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 March 31, 2020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-38485
Amneal Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 32-0546926 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
Amneal Pharmaceuticals, Inc. 400 Crossing Boulevard, Bridgewater, NJ | 08807 | |
(Address of principal executive offices) | (Zip Code) |
(908) 947-3120
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, par value $0.01 per share | AMRX | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 23, 2019,April 30, 2020, there were 128,150,558147,314,497 shares of Class A common stock outstanding and 170,940,707152,116,890 shares of Class B common stock outstanding, both with a par value of $0.01.
Amneal Pharmaceuticals, Inc.
Table of Contents
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q and Amneal Pharmaceuticals, Inc.'s other publicly available documents contain "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Management and representatives of Amneal Pharmaceuticals, Inc. and its subsidiaries (the "Company") also may from time to time make forward-looking statements. Forward-looking statements do not relate strictly to historical or current facts and reflect management’s assumptions, views, plans, objectives and projections about the future. Forward-looking statements may be identified by the use of words such as “plans,” “expects,” “will,” “anticipates,” “estimates” and other words of similar meaning in conjunction with, among other things: discussions of future operations; expected operating results and financial performance; impact of planned acquisitions and dispositions; the Company’s strategy for growth; product development; regulatory approvals; market position and expenditures.
Because forward-looking statements are based on current beliefs, expectations and assumptions regarding future events, they are subject to uncertainties, risks and changes that are difficult to predict and many of which are outside of the Company's control. Investors should realize that if underlying assumptions prove inaccurate, known or unknown risks or uncertainties materialize, or other factors or circumstances change, the Company’s actual results and financial condition could vary materially from expectations and projections expressed or implied in its forward-looking statements. Investors are therefore cautioned not to rely on these forward-looking statements.
Such risks and uncertainties include, but are not limited to:
• | the impact of global economic conditions; |
• | the anticipated impact of the COVID-19 pandemic on our business, manufacturing, supply chain, financial results, financial condition, and planned capital expenditures. |
• | our ability to successfully develop, license, acquire and commercialize new products on a timely basis; |
• | our ability to obtain exclusive marketing rights for our products; |
• | the competition we face in the pharmaceutical industry from brand and generic drug product companies, and the impact of that competition on our ability to set prices; |
• | our ability to manage our growth through acquisitions and otherwise; |
• | our dependence on the sales of a limited number of products for a substantial portion of our total revenues; |
• | the risk of product liability and other claims against us by consumers and other third parties; |
• | risks related to changes in the regulatory environment, including United States federal and state laws related to healthcare fraud abuse and health information privacy and security and changes in such laws; |
• | changes to FDA product approval requirements; |
• | risks related to federal regulation of arrangements between manufacturers of branded and generic products; |
• | the impact of healthcare reform and changes in coverage and reimbursement levels by governmental authorities and other third-party payers; |
• | the continuing trend of consolidation of certain customer groups; |
• | our reliance on certain licenses to proprietary technologies from time to time; |
• | our dependence on third-party suppliers and distributors for raw materials for our products and certain finished goods; |
• | our dependence on third-party agreements for a portion of our product offerings; |
• | our ability to identify and make acquisitions of or investments in complementary businesses and products on advantageous terms; |
• | legal, regulatory and legislative efforts by our brand competitors to deter competition from our generic alternatives; |
• | the significant amount of resources we expend on research and development; |
• | our substantial amount of indebtedness and our ability to generate sufficient cash to service our indebtedness in the future, and the impact of interest rate fluctuations on such indebtedness; and |
• | the high concentration of ownership of our Class A Common Stock and the fact that we are controlled by the Amneal Group. |
Investors also should carefully read our Annual Report on Form 10-K for the year ended December 31, 2019, including the section captioned “Risk Factors” for a description of certain risks that could, among other things, cause our actual results to differ materially from those expressed in our forward-looking statements. Investors should understand that it is not possible to predict or identify all such factors and should not consider the risks described above and in our Annual Report to be a complete statement of all potential risks and uncertainties. The Company does not undertake to publicly update any forward-looking statement that may be made from time to time, whether as a result of new information or future events or developments.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Amneal Pharmaceuticals, Inc.
Consolidated Statements of Operations
(unaudited; in thousands, except per share amounts)
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
Net revenue | $ | 498,533 |
|
| $ | 446,120 |
|
Cost of goods sold |
| 313,578 |
|
|
| 309,743 |
|
Cost of goods sold impairment charges |
| 1,456 |
|
|
| 53,297 |
|
Gross profit |
| 183,499 |
|
|
| 83,080 |
|
Selling, general and administrative |
| 77,976 |
|
|
| 84,436 |
|
Research and development |
| 36,379 |
|
|
| 53,858 |
|
In-process research and development impairment charges |
| 960 |
|
|
| 22,787 |
|
Intellectual property legal development expenses |
| 1,270 |
|
|
| 4,166 |
|
Acquisition, transaction-related and integration expenses |
| 2,575 |
|
|
| 6,032 |
|
Charges related to legal matters |
| 4,500 |
|
|
| — |
|
Restructuring and other charges |
| 2,048 |
|
|
| 6,161 |
|
Operating income (loss) |
| 57,791 |
|
|
| (94,360 | ) |
Other (expense) income: |
|
|
|
|
|
|
|
Interest expense, net |
| (39,899 | ) |
|
| (43,281 | ) |
Foreign exchange loss, net |
| (5,181 | ) |
|
| (5,464 | ) |
Gain on sale of international business |
| — |
|
|
| 8,818 |
|
Other income, net |
| 633 |
|
|
| 1,107 |
|
Total other expense, net |
| (44,447 | ) |
|
| (38,820 | ) |
Income (loss) before income taxes |
| 13,344 |
|
|
| (133,180 | ) |
Benefit from income taxes |
| (108,173 | ) |
|
| (8,428 | ) |
Net income (loss) |
| 121,517 |
|
|
| (124,752 | ) |
Less: Net (income) loss attributable to non-controlling interests |
| (6,450 | ) |
|
| 76,871 |
|
Net income (loss) attributable to Amneal Pharmaceuticals, Inc. | $ | 115,067 |
|
| $ | (47,881 | ) |
Net income (loss) per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders: |
|
|
|
|
|
|
|
Class A and Class B-1 basic | $ | 0.78 |
|
| $ | (0.37 | ) |
Class A and Class B-1 diluted | $ | 0.78 |
|
| $ | (0.37 | ) |
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
Class A and Class B-1 basic |
| 147,180 |
|
|
| 127,687 |
|
Class A and Class B-1 diluted |
| 147,956 |
|
|
| 127,687 |
|
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net revenue | $ | 404,642 | $ | 413,787 | $ | 850,762 | $ | 688,976 | |||||||
Cost of goods sold | 296,381 | 235,492 | 606,124 | 366,086 | |||||||||||
Cost of goods sold impairment charges | 3,012 | — | 56,309 | — | |||||||||||
Gross profit | 105,249 | 178,295 | 188,329 | 322,890 | |||||||||||
Selling, general and administrative | 67,281 | 56,003 | 151,717 | 81,124 | |||||||||||
Research and development | 48,016 | 50,335 | 101,874 | 94,544 | |||||||||||
In-process research and development impairment charges | — | — | 22,787 | — | |||||||||||
Intellectual property legal development expenses | 2,511 | 4,047 | 6,677 | 8,623 | |||||||||||
Legal settlement gains | — | (3,000 | ) | — | (3,000 | ) | |||||||||
Acquisition, transaction-related and integration expenses | 3,519 | 207,507 | 9,551 | 214,642 | |||||||||||
Restructuring and other charges | 2,835 | 44,465 | 8,996 | 44,465 | |||||||||||
Operating loss | (18,913 | ) | (181,062 | ) | (113,273 | ) | (117,508 | ) | |||||||
Other (expense) income: | |||||||||||||||
Interest expense, net | (43,886 | ) | (36,622 | ) | (87,167 | ) | (57,673 | ) | |||||||
Foreign exchange gain (loss), net | 8,311 | (25,946 | ) | 2,847 | (17,381 | ) | |||||||||
Loss on extinguishment of debt | — | (19,667 | ) | — | (19,667 | ) | |||||||||
(Loss) gain on sale of international businesses, net | (1,888 | ) | — | 6,930 | — | ||||||||||
Other income, net | 149 | 791 | 1,256 | 1,739 | |||||||||||
Total other expense, net | (37,314 | ) | (81,444 | ) | (76,134 | ) | (92,982 | ) | |||||||
Loss before income taxes | (56,227 | ) | (262,506 | ) | (189,407 | ) | (210,490 | ) | |||||||
Benefit from income taxes | (5,701 | ) | (12,416 | ) | (14,129 | ) | (12,052 | ) | |||||||
Net loss | (50,526 | ) | (250,090 | ) | (175,278 | ) | (198,438 | ) | |||||||
Less: Net loss attributable to Amneal Pharmaceuticals LLC pre-Combination | — | 200,341 | — | 148,806 | |||||||||||
Less: Net loss attributable to non-controlling interests | 33,624 | 31,885 | 110,495 | 31,768 | |||||||||||
Net loss attributable to Amneal Pharmaceuticals, Inc. before accretion of redeemable non-controlling interest | (16,902 | ) | (17,864 | ) | (64,783 | ) | (17,864 | ) | |||||||
Accretion of redeemable non-controlling interest | — | (1,240 | ) | — | (1,240 | ) | |||||||||
Net loss attributable to Amneal Pharmaceuticals, Inc. | $ | (16,902 | ) | $ | (19,104 | ) | $ | (64,783 | ) | $ | (19,104 | ) | |||
Net loss per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders: | |||||||||||||||
Class A and Class B-1 basic and diluted | $ | (0.13 | ) | $ | (0.15 | ) | $ | (0.51 | ) | $ | (0.15 | ) | |||
Weighted-average common shares outstanding: | |||||||||||||||
Class A and Class B-1 basic and diluted | 128,016 | 127,112 | 127,852 | 127,112 |
The accompanying notes are an integral part of these consolidated financial statements.
Amneal Pharmaceuticals, Inc.
Consolidated Statements of Comprehensive Loss
(unaudited; in thousands)
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
Net income (loss) | $ | 121,517 |
|
| $ | (124,752 | ) |
Less: Net (income) loss attributable to non-controlling interests |
| (6,450 | ) |
|
| 76,871 |
|
Net income (loss) attributable to Amneal Pharmaceuticals, Inc. |
| 115,067 |
|
|
| (47,881 | ) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
Foreign currency translation adjustments: |
|
|
|
|
|
|
|
Foreign currency translation adjustments arising during the period |
| (5,135 | ) |
|
| 5,236 |
|
Less: Reclassification of foreign currency translation adjustment included in net loss |
| — |
|
|
| 3,373 |
|
Foreign currency translation adjustments, net |
| (5,135 | ) |
|
| 8,609 |
|
Unrealized loss on cash flow hedge, net of tax |
| (62,658 | ) |
|
| — |
|
Less: Other comprehensive income (loss) attributable to non-controlling interests |
| 34,456 |
|
|
| (4,927 | ) |
Other comprehensive (loss) income attributable to Amneal Pharmaceuticals, Inc. |
| (33,337 | ) |
|
| 3,682 |
|
Comprehensive income (loss) attributable to Amneal Pharmaceuticals, Inc. | $ | 81,730 |
|
| $ | (44,199 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net loss | $ | (50,526 | ) | $ | (250,090 | ) | $ | (175,278 | ) | $ | (198,438 | ) | |||
Less: Net loss attributable to Amneal Pharmaceuticals LLC pre-Combination | — | 200,341 | — | 148,806 | |||||||||||
Less: Net loss attributable to non-controlling interests | 33,624 | 31,885 | 110,495 | 31,768 | |||||||||||
Net loss attributable to Amneal Pharmaceuticals, Inc. before accretion of redeemable non-controlling interest | (16,902 | ) | (17,864 | ) | (64,783 | ) | (17,864 | ) | |||||||
Accretion of redeemable non-controlling interest | — | (1,240 | ) | — | (1,240 | ) | |||||||||
Net loss attributable to Amneal Pharmaceuticals, Inc. | (16,902 | ) | (19,104 | ) | (64,783 | ) | (19,104 | ) | |||||||
Other comprehensive income (loss): | |||||||||||||||
Foreign currency translation adjustments | |||||||||||||||
Foreign currency translation adjustments arising during the period | (6,219 | ) | 8,932 | (983 | ) | (1,025 | ) | ||||||||
Less: Reclassification of foreign currency translation adjustment included in net loss | 40 | — | 3,413 | — | |||||||||||
Foreign currency translation adjustments, net | (6,179 | ) | 8,932 | 2,430 | (1,025 | ) | |||||||||
Less: Other comprehensive income attributable to Amneal Pharmaceuticals LLC pre-Combination | — | (11,678 | ) | — | (1,721 | ) | |||||||||
Less: Other comprehensive loss (income) attributable to non-controlling interests | 3,533 | 1,576 | (1,394 | ) | 1,576 | ||||||||||
Other comprehensive (loss) income attributable to Amneal Pharmaceuticals, Inc. | (2,646 | ) | (1,170 | ) | 1,036 | (1,170 | ) | ||||||||
Comprehensive loss attributable to Amneal Pharmaceuticals, Inc. | $ | (19,548 | ) | $ | (20,274 | ) | $ | (63,747 | ) | $ | (20,274 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
Amneal Pharmaceuticals, Inc.
