—		—		—		39,639		35,085
France		2,570		1,532		4,698		2,757		28,004		13,659
United Kingdom		—		—		—		—		92		90
Total	$	57,916	$	64,223	$	179,773	$	191,622	$	173,046	$	152,944


	% of Total Accounts				% of Net
	Receivable				Revenue
					Three Months Ended				Nine Months Ended
	September 30,		December 31,		September 30,				September 30,
	2017		2016		2017		2016		2017		2016
Actavis(1)	—		1	%	—		16	%	—		19	%
AmerisourceBergen	12	%	30	%	24	%	19	%	27	%	19	%
Cardinal Health	23	%	28	%	25	%	19	%	25	%	20	%
McKesson	27	%	19	%	27	%	21	%	27	%	20	%


	Weighted-Average			Accumulated
	Life (Years)	Original Cost		Amortization		Net Book Value
	(in thousands)
Definite-lived intangible assets
Cortrosyn® product rights	12	$	27,134	$	25,797	$	1,337
IMS (UK) international product rights(1)	10		9,371		1,093		8,278
Patents	12		486		160		326
Land-use rights	39		2,540		403		2,137
Other intangible assets	4		69		42		27
Subtotal	12		39,600		27,495		12,105
Indefinite-lived intangible assets
Trademark	*		29,225		—		29,225
Goodwill - Finished pharmaceutical products	*		4,401		—		4,401
Subtotal	*		33,626		—		33,626
As of September 30, 2017	*	$	73,226	$	27,495	$	45,731


				Weighted-Average
		Weighted-Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Options	Price		Term (Years)	Value(1)
					(in thousands)
Outstanding as of December 31, 2016	12,530,297	$	14.57
Options granted	1,815,813		14.23
Options exercised	(1,134,259)		11.60
Options cancelled	(44,473)		13.57
Options expired	(118,378)		25.48
Outstanding as of September 30, 2017	13,049,000	$	14.69	4.49	$	53,235
Exercisable as of September 30, 2017	8,683,400	$	15.22	3.05	$	34,772


		Total Fair Market
		Value of RSUs
		Issued
	Total RSUs	as
	Issued	Compensation(1)
		(in thousands)
RSUs outstanding at December 31, 2016	1,215,786
RSUs granted	676,482	$	9,298
RSUs forfeited	(13,302)
RSUs vested(2)	(484,739)
RSUs outstanding at September 30, 2017	1,394,227


				Total Number of Shares	Maximum Number of
		Average		Purchased as Part of	Shares that May Yet Be
	Total Number of Shares	Price Paid		Publicly Announced Plans	Purchased Under the Plans
Period	Purchased (1)	per Share		or Programs	or Programs
July 1 – July 31, 2017	66,100	$	17.86	66,100	—
August 1 – August 31, 2017	209,079		15.61	209,079	—
September 1 – September 30, 2017	197,200		15.90	197,200	—

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

The NASDAQ Stock Market LLC