Consolidated Balance Sheets
(unaudited; in thousands)
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 405,238 |
|
| $ | 151,197 |
|
Restricted cash |
|
| 1,687 |
|
|
| 1,625 |
|
Trade accounts receivable, net |
|
| 722,682 |
|
|
| 604,390 |
|
Inventories |
|
| 437,959 |
|
|
| 381,067 |
|
Prepaid expenses and other current assets |
|
| 204,409 |
|
|
| 70,164 |
|
Related party receivables |
|
| 1,725 |
|
|
| 1,767 |
|
Total current assets |
|
| 1,773,700 |
|
|
| 1,210,210 |
|
Property, plant and equipment, net |
|
| 467,559 |
|
|
| 477,997 |
|
Goodwill |
|
| 514,733 |
|
|
| 419,504 |
|
Intangible assets, net |
|
| 1,475,161 |
|
|
| 1,382,753 |
|
Operating lease right-of-use assets |
|
| 50,943 |
|
|
| 53,344 |
|
Operating lease right-of-use assets - related party |
|
| 21,616 |
|
|
| 16,528 |
|
Financing lease right-of-use assets - related party |
|
| 60,632 |
|
|
| 61,284 |
|
Other assets |
|
| 26,456 |
|
|
| 44,270 |
|
Total assets |
| $ | 4,390,800 |
|
| $ | 3,665,890 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
| $ | 606,925 |
|
| $ | 507,483 |
|
Current portion of long-term debt, net |
|
| 29,736 |
|
|
| 21,479 |
|
Revolving credit facility |
|
| 300,000 |
|
|
| — |
|
Current portion of operating lease liabilities |
|
| 12,125 |
|
|
| 11,874 |
|
Current portion of operating and financing lease liabilities - related party |
|
| 4,084 |
|
|
| 3,601 |
|
Current portion of note payable- related party |
|
| 1,000 |
|
|
| — |
|
Related party payable |
|
| 11,195 |
|
|
| 5,969 |
|
Total current liabilities |
|
| 965,065 |
|
|
| 550,406 |
|
Long-term debt, net |
|
| 2,772,029 |
|
|
| 2,609,046 |
|
Note payable - related party |
|
| 35,281 |
|
|
| — |
|
Operating lease liabilities |
|
| 40,615 |
|
|
| 43,135 |
|
Operating lease liabilities - related party |
|
| 19,874 |
|
|
| 15,469 |
|
Financing lease liabilities - related party |
|
| 61,069 |
|
|
| 61,463 |
|
Other long-term liabilities |
|
| 80,846 |
|
|
| 39,583 |
|
Total long-term liabilities |
|
| 3,009,714 |
|
|
| 2,768,696 |
|
Commitments and contingencies (Notes 5 and 17) |
|
|
|
|
|
|
|
|
Redeemable non-controlling interests |
|
| 12,563 |
|
|
| — |
|
Stockholders' Equity |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 2,000 shares authorized; NaN issued at both March 31, 2020 and December 31, 2019 |
|
| — |
|
|
| — |
|
Class A common stock, $0.01 par value, 900,000 shares authorized at both March 31, 2020 and December 31, 2019; 147,311 and 147,070 shares issued at March 31, 2020 and December 31, 2019, respectively |
|
| 1,472 |
|
|
| 1,470 |
|
Class B common stock, $0.01 par value, 300,000 shares authorized at both March 31, 2020 and December 31, 2019; 152,117 issued at both March 31, 2020 and December 31, 2019 |
|
| 1,522 |
|
|
| 1,522 |
|
Additional paid-in capital |
|
| 611,600 |
|
|
| 606,966 |
|
Stockholders' accumulated deficit |
|
| (262,813 | ) |
|
| (377,880 | ) |
Accumulated other comprehensive loss |
|
| (33,405 | ) |
|
| (68 | ) |
Total Amneal Pharmaceuticals, Inc. stockholders' equity |
|
| 318,376 |
|
|
| 232,010 |
|
Non-controlling interests |
|
| 85,082 |
|
|
| 114,778 |
|
Total stockholders' equity |
|
| 403,458 |
|
|
| 346,788 |
|
Total liabilities and stockholders' equity |
| $ | 4,390,800 |
|
| $ | 3,665,890 |
|
June 30, 2019 | December 31, 2018 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 54,893 | $ | 213,394 | |||
Restricted cash | 2,129 | 5,385 | |||||
Trade accounts receivable, net | 634,666 | 481,495 | |||||
Inventories | 414,627 | 457,219 | |||||
Prepaid expenses and other current assets | 77,062 | 128,321 | |||||
Related party receivables | 2,470 | 830 | |||||
Total current assets | 1,185,847 | 1,286,644 | |||||
Property, plant and equipment, net | 508,086 | 544,146 | |||||
Goodwill | 420,017 | 426,226 | |||||
Intangible assets, net | 1,553,330 | 1,654,969 | |||||
Deferred tax asset, net | 391,881 | 373,159 | |||||
Operating lease right-of-use assets | 59,900 | — | |||||
Operating lease right-of-use assets - related party | 17,031 | — | |||||
Financing lease right-of-use assets - related party | 62,588 | — | |||||
Other assets | 63,459 | 67,592 | |||||
Total assets | $ | 4,262,139 | $ | 4,352,736 | |||
Liabilities and Stockholders' Equity | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 505,143 | $ | 514,440 | |||
Current portion of long-term debt, net | 21,445 | 21,449 | |||||
Current portion of operating lease liabilities | 13,313 | — | |||||
Current portion of operating and financing lease liabilities - related party | 3,293 | — | |||||
Related party payables | 2,965 | 17,695 | |||||
Current portion of financing obligation - related party | — | 266 | |||||
Total current liabilities | 546,159 | 553,850 | |||||
Long-term debt, net | 2,619,788 | 2,630,598 | |||||
Deferred income taxes | — | 1,178 | |||||
Liabilities under tax receivable agreement | 193,499 | 192,884 | |||||
Operating lease liabilities | 47,836 | — | |||||
Operating lease liabilities - related party | 14,862 | — | |||||
Financing lease liabilities - related party | 61,990 | — | |||||
Financing obligation - related party | — | 39,083 | |||||
Other liabilities | 28,653 | 38,780 | |||||
Total long-term liabilities | 2,966,628 | 2,902,523 | |||||
Commitments and contingencies (Notes 5, 11 and 13) | |||||||
Stockholders' Equity | |||||||
Preferred stock, $0.01 par value, 2,000 shares authorized; none issued at both June 30, 2019 and December 31, 2018 | — | — | |||||
Class A common stock, $0.01 par value, 900,000 shares authorized at both June 30, 2019 and December 31, 2018; 128,151 and 115,047 shares issued at June 30, 2019 and December 31, 2018, respectively | 1,281 | 1,151 | |||||
Class B common stock, $0.01 par value, 300,000 shares authorized at both June 30, 2019 and December 31, 2018; 170,941 and 171,261 shares issued at June 30, 2019 and December 31, 2018 respectively | 1,710 | 1,713 | |||||
Class B-1 common stock, $0.01 par value, 18,000 shares authorized at both June 30, 2019 and December 31, 2018; none and 12,329 shares issued at June 30, 2019 and December 31, 2018, respectively | — | 123 | |||||
Additional paid-in capital | 544,161 | 530,438 | |||||
Stockholders' accumulated deficit | (80,746 | ) | (20,920 | ) | |||
Accumulated other comprehensive loss | (6,750 | ) | (7,755 | ) | |||
Total Amneal Pharmaceuticals, Inc. stockholders' equity | 459,656 | 504,750 | |||||
Non-controlling interests | 289,696 | 391,613 | |||||
Total stockholders' equity | 749,352 | 896,363 | |||||
Total liabilities and stockholders' equity | $ | 4,262,139 | $ | 4,352,736 |
The accompanying notes are an integral part of these consolidated financial statements.
Amneal Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
(unaudited; in thousands)
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 121,517 |
|
| $ | (124,752 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 58,083 |
|
|
| 48,868 |
|
Amortization of Levothyroxine Transition Agreement asset |
|
| — |
|
|
| 36,393 |
|
Unrealized foreign currency loss |
|
| 5,514 |
|
|
| 6,490 |
|
Amortization of debt issuance costs and discount |
|
| 2,004 |
|
|
| 1,601 |
|
Gain on sale of international business |
|
| — |
|
|
| (8,818 | ) |
Intangible asset impairment charges |
|
| 2,416 |
|
|
| 76,084 |
|
Deferred tax benefit |
|
| — |
|
|
| (9,884 | ) |
Stock-based compensation |
|
| 4,539 |
|
|
| 4,347 |
|
Inventory provision |
|
| 15,200 |
|
|
| 15,650 |
|
Other operating charges and credits, net |
|
| 1,266 |
|
|
| 1,109 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Trade accounts receivable, net |
|
| (60,893 | ) |
|
| (165,012 | ) |
Inventories |
|
| (2,778 | ) |
|
| (14,180 | ) |
Income taxes receivable associated with the CARES Act |
|
| (110,069 | ) |
|
| — |
|
Prepaid expenses, other current assets and other assets |
|
| (26,383 | ) |
|
| 22,657 |
|
Related party receivables |
|
| 76 |
|
|
| (314 | ) |
Accounts payable, accrued expenses and other liabilities |
|
| 34,839 |
|
|
| 695 |
|
Related party payables |
|
| 3,695 |
|
|
| 656 |
|
Net cash provided by (used in) operating activities |
|
| 49,026 |
|
|
| (108,410 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (7,367 | ) |
|
| (17,988 | ) |
Acquisition of intangible assets |
|
| (1,050 | ) |
|
| — |
|
Acquisitions, net of cash acquired |
|
| (253,625 | ) |
|
| — |
|
Cash sold with international business |
|
| — |
|
|
| (3,478 | ) |
Net cash used in investing activities |
|
| (262,042 | ) |
|
| (21,466 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of debt |
|
| 180,000 |
|
|
| — |
|
Payments of principal on debt and financing leases |
|
| (7,158 | ) |
|
| (6,750 | ) |
Net borrowings on revolving credit facility |
|
| 300,000 |
|
|
| — |
|
Payments of deferred financing costs |
|
| (4,102 | ) |
|
| — |
|
Proceeds from exercise of stock options |
|
| 5 |
|
|
| 1,010 |
|
Employee payroll tax withholding on restricted stock unit vesting |
|
| (503 | ) |
|
| — |
|
Acquisition of non-controlling interest |
|
| — |
|
|
| (2,011 | ) |
Tax distribution to non-controlling interest |
|
| — |
|
|
| (13,494 | ) |
Payments of principal on financing lease - related party |
|
| (263 | ) |
|
| (619 | ) |
Net cash provided by (used in) financing activities |
|
| 467,979 |
|
|
| (21,864 | ) |
Effect of foreign exchange rate on cash |
|
| (860 | ) |
|
| (296 | ) |
Net increase (decrease) in cash, cash equivalents, and restricted cash |
|
| 254,103 |
|
|
| (152,036 | ) |
Cash, cash equivalents, and restricted cash - beginning of period |
|
| 152,822 |
|
|
| 218,779 |
|
Cash, cash equivalents, and restricted cash - end of period |
| $ | 406,925 |
|
| $ | 66,743 |
|
Cash and cash equivalents - end of period |
| $ | 405,238 |
|
| $ | 63,946 |
|
Restricted cash - end of period |
|
| 1,687 |
|
|
| 2,797 |
|
Cash, cash equivalents, and restricted cash - end of period |
| $ | 406,925 |
|
| $ | 66,743 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 35,386 |
|
| $ | 40,032 |
|
Cash (paid) received for income taxes, net |
| $ | (3,430 | ) |
| $ | 9,713 |
|
Supplemental disclosure of non-cash investing and financing activity: |
|
|
|
|
|
|
|
|
Notes payable for acquisitions - related party |
| $ | 36,033 |
|
| $ | — |
|
Receivable from the sale of international business |
| $ | — |
|
| $ | 35,837 |
|
Payable for acquisition of product rights and licenses |
| $ | — |
|
| $ | 50,000 |
|
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (175,278 | ) | $ | (198,438 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation and amortization | 99,574 | 46,897 | |||||
Amortization of Levothyroxine Transition Agreement asset | 36,393 | — | |||||
Unrealized foreign currency (gain) loss | (3,695 | ) | 17,032 | ||||
Amortization of debt issuance costs | 3,218 | 2,577 | |||||
Loss on extinguishment of debt | — | 19,667 | |||||
Gain on sale of international businesses, net | (6,930 | ) | — | ||||
Gain on termination of lease | — | (3,524 | ) | ||||
Intangible asset impairment charges | 79,096 | — | |||||
Non-cash restructuring and asset-related charges | 1,314 | — | |||||
Deferred tax benefit | (18,209 | ) | (14,993 | ) | |||
Stock-based compensation and PPU expense | 10,571 | 160,401 | |||||
Inventory provision | 50,410 | 17,426 | |||||
Other operating charges and credits, net | 3,155 | 927 | |||||
Changes in assets and liabilities: | |||||||
Trade accounts receivable, net | (162,954 | ) | (60,051 | ) | |||
Inventories | (19,658 | ) | (71,655 | ) | |||
Prepaid expenses, other current assets and other assets | 28,614 | (5,107 | ) | ||||
Related party receivables | (1,624 | ) | 11,017 | ||||
Accounts payable, accrued expenses and other liabilities | (13,538 | ) | 19,630 | ||||
Related party payables | 2,225 | (13,356 | ) | ||||
Net cash used in operating activities | (87,316 | ) | (71,550 | ) | |||
Cash flows from investing activities: | |||||||
Purchases of property, plant and equipment | (29,629 | ) | (36,600 | ) | |||
Acquisition of product rights and licenses | (50,000 | ) | (3,000 | ) | |||
Acquisitions, net of cash acquired | — | (321,324 | ) | ||||
Proceeds from sale of international businesses, net of cash sold | 34,834 | — | |||||
Net cash used in investing activities | (44,795 | ) | (360,924 | ) | |||
Cash flows from financing activities: | |||||||
Payments of deferred financing costs and debt extinguishment costs | — | (54,955 | ) | ||||
Proceeds from issuance of debt | — | 1,325,383 | |||||
Payments of principal on debt and capital leases | (13,500 | ) | (603,551 | ) | |||
Payments on revolving credit line | — | (75,000 | ) | ||||
Proceeds from exercise of stock options | 1,385 | 1,977 | |||||
Employee payroll tax withholding on restricted stock unit vesting | (921 | ) | — | ||||
Equity contributions | — | 27,742 | |||||
Capital contribution from non-controlling interest | — | 360 | |||||
Acquisition of non-controlling interest | (3,543 | ) | — | ||||
Tax distribution to non-controlling interest | (13,494 | ) | — | ||||
Distributions to members | — | (182,998 | ) | ||||
Payments of principal on financing lease - related party | (866 | ) | — | ||||
Payments of financing obligation - related party | — | (121 | ) | ||||
Repayment of related party note | — | (14,842 | ) | ||||
Net cash (used in) provided by financing activities | (30,939 | ) | 423,995 | ||||
Effect of foreign exchange rate on cash | 1,293 | (853 | ) | ||||
Net decrease in cash, cash equivalents, and restricted cash | (161,757 | ) | (9,332 | ) | |||
Cash, cash equivalents, and restricted cash - beginning of period | 218,779 | 77,922 | |||||
Cash, cash equivalents, and restricted cash - end of period | $ | 57,022 | $ | 68,590 | |||
Cash and cash equivalents - end of period | $ | 54,893 | $ | 61,521 | |||
Restricted cash - end of period | 2,129 | 7,069 | |||||
Cash, cash equivalents, and restricted cash - end of period | $ | 57,022 | $ | 68,590 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for interest | $ | 81,103 | $ | 50,391 | |||
Cash received for income taxes | $ | 8,533 | $ | — | |||
Supplemental disclosure of non-cash investing and financing activity: | |||||||
Distribution to members | $ | — | $ | 8,562 | |||
Payable for acquisition of product rights and licenses | $ | — | $ | 10,000 |
The accompanying notes are an integral part of these consolidated financial statements.
Amneal Pharmaceuticals, Inc.
Consolidated Statement of Stockholders' Equity / Members’ Deficit
(unaudited; in thousands)
|
| Class A Common Stock |
|
| Class B Common Stock |
|
| Additional Paid-in |
|
| Stockholders' Accumulated |
|
| Accumulated Other Comprehensive |
|
| Non- Controlling |
|
| Total |
|
| Redeemable Non-Controlling |
| ||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Interests |
|
| Equity |
|
| Interests |
| ||||||||||
Balance at January 1, 2020 |
|
| 147,070 |
|
| $ | 1,470 |
|
|
| 152,117 |
|
| $ | 1,522 |
|
| $ | 606,966 |
|
| $ | (377,880 | ) |
| $ | (68 | ) |
| $ | 114,778 |
|
| $ | 346,788 |
|
| $ | — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 115,067 |
|
|
| — |
|
|
| 5,362 |
|
|
| 120,429 |
|
|
| 1,088 |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,525 | ) |
|
| (2,610 | ) |
|
| (5,135 | ) |
|
| — |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,539 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,539 |
|
|
| — |
|
Exercise of stock options |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
Restricted stock unit vesting, net of shares withheld to cover payroll taxes |
|
| 240 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 90 |
|
|
| — |
|
|
| — |
|
|
| (602 | ) |
|
| (510 | ) |
|
| — |
|
Unrealized loss on cash flow hedge, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (30,812 | ) |
|
| (31,846 | ) |
|
| (62,658 | ) |
|
| — |
|
Redeemable non-controlling interests issued for acquisitions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,475 |
|
Balance at March 31, 2020 |
|
| 147,311 |
|
| $ | 1,472 |
|
|
| 152,117 |
|
| $ | 1,522 |
|
| $ | 611,600 |
|
| $ | (262,813 | ) |
| $ | (33,405 | ) |
| $ | 85,082 |
|
| $ | 403,458 |
|
| $ | 12,563 |
|
|
| Class A Common Stock |
|
| Class B Common Stock |
|
| Class B-1 Common Stock |
|
| Additional Paid-in |
|
| Stockholders' Accumulated |
|
| Accumulated Other Comprehensive |
|
| Non- Controlling |
|
| Total |
| ||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| (Loss) Income |
|
| Interests |
|
| Equity |
| |||||||||||
Balance at January 1, 2019 |
|
| 115,047 |
|
| $ | 1,151 |
|
|
| 171,261 |
|
| $ | 1,713 |
|
|
| 12,329 |
|
| $ | 123 |
|
| $ | 530,438 |
|
| $ | (20,920 | ) |
| $ | (7,755 | ) |
| $ | 391,613 |
|
| $ | 896,363 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (47,881 | ) |
|
| — |
|
|
| (76,871 | ) |
|
| (124,752 | ) |
Cumulative-effective adjustment from adoption of Topic 842, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,957 |
|
|
| — |
|
|
| 8,604 |
|
|
| 13,561 |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,238 |
|
|
| 2,998 |
|
|
| 5,236 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,347 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,347 |
|
Exercise of stock options |
|
| 197 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 748 |
|
|
| — |
|
|
| (7 | ) |
|
| 267 |
|
|
| 1,010 |
|
Redemption of Class B Common Stock |
|
| 320 |
|
|
| 3 |
|
|
| (320 | ) |
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| 1,124 |
|
|
| — |
|
|
| (19 | ) |
|
| (882 | ) |
|
| 223 |
|
Reclassification of foreign currency translation adjustment included in net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,444 |
|
|
| 1,929 |
|
|
| 3,373 |
|
Tax distribution |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (82 | ) |
|
| (82 | ) |
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 502 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 502 |
|
Balance at March 31, 2019 |
|
| 115,564 |
|
| $ | 1,156 |
|
|
| 170,941 |
|
| $ | 1,710 |
|
|
| 12,329 |
|
| $ | 123 |
|
| $ | 537,159 |
|
| $ | (63,844 | ) |
| $ | (4,099 | ) |
| $ | 327,576 |
|
| $ | 799,781 |
|
Class A Common Stock | Class B Common Stock | Class B-1 Common Stock | Additional Paid-in Capital | Stockholders' Accumulated Deficit | Accumulated Other Comprehensive (Loss) Income | Non-Controlling Interests | Total Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
Balance at April 1, 2019 | 115,564 | $ | 1,156 | 170,941 | $ | 1,710 | 12,329 | $ | 123 | $ | 537,159 | $ | (63,844 | ) | $ | (4,099 | ) | $ | 327,576 | $ | 799,781 | ||||||||||
Net loss | — | — | — | — | — | — | — | (16,902 | ) | — | (33,624 | ) | (50,526 | ) | |||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | (2,663 | ) | (3,556 | ) | (6,219 | ) | |||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 6,224 | — | — | — | 6,224 | ||||||||||||||||||||
Exercise of stock options | 8 | — | — | — | — | — | 174 | — | — | 201 | 375 | ||||||||||||||||||||
Restricted stock unit vesting, net of shares withheld to cover payroll taxes | 250 | 2 | — | — | — | — | 6 | — | (5 | ) | (924 | ) | (921 | ) | |||||||||||||||||
Conversion of Class B-1 Common Stock | 12,329 | 123 | — | — | (12,329 | ) | (123 | ) | — | — | — | — | — | ||||||||||||||||||
Reclassification of foreign currency translation adjustment included in net loss | — | — | — | — | — | — | — | — | 17 | 23 | 40 | ||||||||||||||||||||
Other | — | — | — | — | — | — | 598 | — | — | — | 598 | ||||||||||||||||||||
Balance at June 30, 2019 | 128,151 | $ | 1,281 | 170,941 | $ | 1,710 | — | $ | — | $ | 544,161 | $ | (80,746 | ) | $ | (6,750 | ) | $ | 289,696 | $ | 749,352 |
The accompanying notes are an integral part of these consolidated financial statements.
Amneal Pharmaceuticals, Inc.
Class A Common Stock | Class B Common Stock | Class B-1 Common Stock | Additional Paid-in Capital | Stockholders' Accumulated Deficit | Accumulated Other Comprehensive (Loss) Income | Non-Controlling Interests | Total Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
Balance at January 1, 2019 | 115,047 | $ | 1,151 | 171,261 | $ | 1,713 | 12,329 | $ | 123 | $ | 530,438 | $ | (20,920 | ) | $ | (7,755 | ) | $ | 391,613 | $ | 896,363 | ||||||||||
Net loss | — | — | — | — | — | — | — | (64,783 | ) | — | (110,495 | ) | (175,278 | ) | |||||||||||||||||
Cumulative-effective adjustment from adoption of Topic 842 | — | — | — | — | — | — | — | 4,957 | — | 8,604 | 13,561 | ||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | (425 | ) | (558 | ) | (983 | ) | |||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | 10,571 | — | — | — | 10,571 | ||||||||||||||||||||
Exercise of stock options | 205 | 2 | — | — | — | — | 922 | — | (7 | ) | 468 | 1,385 | |||||||||||||||||||
Restricted stock unit vesting, net of shares withheld to cover payroll taxes | 250 | 2 | — | — | — | — | 6 | — | (5 | ) | (924 | ) | (921 | ) | |||||||||||||||||
Redemption of Class B Common Stock | 320 | 3 | (320 | ) | (3 | ) | — | — | 1,124 | — | (19 | ) | (882 | ) | 223 | ||||||||||||||||
Conversion of Class B-1 Common Stock | 12,329 | 123 | — | — | (12,329 | ) | (123 | ) | — | — | — | — | — | ||||||||||||||||||
Tax distribution | — | — | — | — | — | — | — | — | — | (82 | ) | (82 | ) | ||||||||||||||||||
Reclassification of foreign currency translation adjustment included in net loss | — | — | — | — | — | — | — | — | 1,461 | 1,952 | 3,413 | ||||||||||||||||||||
Other | — | — | — | — | — | — | 1,100 | — | — | — | 1,100 | ||||||||||||||||||||
Balance at June 30, 2019 | 128,151 | $ | 1,281 | 170,941 | $ | 1,710 | — | $ | — | $ | 544,161 | $ | (80,746 | ) | $ | (6,750 | ) | $ | 289,696 | $ | 749,352 |
Class A Common Stock | Class B Common Stock | Class B-1 Common Stock | Additional Paid-in Capital | Stockholders' Accumulated Deficit | Accumulated Other Comprehensive (Loss) Income | Non-Controlling Interests | Total Equity | Redeemable Non-Controlling Interest | |||||||||||||||||||||||||||||||||
Members' Equity | Members' Accumulated Deficit | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||
Balance at April 1, 2018 | $ | 2,716 | $ | (357,980 | ) | — | $ | — | — | $ | — | — | $ | — | $ | — | $ | — | $ | (24,189 | ) | $ | 10,634 | $ | (368,819 | ) | $ | — | |||||||||||||
Period Prior to the Combination | |||||||||||||||||||||||||||||||||||||||||
Net loss | — | (200,341 | ) | — | — | — | — | — | — | — | — | — | (20 | ) | (200,361 | ) | — | ||||||||||||||||||||||||
Cumulative-effective adjustment from adoption of ASU 2014-09 (Topic 606) | — | 1,707 | — | — | — | — | — | — | — | — | — | — | 1,707 | — | |||||||||||||||||||||||||||
Distributions to members | — | (152,998 | ) | — | — | — | — | — | — | — | — | — | — | (152,998 | ) | — | |||||||||||||||||||||||||
PPU expense | 158,757 | — | — | — | — | — | — | — | — | — | — | — | 158,757 | — | |||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | 11,678 | — | 11,678 | — | |||||||||||||||||||||||||||
Capital contribution by Amneal Holdings for employee bonuses | 27,742 | — | — | — | — | — | — | — | — | — | — | — | 27,742 | — | |||||||||||||||||||||||||||
Period Subsequent to the Combination | |||||||||||||||||||||||||||||||||||||||||
Effect of the Combination | (189,215 | ) | 709,612 | 73,289 | 733 | 224,996 | 2,250 | — | — | 325,918 | — | 9,437 | 626,737 | 1,485,472 | — | ||||||||||||||||||||||||||
Redemption of Class B Common Stock for PIPE | — | — | 34,520 | 345 | (46,849 | ) | (468 | ) | 12,329 | 123 | 165,180 | — | (1,965 | ) | (130,501 | ) | 32,714 | — | |||||||||||||||||||||||
Redemption of Class B Common Stock for distribution to PPU Holders | — | — | 6,886 | 69 | (6,886 | ) | (69 | ) | — | — | 24,293 | — | (289 | ) | (19,181 | ) | 4,823 | — | |||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | (17,864 | ) | — | (31,865 | ) | (49,729 | ) | — | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | (1,170 | ) | (1,576 | ) | (2,746 | ) | — | ||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | 1,644 | — | — | — | 1,644 | — | |||||||||||||||||||||||||||
Exercise of stock options | — | — | 164 | 2 | — | — | — | — | 2,241 | — | (4 | ) | (262 | ) | 1,977 | — | |||||||||||||||||||||||||
Reclassification of redeemable non-controlling interest | — | — | — | — | — | — | — | — | — | (1,240 | ) | — | (10,618 | ) | (11,858 | ) | 11,858 | ||||||||||||||||||||||||
Non-controlling interests from acquisition of Gemini | — | — | — | — | — | — | — | — | — | — | — | 3,049 | 3,049 | — | |||||||||||||||||||||||||||
Other | — | — | — | — | — | — | — | — | (2,154 | ) | — | — | (1,412 | ) | (3,566 | ) | — | ||||||||||||||||||||||||
Balance at June 30, 2018 | $ | — | $ | — | 114,859 | $ | 1,149 | 171,261 | $ | 1,713 | 12,329 | $ | 123 | $ | 517,122 | $ | (19,104 | ) | $ | (6,502 | ) | $ | 444,985 | $ | 939,486 | $ | 11,858 |
Class A Common Stock | Class B Common Stock | Class B-1 Common Stock | Additional Paid-in Capital | Stockholders' Accumulated Deficit | Accumulated Other Comprehensive (Loss) Income | Non-Controlling Interests | Total Equity | Redeemable Non-Controlling Interest | |||||||||||||||||||||||||||||||||
Members' Equity | Members' Accumulated Deficit | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||
Balance at January 1, 2018 | $ | 2,716 | $ | (382,785 | ) | — | $ | — | — | $ | — | — | $ | — | $ | 8,562 | $ | — | $ | (14,232 | ) | $ | 10,157 | $ | (375,582 | ) | $ | — | |||||||||||||
Period Prior to the Combination | |||||||||||||||||||||||||||||||||||||||||
Net (loss) income | — | (148,806 | ) | — | — | — | — | — | — | — | — | — | 97 | (148,709 | ) | — | |||||||||||||||||||||||||
Cumulative-effective adjustment from adoption of ASU 2014-09 (Topic 606) | — | 4,977 | — | — | — | — | — | — | — | — | — | — | 4,977 | — | |||||||||||||||||||||||||||
Capital contribution from non-controlling interest | — | — | — | — | — | — | — | — | — | — | — | 360 | 360 | — | |||||||||||||||||||||||||||
Distributions to members | — | (182,998 | ) | — | — | — | — | — | — | (8,562 | ) | — | — | — | (191,560 | ) | — | ||||||||||||||||||||||||
PPU expense | 158,757 | — | — | — | — | — | — | — | — | — | — | — | 158,757 | — | |||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | 1,721 | — | 1,721 | — | |||||||||||||||||||||||||||
Capital contribution by Amneal Holdings for employee bonuses | 27,742 | — | — | — | — | — | — | — | — | — | — | — | 27,742 | — | |||||||||||||||||||||||||||
Period Subsequent to the Combination | |||||||||||||||||||||||||||||||||||||||||
Effect of the Combination | (189,215 | ) | 709,612 | 73,289 | 733 | 224,996 | 2,250 | — | — | 325,918 | — | 9,437 | 626,737 | 1,485,472 | — | ||||||||||||||||||||||||||
Redemption of Class B Common Stock for PIPE | — | — | 34,520 | 345 | (46,849 | ) | (468 | ) | 12,329 | 123 | 165,180 | — | (1,965 | ) | (130,501 | ) | 32,714 | — | |||||||||||||||||||||||
Redemption of Class B Common Stock for distribution to PPU Holders | — | — | 6,886 | 69 | (6,886 | ) | (69 | ) | — | — | 24,293 | — | (289 | ) | (19,181 | ) | 4,823 | — | |||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | (17,864 | ) | — | (31,865 | ) | (49,729 | ) | — | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | (1,170 | ) | (1,576 | ) | (2,746 | ) | — | ||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | 1,644 | — | — | — | 1,644 | — | |||||||||||||||||||||||||||
Exercise of stock options | — | — | 164 | 2 | — | — | — | — | 2,241 | — | (4 | ) | (262 | ) | 1,977 | — | |||||||||||||||||||||||||
Reclassification of redeemable non-controlling interest | — | — | — | — | — | — | — | — | — | (1,240 | ) | — | (10,618 | ) | (11,858 | ) | 11,858 | ||||||||||||||||||||||||
Non-controlling interests from acquisition of Gemini | — | — | — | — | — | — | — | — | — | — | — | 3,049 | 3,049 | — | |||||||||||||||||||||||||||
Other | — | — | — | — | — | — | — | — | (2,154 | ) | — | — | (1,412 | ) | (3,566 | ) | — | ||||||||||||||||||||||||
Balance at June 30, 2018 | $ | — | $ | — | 114,859 | $ | 1,149 | 171,261 | $ | 1,713 | 12,329 | $ | 123 | $ | 517,122 | $ | (19,104 | ) | $ | (6,502 | ) | $ | 444,985 | $ | 939,486 | $ | 11,858 |
Notes to Consolidated Financial Statements
(unaudited)
1. Nature of Operations
Amneal Pharmaceuticals, Inc., formerly known as Atlas Holdings, Inc. (the "Company"), was formed along with its wholly owned subsidiary, K2 Merger Sub Corporation, a Delaware corporation ("Merger Sub"), on October 4, 2017, for the purpose of facilitating the combination of Impax Laboratories, Inc. (now Impax Laboratories, LLC), a Delaware corporation then listed on the Nasdaq Stock Market ("Impax") and Amneal Pharmaceuticals LLC, a Delaware limited liability company ("Amneal"). The Company is a holding company, whose principal assets are Amneal Common Units.
Amneal was formed in 2002 and operates through various subsidiaries. Amneal is a vertically integrated developer, manufacturer, and seller of generic pharmaceutical products. Amneal’s pharmaceutical research includes analytical and formulation development and stability. Amneal operates principally in the United States, Switzerland, India, and Ireland. Amneal divested its operations in the United Kingdom on March 30, 2019 and Germany on May 3, 2019. For additional information, refer to
On October 17, 2017, Amneal, Impax, the Company and Merger Sub entered into the Business Combination Agreement, as amended on November 21, 2017 and December 16, 2017 (the "BCA").
On May 4, 2018, pursuant to the BCA, Impax and Amneal combined the generics and specialty pharmaceutical business of Impax with the generic drug development and manufacturing business of Amneal to create the Company as a new generics and specialty pharmaceutical company, through the following transactions (together, the "Combination", and the closing of the Combination, the "Closing"): (i) Merger Sub merged with and into Impax, with Impax surviving as a wholly owned subsidiary of the Company, (ii) each share of Impax’s common stock, par value $0.01 per share ("Impax Common Stock"), issued and outstanding immediately prior to the Closing, other than Impax Common Stock held by Impax in treasury, by the Company or by any of their respective subsidiaries, was converted into the right to receive one1 fully paid and non-assessable share of Class A common stock of the Company, par value $0.01 per share ("Class A Common Stock"), (iii) Impax converted to a Delaware limited liability company, (iv) the Company contributed to Amneal all of the Company’s equity interests in Impax, in exchange for Amneal common units ("Amneal Common Units"), (v) the Company issued an aggregate number of shares of Class B common stock of the Company, par value $0.01 per share ("Class B Common Stock", and collectively, with the Class A Common Stock and Class B-1 common stock of the Company, par value $0.01 , ("Class B-1 Common Stock"), the "Company Common Stock") to APHC Holdings, LLC, (formerly Amneal Holdings, LLC), the parent entity of Amneal as of the Closing ("Holdings"), and (vi) the Company became the managing member of Amneal.
Immediately upon the Closing, holders of Impax Common Stock prior to the Closing collectively held approximately 25% of the Company and Holdings held a majority interest in the Company with an effective voting interest of approximately 75% on a fully diluted and as converted basis through its ownership of Class B Common Stock. Holdings also held a corresponding number of Amneal Common Units, which entitled it to approximately 75% of the economic interests in the combined businesses of Impax and Amneal. The Company held an interest in Amneal of approximately 25%.
In connection with the Combination, on May 4, 2018, Holdings entered into definitive purchase agreements which provided for a private placement of certain shares of Class A Common Stock and Class B-1 Common Stock (the "PIPE Investment") with select institutional investors (the "PIPE Investors"). Pursuant to the terms of the purchase agreements, upon the Closing, Holdings exercised its right to cause the Company to redeem approximately 15% of its ownership interests in the Company in exchange for 34.5 million shares of Class A Common Stock and 12.3 million unregistered shares of Class B-1 Common Stock (the "Redemption"). The shares of Class A Common Stock and Class B-1 Common Stock received in the Redemption were sold immediately following the Closing by Holdings to the PIPE Investors at a per share purchase price of $18.25 for gross proceeds of $855 million. Following the PIPE Investment, the PIPE Investors owned collectively approximately 15% of the Company Common Stock on a fully diluted and as converted basis.
On July 5, 2018, Holdings distributed to its members all Amneal Common Units and shares of Class B Common Stock held by Holdings. As a result, as of June 30, 2019,March 31, 2020, Holdings did not hold any equity interest in Amneal or the Company.
During the second quarter ofyear ended December 31, 2019, pursuant to the Company's certificate of incorporation, the Company converted all (12.3 million) of its issued and outstanding shares of Class B-1 Common Stock to Class A Common Stock and such shares of Class B-1 Common Stock have been retired and may not be reissued by the Company. The rights of Class A Common Stock and Class B-1 Common Stock arewere identical, except that the Class B-1 Common Stock had certain director appointment rights and the Class B-1 Common Stock had no voting rights (other than with respect to its director appointment right and as otherwise required by law).
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United States of America, should be read in conjunction with Amneal’s annual audited financial statements for the year ended December 31, 20182019 included in the Company’s 20182019 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in annual financial statements have been omitted from the accompanying unaudited consolidated financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of June 30, 2019,March 31, 2020, cash flows for the sixthree months ended June 30,March 31, 2020 and 2019 and 2018 and the results of its operations, its comprehensive lossincome (loss) and changes in stockholders' equity for the three and six months ended June 30, 2019March 31, 2020 and 2018.2019. The consolidated balance sheet data at December 31, 20182019 was derived from the Company's audited annual financial statements, but does not include all disclosures required by generally accepted accounting principles generally accepted in the United States of America.
The accounting policies of the Company are set forth in
Note 2. Summary of Significant Accounting Policies contained in the Company’sChargebacks Receivable
When a sale occurs on a contracted item, the difference between the cost the Company pays to the manufacturer of that item and the contract price that the end customer has with the manufacturer is rebated to the Company by the manufacturer. The Company establishes a chargeback (rebate) receivable and a reduction to cost of goods sold in the same period as the related sale. At March 31, 2020, chargebacks receivable was $24 million, net of an immaterial allowance for doubtful accounts.
Use of Estimates
The preparation of financial statements requires the Company's management to make estimates and assumptions that affect the reported financial position at the date of the financial statements and the reported results of operations during the reporting period. Such estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The following are some, but not all, of such estimates: the determination of chargebacks, sales returns, rebates, billbacks, distribution fees, allowances for accounts receivable, accrued liabilities, chargeback receivables, stock-based compensation, valuation of inventory balances, the determination of useful lives for product rights, allowances for deferred tax assets,measurement of assets acquired and liabilities assumed in business combinations at fair value and the assessment of expected cash flows used in evaluating goodwill and other long-lived assets for impairment. Actual results could differ from those estimates.
Recently Adopted Accounting Pronouncements
In February 2016,August 2018, the Financial Accounting Standards Board ("FASB"(“FASB”) issued ASU 2016-02,
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, guidance that changes the impairment model for most financial assets including trade receivables and certain other instruments that are not measured at fair value through net income. The standard will replace today’s "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. Entities will apply the standard’s provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. TheRecently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provided elective amendments for the Company for the annual period beginning afterentities that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments may be applied to impacted contracts and hedges prospectively through December 15, 2019.31, 2022. The Company is currently evaluating the impact of this new guidance will have on its consolidated financial statements.
3. Acquisitions and Divestitures
AvKARE and R&S Acquisitions
On May 4, 2018,December 10, 2019, the Company, through its investment in Rondo Partners, LLC (“Rondo”), entered into an equity purchase and operating agreements to acquire approximately a 65.1% controlling financing interest in both AvKARE Inc., a Tennessee corporation, and Dixon-Shane, LLC d/b/a R&S Northeast LLC, a Kentucky limited liability company (“R&S”) (collectively the “Acquisitions”). Prior to closing, AvKARE, Inc. converted to a limited liability company, AvKARE, LLC. AvKARE, LLC is one of the largest private label providers of generic pharmaceuticals in the U.S. federal agency sector, primarily focused on serving the Department of Defense and the Department of Veterans Affairs. R&S is a national pharmaceutical wholesaler focused primarily on offering 340b-qualified entities products to provide consistency in care and pricing.
On January 31, 2020, the Company completed the Combination, as described in
For the three and six months ended June 30, 2018,March 31, 2020, there were $1 million of transaction costs associated with the Impax acquisition of $16 million and $23 million, respectively, wereAcquisitions recorded in acquisition, transaction-related and integration expenses (none for the three and six months ended June 30, 2019).
The Impax acquisition wasAcquisitions were accounted for under the acquisition method of accounting, with Amneal as the accounting acquirer of Impax. Amneal was identified as the accounting acquirer because: (i) Amneal exchanged Amneal Common Units with the Company for the Company’s interest in Impax, (ii) Holdings held a majority interest in the Company with an effective voting interest of approximately 75% on a fully dilutedAvKARE, LLC and as converted basis through their ownership of Class B Common Stock, and (iii) a majority of the directors on the Company's current board of directors were designated by Holdings. As such, the cost to acquire Impax was allocated to the respective assets acquired and liabilities assumed based on their estimated fair values as of the closing date of the Combination.
The measurement of the consideration transferred by Amneal for its interest in Impax is based on the fair value of the equity interest that Amneal would have had to issue to give the Impax shareholders the same percentage equity interest in the Company, which is equal to approximately 25% of Amneal, on May 4, 2018. However, the fair value of Impax's common stock was used to calculate the consideration for the Combination because Impax's common stock had a quoted market price and the Combination involved only the exchange of equity.
Cash |
| $ | 254,000 |
|
Sellers Notes (1) |
|
| 35,033 |
|
Settlement of Amneal trade accounts receivable from R&S (2) |
|
| 7,440 |
|
Short-Term Seller Note (3) |
|
| 1,000 |
|
Working capital adjustment (4) |
|
| (2,640 | ) |
Fair value consideration transferred |
| $ | 294,833 |
|
(1) | In accordance with ASC 805, Business Combinations, all consideration transferred was measured at its acquisition-date fair value. The Sellers Notes are stated at the preliminary fair value estimate of $35 million, which is the $44 million aggregate principal amount less a $9 million discount. The fair value of the Sellers Notes was estimated using the Monte-Carlo simulation approach under the option pricing framework. |
Fully diluted Impax share number (1) | 73,288,792 | ||
Closing quoted market price of an Impax common share on May 4, 2018 | $ | 18.30 | |
Equity consideration - subtotal | $ | 1,341,185 | |
Add: Fair value of Impax stock options as of May 4, 2018 (2) | 22,610 | ||
Total equity consideration | 1,363,795 | ||
Add: Extinguishment of certain Impax obligations, including accrued and unpaid interest | 320,290 | ||
Less: Cash acquired | (37,907 | ) | |
Purchase price, net of cash acquired | $ | 1,646,178 | |
(1) Represents shares of Impax Common Stock issued and outstanding immediately prior to the Combination. | |||
(2) Represents the fair value of 3.0 million fully vested Impax stock options valued using the Black-Scholes options pricing model. |
(2) | Represents trade accounts receivable from R&S that was effectively settled upon closing of the Acquisitions. |
(3) | Represents the principal amount due on the Short-Term Seller Note, which approximates fair value. |
(4) | Represents estimated working capital adjustment pursuant to the terms of the purchase agreement. |
The following is a summary of the preliminary purchase price allocation for the Impax acquisitionAcquisitions (in thousands):
|
| Preliminary Fair Values As of March 31, 2020 |
| |
Restricted cash |
| $ | 375 |
|
Trade accounts receivable, net |
|
| 52,223 |
|
Inventories |
|
| 72,615 |
|
Prepaid expenses and other current assets |
|
| 33,525 |
|
Related party receivables |
|
| 61 |
|
Property, plant and equipment |
|
| 5,278 |
|
Goodwill |
|
| 95,955 |
|
Intangible assets, net |
|
| 137,400 |
|
Operating lease right-of-use assets - related party |
|
| 5,544 |
|
Total assets acquired |
|
| 402,976 |
|
Accounts payable and accrued expenses |
|
| 89,592 |
|
Related party payables |
|
| 1,532 |
|
Operating lease liabilities - related party |
|
| 5,544 |
|
Total liabilities assumed |
|
| 96,668 |
|
Redeemable non-controlling interests |
|
| 11,475 |
|
Fair value of consideration transferred |
| $ | 294,833 |
|
Final Fair Values As of June 30, 2019 | ||||
Trade accounts receivable, net | $ | 210,820 | ||
Inventories | 183,088 | |||
Prepaid expenses and other current assets | 91,430 | |||
Property, plant and equipment | 87,472 | |||
Goodwill | 398,733 | |||
Intangible assets | 1,574,929 | |||
Other | 55,790 | |||
Total assets acquired | 2,602,262 | |||
Accounts payable | 47,912 | |||
Accrued expenses and other current liabilities | 274,979 | |||
Long-term debt | 599,400 | |||
Other long-term liabilities | 33,793 | |||
Total liabilities assumed | 956,084 | |||
Net assets acquired | $ | 1,646,178 |
The acquired intangible assets are being amortized over their estimated useful lives as follows (in thousands):
|
| Preliminary Fair Values |
|
| Weighted-Average Useful Life | |
Government licenses |
| $ | 66,700 |
|
| 7 years |
Government contracts |
|
| 28,600 |
|
| 4 years |
National contracts |
|
| 28,600 |
|
| 5 years |
Customer relationships |
|
| 13,000 |
|
| 10 years |
Trade name |
|
| 500 |
|
| 6 years |
|
| $ | 137,400 |
|
|
|
Final Fair Values | Weighted-Average Useful Life (Years) | |||||
Marketed product rights | $ | 1,045,617 | 12.9 |
The estimated fair valuevalues of the IPR&Dcustomer relationships, government contracts and identifiable intangible assets wasnational contracts were determined using the "income“income approach,"” which is a valuation technique that provides an estimate of the fair value of an intangible asset based on market participant expectations of the cash flows that an intangible asset would generate over its remaining useful life. The estimated fair value of the trade name was determined using the “relief from royalty method,” which is a valuation technique that provides an estimate of the fair value of an intangible asset equal to the present value of the after-tax royalty savings attributable to owning the intangible asset. The estimated fair value of the government licenses was determined using the “with-and-without method,” which is a valuation technique that provides an estimate of the fair value of an intangible asset that is equal to the difference between the present value of the prospective revenues and expenses for the business with and without the subject intangible asset in place. The assumptions, including the expected projected cash flows, utilized in the preliminary purchase price allocation and in determining the purchase price were based on management's best estimates as of the closing date of the CombinationAcquisitions on May 4, 2018.
Some of the more significant assumptions inherent in the development of those asset valuations include the estimated net cash flows for each year for each asset or product (including net revenues, cost of sales, research and development costs, selling and marketing costs and working capital / contributory asset charges), the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, the potential regulatory and commercial success risks, competitive trends impacting the asset and each cash flow stream, as well as other factors. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change. For these and other reasons, actual results may vary significantly from estimated results.
The Company mademakes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets, assumed liabilities and assumed liabilities.redeemable non-controlling interests. The Company obtainedobtains this information during due diligence and through other sources. In the months after closing, as the Company obtainedobtains additional information about these assets and liabilities and learnedlearns more about the newly acquired business,businesses, it wasis able to refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment.
The Sellers Notes and redeemable non-controlling interests were estimated using the Monte-Carlo simulation approach under the option pricing framework. The non-controlling interests are redeemable at the option of either the non-controlling interest holder and Amneal. The fair value of the redeemable non-controlling interests considers these redemption rights.
Of the $96 million of goodwill acquired in connection with the Acquisitions, approximately $65 million was allocated to the Company’s AvKARE segment (refer to Note 18. Segment Information) and approximately $31 million was allocated to the Generics segment. Goodwill was allocated to the Generics segment as net revenue of products manufactured from Amneal and distributed by the Acquisitions is reflected in Generics’ segment results. Goodwill is calculated as the excess of the fair value of the consideration transferred and the fair value of the redeemable non-controlling interests over the fair value of the net assets recognized. Factors that contributed to the recognition of goodwill include Amneal’s intent to diversify its business and open growth opportunities in the large, complex and growing federal healthcare market.
For the three months ended March 31, 2020, the Acquisitions contributed total net revenue of approximately $65 million and operating loss of $1 million, which included approximately $6 million of amortization expense from intangible assets acquired in the Acquisitions, to the Company’s consolidated results of operations.
Unaudited Pro Forma Information
The unaudited pro forma combined results of operations for the three and six months ended June 30, 2018March 31, 2020 and 2019 (assuming the closing of the CombinationAcquisitions occurred on January 1, 2017)2019) are as follows (in thousands):
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net revenue |
| $ | 525,303 |
|
| $ | 511,205 |
|
Net income (loss) |
| $ | 122,521 |
|
| $ | (133,410 | ) |
Net income (loss) attributable to Amneal Pharmaceuticals, Inc. |
| $ | 115,388 |
|
| $ | (50,463 | ) |
Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 | ||||||
Net revenue | $ | 447,524 | $ | 865,068 | |||
Net loss | $ | (86,621 | ) | $ | (161,050 | ) | |
Net loss attributable to Amneal Pharmaceuticals, Inc. | $ | (19,759 | ) | $ | (28,454 | ) |
The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the closing of the CombinationAcquisitions taken place on January 1, 2017.2019. Furthermore, the pro forma results do not purport to project the future results of operations of the Company.
Adjustments to arrive at the unaudited pro forma information reflects primarily the following non-recurring adjustments (all of which were adjusted for the applicable tax impact):
U.K. Divestiture
On March 30, 2019, the Company sold 100% of the stock of its Creo Pharma Holding Limited subsidiary, which comprised substantially all of the Company's operations in the United Kingdom, to AI Sirona (Luxembourg) Acquisition S.a.r.l ("AI Sirona") for net cash consideration of approximately $32 million which was received in April 2019. The carrying value of the net assets sold was $22 million, including intangible assets of $7 million and goodwill of $5 million. As a result of the sale, the Company recognized a pre-tax gain of $9 million, inclusive of transaction costs and the recognition of accumulated foreign currency translation adjustment losses of $3 million, within (loss) gain on sale of international business for the sixthree months ended June 30,March 31, 2019. As part of the disposition, the Company entered into a supply and license agreement with AI Sirona to supply certain products for a period of up to two years.
4. Revenue Recognition
Performance Obligations
The Company’s performance obligation is the supply of finished pharmaceutical and related products to its customers. The Company’s customers consist primarily of major wholesalers, retail pharmacies, managed care organizations, purchasing co-ops, hospitals, government agencies, institutions, and pharmaceutical companies. The Company’s customer contracts generally consist of both a master agreement, which is signed by the Company and its customer, andand/or a customer submitted purchase order, which is governed by the terms and conditions of the master agreement. Customers purchase product by direct channel sales from the Company or by indirect channel sales through various distribution channels.
Revenue is recognized when the Company transfers control of its products to the customer, which typically occurs at a point-in-time, either upon shipment or delivery. Substantially all of the Company’s net revenues relate to products which are transferred to the customer at a point-in-time.
The Company offers standard payment terms to its customers and has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing, since the period between when the Company transfers the product to the customer and when the customer pays for that product is one year or less. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. The consideration amounts due from customers as a result of product sales are subject to variable consideration, as described further below.
The Company offers standard product warranties which provide assurance that the product will function as expected and in accordance with specifications. Customers cannot purchase warranties separately and these warranties do not give rise to a separate performance obligation.
The Company permits the return of product under certain circumstances, mainly upon product expiration, instances of shipping errors or where product is damaged in transit. The Company accrues for the customer’s right to return as part of its variable consideration. See below for further details.
Variable Consideration
The Company includes an estimate of variable consideration in its transaction price at the time of sale, when control of the product transfers to the customer. Variable consideration includes but is not limited to: chargebacks, distribution fees, rebates, group purchasing organization ("GPO") fees, prompt payment (cash) discounts, consideration payable to the customer, billbacks, Medicaid and other government pricing programs, price protection and shelf stock adjustments, sales returns, and profit shares.
The Company assesses whether or not an estimate of its variable consideration is constrained and has determined that the constraint does not apply, since it is probable that a significant reversal in the amount of cumulative revenue will not occur in the future when the uncertainty associated with the variable consideration is subsequently resolved. The Company’s estimates for variable consideration are adjusted as required at each reporting period for specific known developments that may result in a change in the amount of total consideration it expects to receive.
Chargebacks
In the case an indirect customer purchases product from their preferred wholesaler instead of directly from the Company, and the contract price charged to the indirect customer is lower than the wholesaler pricing, the Company pays the direct customer (wholesaler) a chargeback for the price differential. The Company estimates its chargeback accrual based on its estimates of the level of inventory of its products in the distribution
channel that remain subject to chargebacks and historical chargeback rates. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Rebates
The Company pays fixed or volume-based rebates to its customers based on a fixed amount, fixed percentage of product sales or based on the achievement of a specified level of purchases. The Company’s rebate accruals are based on actual net sales, contractual rebate rates negotiated with customers, and expected purchase volumes / corresponding tiers based on actual sales to date and forecasted amounts.
Group Purchasing Organization Fees
The Company pays fees to GPOs for administrative services that the GPOs perform in connection with the purchases of product by the GPO participants who are the Company’s customers. The Company’s GPO fee accruals are based on actual net sales, contractual fee rates negotiated with GPOs and the mix of the products in the distribution channel that remain subject to GPO fees.
Prompt Payment (Cash) Discounts
The Company provides customers with prompt payment discounts which may result in adjustments to the price that is invoiced for the product transferred, in the case that payments are made within a defined period. The Company’s prompt payment discount accruals are based on actual net sales and contractual discount rates.
Consideration Payable to the Customer
The Company pays administrative and service fees to its customers based on a fixed percentage of the product price. These fees are not in exchange for a distinct good or service and therefore are recognized as a reduction of the transaction price. The Company accrues for these fees based on actual net sales, contractual fee rates negotiated with the customer and the mix of the products in the distribution channel that remain subject to fees.
Billbacks
In the case an indirect customer purchases product from their preferred wholesaler instead of directly from the Company, and the contract price charged to the indirect customer is higher than contractual pricing, the Company pays the indirect customer a billback for the price differential. The Company estimates its billback accrual based on its estimates of the level of inventory of its products in the distribution channel that remain subject to billbacks and historical billback rates. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Medicaid and Other Government Pricing Programs
The Company complies with required rebates mandated by law under Medicaid and other government pricing programs. The Company estimates its government pricing accruals based on monthly sales, historical experience of claims submitted by the various states and jurisdictions, historical rates and estimated lag time of the rebate invoices.
Price Protection and Shelf Stock Adjustments
The Company provides customers with price protection and shelf stock adjustments which may result in an adjustment to the price charged for the product transferred, based on differences between old and new prices which may be applied to the customer’s on-hand inventory at the time of the price change. The Company accrues for these adjustments when its expected value of an adjustment is greater than zero, based on contractual pricing, actual net sales, accrual rates based on historical average rates, and estimates of the level of inventory of its products in the distribution channel that remain subject to these adjustments. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Sales Returns
The Company permits the return of product under certain circumstances, mainly upon product expiration, instances of shipping errors or where product is damaged in transit, and occurrences of product recalls. The Company’s product returns accrual is primarily based on estimates of future product returns based generally on actual net sales, estimates of the level of inventory of its products in the distribution channel that remain subject to returns, estimated lag time of returns and historical return rates. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Profit Shares
For certain product sale arrangements, the Company earns a profit share upon the customer’s sell-through of the product purchased from the Company. The Company estimates its profit shares based on actual net sales, estimates of the level of inventory of its products in the distribution channel that remain subject to profit shares, and historical rates of profit shares earned. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Concentration of Revenue
The Company's three3 largest customers accounted for approximately 81% and 80%79% of total gross sales of products for the three and six months ended June 30,March 31, 2020 and 2019, respectively. The Company's three largest customers account for approximately 82% and 80% of total gross sales of products for the and three and six months ended June 30, 2018, respectively.
Disaggregated Revenue
The Company's significant product families,therapeutic classes for its Generics and Specialty segments and sales channels for its AvKARE segment, as determined based on net revenue, and their percentage of the Company's consolidated net revenue for each of the three and six months ended June 30,March 31, 2020 and 2019 and 2018 are set forth below (in thousands, except for percentages)thousands):
|
|
| Three Months Ended March 31, |
| |||||
|
|
| 2020 |
|
| 2019 |
| ||
Generics |
|
|
|
|
|
|
|
|
|
| Anti-Infective |
| $ | 13,253 |
|
| $ | 5,942 |
|
| Hormonal/Allergy |
|
| 87,481 |
|
|
| 102,725 |
|
| Antiviral |
|
| 15,824 |
|
|
| 14,456 |
|
| Central Nervous System (1) |
|
| 101,575 |
|
|
| 124,775 |
|
| Cardiovascular System |
|
| 29,679 |
|
|
| 36,217 |
|
| Gastroenterology |
|
| 23,536 |
|
|
| 9,556 |
|
| Oncology |
|
| 15,966 |
|
|
| 14,959 |
|
| Metabolic Disease/Endocrine |
|
| 17,229 |
|
|
| 17,847 |
|
| Respiratory |
|
| 10,067 |
|
|
| 9,218 |
|
| Dermatology |
|
| 15,245 |
|
|
| 12,973 |
|
| Other therapeutic classes |
|
| 21,746 |
|
|
| 18,177 |
|
| International and other |
|
| 985 |
|
|
| 15,632 |
|
| Total Generics net revenue |
|
| 352,586 |
|
|
| 382,477 |
|
Specialty |
|
|
|
|
|
|
|
|
|
| Hormonal/Allergy |
|
| 13,954 |
|
|
| 10,899 |
|
| Central Nervous System (1) |
|
| 68,311 |
|
|
| 42,899 |
|
| Gastroenterology |
|
| 48 |
|
|
| 481 |
|
| Metabolic Disease/Endocrine |
|
| 273 |
|
|
| 541 |
|
| Other therapeutic classes |
|
| 5,391 |
|
|
| 8,823 |
|
| Total Specialty net revenue |
|
| 87,977 |
|
|
| 63,643 |
|
AvKARE |
|
|
|
|
|
|
|
|
|
| Distribution |
|
| 31,586 |
|
|
| — |
|
| Government Label |
|
| 21,378 |
|
|
| — |
|
| Institutional |
|
| 3,413 |
|
|
| — |
|
| Other |
|
| 1,593 |
|
|
| — |
|
| Total AvKARE net revenue |
|
| 57,970 |
|
|
| — |
|
| Total net revenue |
| $ | 498,533 |
|
| $ | 446,120 |
|
(1) | During the three months ended September 30, 2019, operating results for Oxymorphone were reclassified from Generics to Specialty, where it is sold as a non-promoted product. Prior period results have not been restated to reflect the reclassification. |
Segment | Product Family | Three Months Ended June 30, 2019 | ||||||
$ | % | |||||||
Generics | Levothyroxine Sodium | $ | 46,459 | 11% | ||||
Specialty | Rytary® | 33,000 | 8% | |||||
Generics | Diclofenac Sodium Gel | 25,010 | 6% | |||||
Generics | Epinephrine Auto-Injector (generic Adrenaclick®) | 15,959 | 4% | |||||
Generics | Yuvafem-Estradiol | $ | 14,022 | 3% |
Segment | Product Family | Three Months Ended June 30, 2018 | ||||||
$ | % | |||||||
Generics | Diclofenac Sodium Gel | $ | 31,820 | 8% | ||||
Generics | Yuvafem-Estradiol | 30,827 | 7% | |||||
Generics | Aspirin; Dipyridamole ER Capsule | 27,919 | 7% | |||||
Specialty | Rytary® | 20,520 | 5% | |||||
Generics | Epinephrine Auto-Injector (generic Adrenaclick®) | $ | 19,166 | 5% |
Segment | Product Family | Six Months Ended June 30, 2019 | ||||||
$ | % | |||||||
Generics | Levothyroxine Sodium | $ | 95,453 | 11% | ||||
Specialty | Rytary® | 61,828 | 7% | |||||
Generics | Diclofenac Sodium Gel | 48,477 | 6% | |||||
Generics | Yuvafem-Estradiol | 32,761 | 4% | |||||
Generics | Epinephrine Auto-Injector (generic Adrenaclick®) | $ | 31,154 | 4% |
Segment | Product Family | Six Months Ended June 30, 2018 | ||||||
$ | % | |||||||
Generics | Diclofenac Sodium Gel | $ | 52,096 | 8% | ||||
Generics | Yuvafem-Estradiol | 50,094 | 7% | |||||
Generics | Aspirin; Dipyridamole ER Capsule | 44,941 | 7% | |||||
Generics | Oseltamivir | 39,634 | 6% | |||||
Specialty | Rytary® | $ | 20,520 | 3% |
A rollforward of the major categories of sales-related deductions for the sixthree months ended June 30, 2019March 31, 2020 is as follows (in thousands):
|
| Contract Charge - Backs and Sales Volume Allowances |
|
| Cash Discount Allowances |
|
| Accrued Returns Allowance |
|
| Accrued Medicaid and Commercial Rebates |
| ||||
Balance at December 31, 2019 |
| $ | 829,807 |
|
| $ | 34,308 |
|
| $ | 150,361 |
|
| $ | 114,960 |
|
Impact from the Acquisitions |
|
| 15,292 |
|
|
| 944 |
|
|
| 15,229 |
|
|
| 10 |
|
Provision related to sales recorded in the period |
|
| 1,080,290 |
|
|
| 32,947 |
|
|
| 47,163 |
|
|
| 36,472 |
|
Credits/payments issued during the period |
|
| (1,244,302 | ) |
|
| (35,371 | ) |
|
| (26,301 | ) |
|
| (40,067 | ) |
Balance at March 31, 2020 |
| $ | 681,087 |
|
| $ | 32,828 |
|
| $ | 186,452 |
|
| $ | 111,375 |
|
Contract Charge-backs and Sales Volume Allowances | Cash Discount Allowances | Accrued Returns Allowance | Accrued Medicaid and Commercial Rebates | |||||||||||||
Balance at December 31, 2018 | $ | 829,596 | $ | 36,157 | $ | 154,503 | $ | 74,202 | ||||||||
Provision related to sales recorded in the period | 2,294,169 | 68,883 | 41,682 | 82,981 | ||||||||||||
Credits/payments issued during the period | (2,333,025 | ) | (78,111 | ) | (55,500 | ) | (65,524 | ) | ||||||||
Balance at June 30, 2019 | $ | 790,740 | $ | 26,929 | $ | 140,685 | $ | 91,659 |
5. Alliance and Collaboration
The Company has entered into several alliance, collaboration, license, distribution and similar agreements with respect to certain of its products and services with third-party pharmaceutical companies. The consolidated statements of operations include revenue recognized under agreements the Company has entered into to develop marketing and/or distribution relationships with its partners to fully leverage the technology platform and revenue recognized under development agreements which generally obligate the Company to provide research and development services over multiple periods. The Company's significant arrangements are discussed below.
Levothyroxine License and Supply Agreement; Transition Agreement
On August 16, 2018, the Company entered into a license and supply agreement with Jerome Stevens Pharmaceuticals, Inc. ("JSP") for levothyroxine sodium tablets ("Levothyroxine"). This agreement designated the Company as JSP's exclusive commercial partner for Levothyroxine in the U.S. market for a 10-year term commencing on March 22, 2019. UnderAdditionally, under this license and supply agreement, with JSP, the Company accrued the up-front license payment of $50 million on March 22, 2019, which was paid in April 2019. The agreement also provides for the Company to pay a profit share to JSP based on net profits of the Company's sales of Levothyroxine, after considering product costs.
On November 9, 2018, the Company entered into a transition agreement ("Transition Agreement") with Lannett Company (“Lannett”) and JSP. Under the terms of the Transition Agreement, the Company assumed the distribution and marketing of Levothyroxine from Lannett beginning December 1, 2018 through March 22, 2019, ahead of the commencement date of the license and supply agreement with JSP described above.
In accordance with the terms of the Transition Agreement, the Company made $47 million of non-refundable payments to Lannett. For the sixthree months ended June 30,March 31, 2019, and the year ended December 31, 2018, $37 million, and $10 million, respectively, werewas expensed to cost of goods sold, as the Company sold Levothyroxine (none(NaN in the three months ended June 30, 2019)March 31, 2020). As of December 31, 2018, the Company had a $4 million transition contract liability, which was fully settled in February 2019.
Additionally, during the year ended December 31, 2019, the Company recorded $1 million in cost of sales related to reimbursement due to Lannett for certain of its unsold inventory at the end of the transition period, which was fully settled in March 2020.
Biosimilar Licensing and Supply Agreement
On May 7, 2018, the Company entered into a licensing and supply agreement, with Mabxience S.L., for its biosimilar candidate for Avastin® (bevacizumab). The Company will be the exclusive partner in the U.S. market. The Company will pay development and regulatory milestone payments as well as commercial milestone payments on reaching pre-agreed sales targets in the market to Mabxience, up to $72 million. For the three and six months ended June 30,March 31, 2019 the Company expensed a milestone payment of nil and $1 million, respectively, to research and development. For bothdevelopment (NaN in the three and six months ended June 30, 2018, the Company expensed a milestone payment of $0.5 million in research and development.
Distribution, License, Development and Supply Agreement with AstraZeneca UK Limited
In January 2012, Impax entered into an agreement with AstraZeneca UK Limited ("AstraZeneca") to distribute branded products under the terms of a distribution, license, development and supply Agreement (the "AZ Agreement"). The parties subsequently entered into a First Amendment to the AZ Agreement dated May 31, 2016 (as amended, the "AZ Amendment"). Under the terms of the AZ Agreement, AstraZeneca granted to Impax an exclusive license to commercialize the tablet, orally disintegrating tablet and nasal spray formulations of Zomig® (zolmitriptan)
products for the treatment of migraine headaches in the United States and in certain U.S. territories, except during an initial transition period when AstraZeneca fulfilled all orders of Zomig® products on Impax’s behalf and AstraZeneca paid to Impax the gross profit on such Zomig® products. Pursuant to the AZ Amendment, under certain conditions, and depending on the nature and terms of the study agreed to with the FDA, Impax agreed to conduct, at its own expense, the juvenile toxicity study and pediatric study required by the FDA under the Pediatric Research Equity Act ("PREA") for approval of the nasal formulation of Zomig
® for the acute treatment of migraine in pediatric patients ages six through eleven years old, as further described in the study protocol mutually agreed to by the parties (the "PREA Study"). In consideration for Impax conducting the PREA Study at its own expense, the AZ Amendment provides for the total royalty payments payable by Impax to AstraZeneca on net sales of Zomig® products under the AZ Agreement to be reduced by an aggregate amount of $30 million to be received in quarterly amounts specified in the AZ Amendment beginning from the quarter ended June 30, 2016 and through the quarter ended December 31,In May 2013, Impax’s exclusivity period for branded Zomig® tablets and orally disintegrating tablets expired and Impax launched authorized generic versions of those products in the United States. As discussed above, pursuant to the AZ Amendment, the total royalty payments payable by Impax to AstraZeneca on net sales of Zomig
® products under the AZ Agreement is reduced by certain specified amounts beginning from the quarter ended June 30, 2016 and through the quarter ended December 31, 2020, with such reduced royalty amounts totaling an aggregate amount of $30 million. The Company recorded cost of sales for royalties under this agreement ofDuring the three months ended March 31, 2020, AstraZeneca and the Company agreed to terminate the AZ Agreement
For detail on the Company’s related party entered into a license and commercialization agreement. Adello granted Amneal an exclusive license, under its New Drug Application,agreements with Kashiv Biosciences, LLC, refer to distribute and sell two bio-similar products in the U.S. Adello is responsible for development, regulatory filings, obtaining FDA approval, and manufacturing, and Amneal is responsible for marketing, selling and pricing activities. The term of the agreement is 10-years from the respective product’s launch date. In connection with the agreement, Amneal paid an upfront amount of $2 million in October 2017 for execution of the agreement which was expensed in research and development. The agreement also provides for potential future milestone payments to Adello of (i) up to $21 million relating to regulatory approval, (ii) up to $43 million for successful delivery of commercial launch inventory, (iii) between $20 million and $50 million relating to number of competitors at launch for one product, and (iv) between $15 million and $68 million for the achievement of cumulative net sales for both products. The milestones are subject to certain performance conditions which may or may not be achieved, including FDA filing, FDA approval, launch activities and commercial sales volume objectives. In addition, the agreement provides for Amneal to pay a profit share equal to 50% of net profits, after considering manufacturing and marketing costs. The research and development expenses for payments made to Adello during the years ended December 31, 2018 and 2017 were immaterial.
6. Restructuring and Other Charges
During the second quarter ofthree months ended June 30, 2018, in connection with the Combination, the Company committed to a restructuring plan to achieve cost savings. The Company expectsexpected to integrate its operations and reduce its combined cost structure through workforce reductions that eliminateeliminated duplicative positions and the consolidation ofconsolidated certain administrative, manufacturing and research and development facilities. In connection with this plan, the Company announced on May 10, 2018 that it intended to close its Hayward, California basedCalifornia-based operations.
On July 10, 2019, the Company announced a plan to restructure its operations (collectivelythat was intended to reduce costs and optimize its organizational and manufacturing infrastructure. Pursuant to the restructuring plan as revised, the Company expects to reduce its headcount by approximately 300 to 350 employees, primarily by ceasing manufacturing at its Hauppauge, NY facility. Collectively these actions comprise the "Plan")"Plans".
The following table sets forth the components of the Company's restructuring and other charges (in thousands):
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
Employee restructuring separation charges (1) | $ | 46 |
|
| $ | 2,318 |
|
Other employee severance charges (2) |
| 2,002 |
|
|
| 3,843 |
|
Total restructuring and other charges | $ | 2,048 |
|
| $ | 6,161 |
|
(1) | Employee restructuring separation charges include the cost of benefits provided pursuant to the Company's severance programs for employees impacted by the Plans at the Company's Hauppauge, NY, Hayward, CA and other facilities. |
(2) | Other employee severance charges are primarily associated with the cost of benefits for former senior executives. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Employee restructuring separation charges (1) | $ | 516 | $ | 44,465 | $ | 2,420 | $ | 44,465 | |||||||
Asset-related charges(2) | 900 | — | 1,314 | — | |||||||||||
Total employee and asset-related restructuring charges | 1,416 | 44,465 | 3,734 | 44,465 | |||||||||||
Other employee severance charges | 1,419 | — | 5,262 | — | |||||||||||
Total restructuring and other charges | $ | 2,835 | $ | 44,465 | $ | 8,996 | $ | 44,465 |
The charges related to restructuring impacted segment earnings as follows (in thousands):
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
Generics | $ | 46 |
|
| $ | 996 |
|
Specialty |
| — |
|
|
| 178 |
|
Corporate |
| — |
|
|
| 1,144 |
|
Total employee restructuring charges | $ | 46 |
|
| $ | 2,318 |
|
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Generics | $ | 1,317 | $ | 24,797 | $ | 2,313 | $ | 24,797 | |||||||
Specialty | — | 2,421 | 178 | 2,421 | |||||||||||
Corporate | 99 | 17,247 | 1,243 | 17,247 | |||||||||||
Total employee and asset-related restructuring charges | $ | 1,416 | $ | 44,465 | $ | 3,734 | $ | 44,465 |
The following table shows the change in the employee separation-related liability associated with the Company's restructuring programs,Plans, which is included in accounts payable and accrued expenses (in thousands):
|
| Employee Restructuring |
| |
Balance at December 31, 2019 |
| $ | 3,900 |
|
Charges to income |
|
| 46 |
|
Payments |
|
| (2,077 | ) |
Balance at March 31, 2020 |
| $ | 1,869 |
|
Employee Restructuring | |||
Balance at December 31, 2018 | $ | 22,112 | |
Charges to income | 2,420 | ||
Payments | (22,075 | ) | |
Balance at June 30, 2019 | $ | 2,457 |
7. LossEarnings (Loss) per Share
Basic lossearnings (loss) per share of Class A Common Stock and Class B-1 Common Stock is computed by dividing net loss attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of Class A Common Stock and Class B-1 Common Stock outstanding during the period. Diluted lossearnings (loss) per share of Class A Common Stock and Class B-1 Common Stock is computed by dividing net lossincome (loss) attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of Class A Common Stock and Class B-1 Common Stock outstanding, adjusted to give effect to potentially dilutive securities.
The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted lossearnings (loss) per share of Class A Common Stock and Class B-1 Common Stock (in thousands, except per share amounts):
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
Numerator: |
|
|
|
|
|
|
|
Net income (loss) attributable to Amneal Pharmaceuticals, Inc. | $ | 115,067 |
|
| $ | (47,881 | ) |
Denominator: |
|
|
|
|
|
|
|
Weighted-average shares of Class A Common Stock and Class B-1 Common Stock outstanding - basic (1) |
| 147,180 |
|
|
| 127,687 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
Stock options |
| 230 |
|
|
| — |
|
Restricted stock units |
| 546 |
|
|
| — |
|
Weighted-average shares of Class A Common Stock and Class B-1 Common Stock outstanding - diluted |
| 147,956 |
|
|
| 127,687 |
|
Net earnings (loss) per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders: |
|
|
|
|
|
|
|
Class A and Class B-1 basic | $ | 0.78 |
|
| $ | (0.37 | ) |
Class A and Class B-1 diluted | $ | 0.78 |
|
| $ | (0.37 | ) |
(1) | During the three months ended June 30, 2019, pursuant to the Company’s certificate of incorporation, the Company converted all 12.3 million of its issued and outstanding shares of Class B-1 Common Stock and such shares of Class B-1 Common Stock have been retired and may not be reissued by the Company. The weighted-average shares for the three months ended March 31, 2020 do not include Class B-1 Common Stock. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Numerator: | |||||||||||||||
Net loss attributable to Amneal Pharmaceuticals, Inc. | $ | (16,902 | ) | $ | (19,104 | ) | $ | (64,783 | ) | $ | (19,104 | ) | |||
Denominator: | |||||||||||||||
Weighted-average shares of Class A Common Stock and Class B-1 Common Stock outstanding - basic and diluted | 128,016 | 127,112 | 127,852 | 127,112 | |||||||||||
Net loss per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders: | |||||||||||||||
Class A and Class B-1 basic and diluted | $ | (0.13 | ) | $ | (0.15 | ) | $ | (0.51 | ) | $ | (0.15 | ) |
Shares of the Company's Class B Common Stock do not share in the earnings or losses of the Company and, therefore, are not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B Common Stock under the two-class method has not been presented.
The following table presents potentially dilutive securities excluded from the computations of diluted earnings per share of Class A Common Stock and Class B-1 Common Stock (in thousands):
| Three Months Ended March 31, |
|
| ||||||
| 2020 |
|
|
| 2019 |
|
| ||
Stock options |
| 683 |
| (1) |
|
| 8,400 |
| (4) |
Restricted stock units |
| — |
|
|
|
| 3,282 |
| (4) |
Performance stock units |
| 3,054 |
| (2) |
|
| 520 |
| (4) |
Shares of Class B Common Stock |
| 152,117 |
| (3) |
|
| 171,041 |
| (3) |
(1) | Excluded from the computation of diluted earnings per share of Class A Common Stock because the exercise price of the stock options exceeded the average market price of the Class A Common Stock during the period (out-of-the-money). |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Stock options(1) | 8,407 | 6,028 | 8,407 | 6,028 | |||||||
Restricted stock units(1) | 2,894 | 1,320 | 2,894 | 1,320 | |||||||
Performance stock units(1) | 465 | — | 465 | — | |||||||
Shares of Class B Common Stock(2) | 170,941 | 171,261 | 170,941 | 171,261 |
(2) | Excluded from the computation of diluted earnings per share of Class A Common Stock because the performance vesting conditions were not met for the three months ended March 31, 2020. |
(3) | Shares of Class B Common Stock are considered potentially dilutive shares of Class A Common Stock and Class B-1 Common Stock. Shares of Class B Common Stock have been excluded from the computations of diluted earnings per share of Class A Common Stock and Class B-1 Common Stock because the effect of their inclusion would have been anti-dilutive under the if-converted method. As noted above, the weighted-average shares for the three months ended March 31, 2020 do not include Class B-1 Common Stock. |
(4) | Excluded from the computation of diluted loss per share of Class A Common Stock and Class B-1 Common Stock because the effect of their inclusion would have been anti-dilutive since there was a net loss attributable to the Company for the three months ended March 31, 2019. |
8. Income Taxes
For the three months ended March 31, 2020 and 2019, the Company's benefit from income taxes and effective tax rates were $108 million and (810.6%) and $8 million and 6.3%, respectively. The year over year change in benefit from income taxes was primarily related to the Company forCompany’s full valuation allowance and the threeeffects of the Coronavirus Aid, Relief and six months ended JuneEconomic Security Act (the “CARES Act.”)
As of September 30, 2019, the Company established a valuation allowanced based upon all available objective and 2018.
On March 27, 2020, President Trump signed into law the CARES Act. The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, includes provisions relating to income and non-income-based tax laws. Some of the key income tax-related provisions include net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. Some of these tax provisions are effective retroactively for years ending before the date of enactment. Other non-income-based tax provisions include deferral of the employer share of Social Security payroll taxes due from the CARES Act date of enactment through December 31, 2020, and a potential 50% credit on qualified wages against employment taxes each quarter with any excess credits eligible for refunds. The Company continues to carefully analyze eligibility and application of both the income tax and non-income-based tax provisions.
The CARES Act permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs originating in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate refunds of previously paid income taxes. As a result of the CARES Act, the Company expects to carry back approximately $345 million in NOLs generated in 2018 to prior taxable income years.
ASC 740 requires the effect from adjusting deferred tax assets or changes to valuation allowances due to the CARES Act to be recognized as a component of June 30, 2019. However, ifincome taxes expense or benefit in the interim period that includes the period in which the new legislation is enacted (quarter ended March 31, 2020), and it cannot be allocated to subsequent interim periods by an adjustment of the estimated annual effective tax rate. In the three months ended March 31, 2020, the Company reclassified the 2018 NOL carryback amount for previously paid income tax to income tax receivable and reversed the corresponding valuation allowance. In carrying back the 2018 loss to an earlier year, the Company is unableable to generate sufficient taxable income from its future operations,benefit the losses at a substantial valuation allowance to reduce35% tax rate rather than the Company's DTAs may be required, which could materially increasecurrent U.S. corporate tax rate of 21%. Accordingly, the Company'sCompany recorded a discrete income tax expense inbenefit of $110 million for the period the valuation allowance is recognized and have a material adverse effect on its results of operations and financial condition.
In connection with the Combination, the Company entered into a tax receivable agreement (“TRA”) for which it is generally required to pay the other holders of Amneal Common Units 85% of the applicable tax savings, if any, in U.S. federal and state income tax that it is deemed to realize as a result of certain tax attributes of their Amneal Common Units sold to the Company (or exchanged in a taxable sale) and that are created as a result of (i) the sales of their Amneal Common Units for shares of Class A Common Stock and (ii) tax benefits attributable to payments made under the TRA (including imputed interest). TheIn conjunction with the valuation allowance recorded on the DTAs at September 30, 2019, the Company did not record an additionalreversed the TRA liability, duringwhich had been recorded at the three months ended June 30, 2019 as there were no exchanges during that period
The Company'sprojection of future taxable income involves significant judgment. Actual taxable income may differ from the Company’s estimates, which could significantly impact the liability under the TRA. As noted above, the Company has determined it is more-likely-than-not it will be unable to utilize all of its DTAs subject to TRA; therefore, the Company has not accrued the liability under the TRA liability payable was $193related to the tax savings it may realize from common units sold or exchanged through March 31, 2020. If utilization of these DTAs becomes more-likely- than-not in the future, at such time, Amneal will record liabilities under the TRA, which amounts to approximately $202 million as of both June 30, 2019 and DecemberMarch 31, 2018.
period, the related valuation allowance will be released and if a resulting TRA payment is determined to be probable, a corresponding TRA liability will be recorded.
9. Trade Accounts Receivable, Net
Trade accounts receivable, net is comprised of the following (in thousands):
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Gross accounts receivable |
| $ | 1,437,336 |
|
| $ | 1,470,706 |
|
Allowance for doubtful accounts |
|
| (739 | ) |
|
| (2,201 | ) |
Contract charge-backs and sales volume allowances |
|
| (681,087 | ) |
|
| (829,807 | ) |
Cash discount allowances |
|
| (32,828 | ) |
|
| (34,308 | ) |
Subtotal |
|
| (714,654 | ) |
|
| (866,316 | ) |
Trade accounts receivable, net |
| $ | 722,682 |
|
| $ | 604,390 |
|
June 30, 2019 | December 31, 2018 | ||||||
Gross accounts receivable | $ | 1,454,294 | $ | 1,349,588 | |||
Allowance for doubtful accounts | (1,959 | ) | (2,340 | ) | |||
Contract charge-backs and sales volume allowances | (790,740 | ) | (829,596 | ) | |||
Cash discount allowances | (26,929 | ) | (36,157 | ) | |||
Subtotal | (819,628 | ) | (868,093 | ) | |||
Trade accounts receivable, net | $ | 634,666 | $ | 481,495 |
Receivables from customers representing 10% or more of the Company’s gross trade accounts receivable reflected three3 customers at June 30, 2019,March 31, 2020, equal to 32%38%, 29%24%, and 22%21%, respectively. Receivables from customers representing 10% or more of the Company’s gross trade accounts receivable reflected three3 customers at December 31, 2018,2019, equal to 30%39%, 28%25%, and 24%25%, respectively.
10. Inventories
Inventories, net of reserves, are comprised of the following (in thousands):
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Raw materials |
| $ | 162,725 |
|
| $ | 172,159 |
|
Work in process |
|
| 53,071 |
|
|
| 58,188 |
|
Finished goods |
|
| 222,163 |
|
|
| 150,720 |
|
Total inventories |
| $ | 437,959 |
|
| $ | 381,067 |
|
11. Prepaid and Other Current Assets
Prepaid expenses and other current assets are comprised of the following (in thousands):
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Deposits and advances |
| $ | 373 |
|
| $ | 1,123 |
|
Prepaid insurance |
|
| 2,648 |
|
|
| 3,858 |
|
Prepaid regulatory fees |
|
| 2,330 |
|
|
| 4,016 |
|
Income and other tax receivables (1) |
|
| 124,527 |
|
|
| 13,740 |
|
Prepaid taxes |
|
| 3,200 |
|
|
| 3,255 |
|
Other current receivables |
|
| 16,364 |
|
|
| 15,996 |
|
Other prepaid assets |
|
| 30,575 |
|
|
| 28,176 |
|
Chargebacks receivable (2) |
|
| 24,392 |
|
|
| — |
|
Total prepaid expenses and other current assets |
| $ | 204,409 |
|
| $ | 70,164 |
|
(1) | On March 27, 2020, President Trump signed into law the CARES Act. The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, includes provisions relating to income and non-income-based tax laws. Amneal recorded a U.S. federal income tax receivable of $110 million related to benefits associated with the CARES Act. For further details, refer to Note 8.Income Taxes. |
(2) | When a sale occurs on a contract item, the difference between the cost paid to the manufacturer by the Company and the contract cost that the end customer has with the manufacturer is rebated back to the Company by the manufacturer. The Company establishes a chargeback (rebate) receivable and a reduction to cost of goods sold in the same period as the related sale. |
12. Other Assets
Other assets are comprised of the following (in thousands):
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Deferred revolving credit facility costs |
| $ | 3,434 |
|
| $ | 3,099 |
|
Security deposits |
|
| 1,730 |
|
|
| 1,938 |
|
Long-term prepaid expenses |
|
| 5,875 |
|
|
| 6,438 |
|
Interest rate swap |
|
| — |
|
|
| 16,373 |
|
Financing lease right-of-use assets |
|
| 10,703 |
|
|
| 11,442 |
|
Other long-term assets |
|
| 4,714 |
|
|
| 4,980 |
|
Total other assets |
| $ | 26,456 |
|
| $ | 44,270 |
|
June 30, 2019 | December 31, 2018 | ||||||
Raw materials | $ | 180,188 | $ | 181,654 | |||
Work in process | 38,376 | 54,152 | |||||
Finished goods | 196,063 | 221,413 | |||||
Total inventories | $ | 414,627 | $ | 457,219 |
13. Debt
The majorityfollowing is a summary of the Company's operatinglong-term debt (in thousands):
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Term Loan due May 2025 |
| $ | 2,652,126 |
|
| $ | 2,658,876 |
|
Rondo Term Loan due January 2025 |
|
| 180,000 |
|
|
| — |
|
Other |
|
| 624 |
|
|
| 624 |
|
Total long-term debt |
|
| 2,832,750 |
|
|
| 2,659,500 |
|
Less: debt issuance costs |
|
| (30,985 | ) |
|
| (28,975 | ) |
Total debt, net of debt issuance costs |
|
| 2,801,765 |
|
|
| 2,630,525 |
|
Less: current portion of long-term debt |
|
| (29,736 | ) |
|
| (21,479 | ) |
Total long-term debt, net |
| $ | 2,772,029 |
|
| $ | 2,609,046 |
|
Senior Secured Credit Facilities
On May 4, 2018 the Company entered into a senior credit agreement that provided a term loan ("Term Loan") with a principal amount of $2.7 billion and financing lease portfolio consistsan asset backed revolving credit facility ("Revolving Credit Facility") under which loans and letters of corporate offices, manufacturing sites, warehouse space, researchcredit up to a principal amount of $500 million, of which $194 million were available at March 31, 2020 (principal amount of up to $25 million is available for letters of credit) (collectively, the "Senior Secured Credit Facilities"). The Term Loan is repayable in equal quarterly installments at a rate of 1.00% of the original principal amount annually, with the balance payable at maturity on May 4, 2025. The Term Loan bears a variable annual interest rate, which is one-month LIBOR plus 3.5% at March 31, 2020. The Revolving Credit Facility bears an annual interest rate of one-month LIBOR plus 1.25% at March 31, 2020 and development facilities and manufacturing equipment.matures on May 4, 2023. The Company's leases have remaining lease terms of 1 year to 25 years. Rent expenseannual interest rate for the threeRevolving Credit Facility may be reduced or increased by 0.25% based on step-downs and sixstep-ups determined by the average historical excess availability.
The proceeds of any loans made under the Senior Secured Credit Facilities can be used for capital expenditures, acquisitions, working capital needs and other general purposes, subject to covenants as described below. The Company pays a commitment fee based on the average daily unused amount of the Revolving Credit Facility at a rate based on average historical excess availability, between 0.25% and 0.375% per annum. At March 31, 2020, the Revolving Credit Facility commitment fee rate is 0.375% per annum.
During March 2020, as a precautionary measure to mitigate the uncertainty surrounding overall market liquidity due to COVID-19, the Company borrowed $300 million on the Revolving Credit Facility, all of which is outstanding at March 31, 2020. As the financial markets stabilized following a period of high volatility due to the COVID-19 pandemic, the Company repaid $200 million of borrowings under the Revolving Credit Facility in May 2020.
The Company incurred costs associated with the Term Loan due May 2025 of $38 million and the Revolving Credit Facility of $5 million, which have been capitalized and are being amortized over the life of the applicable debt agreement to interest expense using the effective interest method. The Term Loan has been recorded in the balance sheet net of issuance costs. Costs associated with the Revolving Credit Facility have been recorded in other assets because there were no borrowings outstanding on the effective date of the Revolving Credit Facility. For both the three months ended June 30,March 31, 2020 and 2019, was $6 million and $12 million, respectively. Rent expense for the three and six months ended June 30, 2018 was $4 million and $5 million, respectively.
Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | ||||||
Operating lease cost(1) | $ | 4,950 | $ | 10,890 | |||
Finance lease cost: | |||||||
Amortization of right-of-use assets | 652 | 1,304 | |||||
Interest on lease liabilities | 1,119 | 2,243 | |||||
Total finance lease cost | 1,771 | 3,547 | |||||
Total lease cost | $ | 6,721 | $ | 14,437 |
The Senior Secured Credit Facilities contain a number of covenants that, among other things, create liens on Amneal's and its subsidiaries' assets. The Senior Secured Credit Facilities contain certain negative covenants that, among other things and subject to certain exceptions, restrict Amneal’s and its subsidiaries' ability to incur additional debt or guarantees, grant liens, make loans, acquisitions or other investments, dispose of assets, merge, dissolve, liquidate or consolidate, pay dividends or other payments on capital stock, make optional payments or modify certain debt instruments, modify certain organizational documents, enter into arrangements that restrict the ability to pay dividends or grant liens, or enter into or consummate transactions with affiliates. The Revolving Credit Facility also includes a financial covenant whereby Amneal must maintain a minimum fixed charge coverage ratio if certain borrowing conditions are met. The Senior Secured Credit Facilities contain customary events of
default, subject to certain exceptions. Upon the occurrence of certain events of default, the obligations under the Senior Secured Credit Facilities may be accelerated and the commitments may be terminated. At March 31, 2020, Amneal was in compliance with all covenants.
Acquisition Financing - Revolving Credit and Term Loan Agreement
On January 31, 2020, in connection with the Acquisitions, Rondo Intermediate Holdings, LLC (“Rondo Holdings”), a wholly-owned subsidiary of Rondo, entered into a revolving credit and term loan agreement (“Rondo Credit Facility”) that provided a term loan ("Rondo Term Loan") with a principal amount of $180 million and a revolving credit facility (“Rondo Revolving Credit Facility”) which loans up to a principal amount of $30 million. The Rondo Term Loan is repayable in equal quarterly installments at a rate of 5.0% of the original principal amount annually, with the balance payable at maturity on January 31, 2025. The Rondo Credit Facility bears a variable annual interest rate, which is one-month LIBOR plus 3.0% at March 31, 2020 and matures on January 31, 2025. The annual interest rate for borrowings under the Rondo Credit Facility may be reduced or increased by 0.25% based on step-downs and step-ups determined by the total net leverage ratio, as followsdefined in that agreement. At March 31, 2020, the Company had 0 outstanding borrowings under the Rondo Revolving Credit Facility.
A commitment fee based on the average daily unused amount of the Rondo Credit Facility is assessed at a rate based on total net leverage ratio, between 0.25% and 0.50% per annum. At March 31, 2020, the Rondo Credit Facility commitment fee rate is 0.4% per annum.
Costs associated with the Rondo Term Loan of $3 million and the Rondo Credit Facility of $1 million, which have been capitalized and are being amortized over the life of the applicable debt instrument to interest expense using the effective interest method. The Rondo Term Loan has been recorded in the balance sheet net of issuance costs. Costs associated with the Rondo Revolving Credit Facility have been recorded in other assets. For the three months ended March 31, 2020, amortization of deferred financing costs associated with the Rondo Credit Facility were less than $1 million.
The Rondo Credit Facility contains a number of covenants that, among other things, create liens on the equity securities and assets of Rondo Holdings, Rondo, AvKARE, LLC and R&S. The Rondo Credit Facility contains certain negative, affirmative and financial covenants that, among other things, restrict the ability to incur additional debt, grant liens, transact in mergers and acquisitions, make certain investments and payments or engage in certain transactions with affiliates. The Rondo Credit Facility also contains customary events of default. Upon the occurrence of certain events of default, the obligations under the Rondo Credit Facility may be accelerated and/ or the interest rate may be increased. At March 31, 2020, Rondo was in compliance with all covenants. The Company is not party to the Rondo Credit Facility and is not a guarantor of any debt incurred thereunder.
The Term Loan and Rondo Term Loan require payments of $27 million and $9 million, respectively, per year for the next five years and the balance thereafter.
Acquisition Financing – Notes Payable-Related Party
The Sellers Notes with a stated aggregate principal amount of $44 million and the Short-Term Sellers Note with a stated principal amount of $1 million were issued by Rondo or its subsidiary, Rondo Top Holdings, LLC, on January 31, 2020, the closing date of the Acquisitions. The Sellers Notes are unsecured and accrue interest at a rate of 5% per annum, not compounded, until June 30, 2025. The Sellers Notes are subject to prepayment at the option of Rondo, as the obligor, without premium or penalty. Mandatory payment of the outstanding principal and interest is due on June 30, 2025 if certain financial targets are achieved, the borrowers’ cash flows are sufficient (as defined in the Sellers Notes) and repayment is not prohibited by senior debt. If repayment of all outstanding principal and accrued interest on the Sellers Notes is not made on June 30, 2025, the requirements for repayment are revisited on June 30 of each subsequent year until all principal and accrued interest are satisfied no later than January 31, 2030 or earlier, upon a change in control. The Short-Term Sellers Note is also unsecured and accrues interest at a rate of 1.6% and is due on January 31, 2020.
In accordance with ASC 805, Business Combinations, all consideration transferred was measured at its acquisition-date fair value. The Sellers Notes were stated at the preliminary fair value estimate of $35 million, which was estimated using the Monte-Carlo simulation approach under the option pricing framework. The Short-Term Sellers Note of $1 million was recorded at the stated principal amount of $1 million, which approximates fair value. The $9 million discount on the Sellers Notes will be amortized to interest expense using the effective interest method from January 31, 2020 to June 30, 2025 and the carrying value of the Sellers Notes will accrete to the stated principal amount of $44 million.
The Sellers Notes and the Short-Term Sellers Note are recorded in notes payable-related party within long-term liabilities and notes payable-related party within current liabilities, respectively.
14. Other Long-Term Liabilities
Other long-term liabilities are comprised of the following (in thousands):
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Interest rate swap (1) |
| $ | 46,285 |
|
| $ | — |
|
Uncertain tax positions |
|
| 3,601 |
|
|
| 5,088 |
|
Long-term compensation (2) |
|
| 19,484 |
|
|
| 22,735 |
|
Financing lease liabilities |
|
| 3,584 |
|
|
| 3,869 |
|
Other long-term liabilities |
|
| 7,892 |
|
|
| 7,891 |
|
Total other long-term liabilities |
| $ | 80,846 |
|
| $ | 39,583 |
|
Operating leases | June 30, 2019 | ||
Operating lease right-of-use assets | $ | 59,900 | |
Operating lease right-of-use assets - related party | 17,031 | ||
Total operating lease right-of-use assets | $ | 76,931 | |
Operating lease liabilities | $ | 47,836 | |
Operating lease liabilities - related party | 14,862 | ||
Current portion of operating lease liabilities | 13,313 | ||
Current portion of operating and financing lease liabilities - related party | 2,258 | ||
Total operating lease liabilities | $ | 78,269 | |
Financing leases | |||
Financing lease right of use assets - related party | $ | 62,588 | |
Financing lease liabilities - related party | $ | 61,990 | |
Current portion of operating and financing lease liabilities - related party | 1,035 | ||
Total financing lease liabilities | $ | 63,025 |
Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | ||||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||
Operating cash flows from finance leases | $ | 1,120 | $ | 1,870 | |||
Operating cash flows from operating leases | 5,107 | 10,004 | |||||
Financing cash flows from finance leases | 247 | 866 | |||||
Non-cash activity: | |||||||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | — | $ | 360 |
(1) | Refer to Notes 15. Fair Value Measurement of Financial Instruments and 16. Financial Instruments for information about the Company’s interest rate swap. |
(2) | |
Includes $12 million of long-term deferred compensation plan liabilities (refer to Note 15. Fair Value Measurements of Financial Instruments), $6 million of long-term employee benefits for the Company’s international employees and $2 million of long-term severance liabilities (refer to Note 6. Restructuring and Other Charges). |
Operating Leases | Financing Leases | ||||||
2019(1) | $ | 9,990 | $ | 2,736 | |||
2020 | 19,826 | 5,474 | |||||
2021 | 16,187 | 5,474 | |||||
2022 | 12,342 | 5,474 | |||||
2023 | 10,054 | 5,474 | |||||
Thereafter | 26,947 | 106,740 | |||||
Total lease payments | 95,346 | 131,372 | |||||
Less: Imputed interest | (17,077 | ) | (68,347 | ) | |||
Total | $ | 78,269 | $ | 63,025 |
Operating Leases | Financing Obligation | ||||||
2019 | $ | 25,885 | $ | 5,474 | |||
2020 | 12,071 | 5,474 | |||||
2021 | 11,105 | 5,474 | |||||
2022 | 10,329 | 5,474 | |||||
2023 | 10,043 | 5,474 | |||||
Thereafter | 28,128 | 107,196 | |||||
Total lease payments | 97,561 | 134,566 | |||||
Less: Imputed interest | — | (95,217 | ) | ||||
Total | $ | 97,561 | $ | 39,349 |
15. Related Party Transactions.
Fair value is the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable:
Level 1
– Quoted prices in active markets for identical assets or liabilities.Level 2 –
Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.Level 3
– Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Value is determined using pricing models, discounted cash flow methodologies, or similar techniques and also includes instruments for which the determination of fair value requires significant judgment or estimation.Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification for each reporting period. The following table sets forth the Company’s financial assets and liabilities that were measured at fair value on a recurring basis as of June 30, 2019March 31, 2020 and December 31, 20182019 (in thousands):
Fair Value Measurement Based on | ||||||||||||||||
June 30, 2019 | Total | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Assets | ||||||||||||||||
Deferred Compensation Plan asset (1) | $ | 43,004 | $ | — | $ | 43,004 | $ | — | ||||||||
Liabilities | ||||||||||||||||
Deferred Compensation Plan liabilities (1) | $ | 24,133 | $ | — | $ | 24,133 | $ | — | ||||||||
December 31, 2018 | ||||||||||||||||
Assets | ||||||||||||||||
Deferred Compensation Plan asset (1) | $ | 40,101 | $ | — | $ | 40,101 | $ | — | ||||||||
Liabilities | ||||||||||||||||
Deferred Compensation Plan liabilities (1) | $ | 27,978 | $ | — | $ | 27,978 | $ | — |
|
|
|
|
|
| Fair Value Measurement Based on |
| |||||||||
March 31, 2020 |
| Total |
|
| Quoted Prices in Active Markets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap (1) |
| $ | 46,285 |
|
| $ | — |
|
| $ | 46,285 |
|
| $ | — |
|
Deferred compensation plan liabilities (2) |
|
| 13,854 |
|
|
| — |
|
|
| 13,854 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap (1) |
| $ | 16,373 |
|
| $ | — |
|
| $ | 16,373 |
|
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities (2) |
| $ | 18,396 |
|
| $ | — |
|
| $ | 18,396 |
|
| $ | — |
|
(1) | The fair value measurement of the Company’s interest rate swap classified within Level 2 of the fair value hierarchy is a model-derived valuation as of a given date in which all significant inputs are observable in active markets including certain financial information and certain assumptions regarding past, present, and future market conditions. |
(2) | As of March 31, 2020, deferred compensation plan liabilities of $2million and $12million were recorded in current and non-current liabilities, respectively. As of December 31, 2019, deferred compensation plan liabilities of $4 million and $14 million were recorded in current and non-current liabilities, respectively. They are recorded at the value of the amount owed to the plan participants, with changes in value recognized as compensation expense. The calculation of the deferred compensation plan obligation is derived from observable market data by reference to hypothetical investments selected by the participants. |
There were no0 transfers between levels in the fair value hierarchy during the sixthree months ended June 30, 2019.
Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
The carrying amounts of cash, accounts receivable and accounts payable approximate their fair values due to the short-term maturity of these instruments.
The $2.7 billion term loan under the Company’s senior credit agreement entered into on May 4, 2018 (the "Term Loan")Term Loan falls into the Level 2 category within the fair value level hierarchy. The fair value was determined using market data for valuation. The fair value of the Term Loan at June 30, 2019March 31, 2020 and December 31, 20182019 was approximately $2.7$2.3 billion and $2.5$2.4 billion, respectively.
The $180 million Rondo Term Loan entered into on January 31, 2020 falls into the Level 2 category within the fair value level hierarchy. The carrying value of $180 million at March 31, 2020 approximates fair value.
The Sellers Notes and the Short-Term Sellers Note fall into the Level 2 category within the fair value level hierarchy. At March 31, 2020, the carrying value of the Sellers Notes and the Short-Term Sellers Note of $35 million and $1 million, respectively, approximate their fair values.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
There were no0 non-recurring fair value measurements during the sixthree months ended June 30,March 31, 2020 and 2019.
16. Financial Instruments
The Company uses an interest rate swap to manage its exposure to market risks for changes in interest rates.
Interest Rate Risk
The Company is exposed to interest rate risk on its debt obligations. Interest income earned on cash and cash equivalents may fluctuate as interest rates change; however, due to their relatively short maturities, the Company does not hedge these assets or their investment cash flows because the impact of interest rate risk is not material. The Company's debt obligations consist of variable-rate and fixed-rate debt instruments (for further details, refer to Note 13. Debt). The Company's primary objective is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. In order to achieve this objective, the Company has entered into an interest rate swap on the Term Loan.
Interest Rate Derivative – Cash Flow Hedge
The interest rate swap involves the periodic exchange of payments without the exchange of underlying principal or notional amounts. In October 2019, the Company entered into an interest rate lock agreement for a total notional amount of $1.3 billion to hedge part of the Company's interest rate exposure associated with the variability in future cash flows from changes in the one-month LIBOR associated with its Term Loan.
As of March 31, 2020, the total loss, net of income taxes, related to the Company’s cash flow hedge was $46 million, in which $23 million was recognized in accumulated other comprehensive loss and 2018.$23 million was recognized in non-controlling interests (NaN as of March 31, 2019).
A summary of the fair values of derivative instruments in the consolidated balance sheets was as follows (in thousands):
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||||
Derivatives Designated as Hedging Instruments |
| Balance Sheet Classification |
| Fair Value |
|
| Balance Sheet Classification |
| Fair Value |
| ||
Variable-to-fixed interest rate swap |
| Other long-term liabilities |
| $ | 46,285 |
|
| Other assets |
| $ | 16,373 |
|
17. Commitments and Contingencies
Commitments
Commercial Manufacturing, Collaboration, License, and Distribution Agreements
The Company continues to seek to enhance its product line and develop a balanced portfolio of differentiated products through product acquisitions and in-licensing. Accordingly, the Company, in certain instances, may be contractually obligated to make potential future development, regulatory, and commercial milestone, royalty and/or profit sharing payments in conjunction with collaborative agreements or acquisitions that the Company has entered into with third parties. The Company has also licensed certain technologies or intellectual property from various third parties. The Company is generally required to make upfront payments as well as other payments upon successful completion of regulatory or sales milestones. The agreements generally permit the Company to terminate the agreement with no significant continuing obligation. The Company could be required to make significant payments pursuant to these arrangements. These payments are contingent upon the occurrence of certain future events and, given the nature of these events, it is unclear when, if ever, the Company may be required to pay such amounts. Further, the timing of any future payment is not reasonably estimable.
Contingencies
Legal Proceedings
The Company's legal proceedings are complex, constantly evolving and subject to uncertainty. As such, the Company cannot predict the outcome or impact of the legal proceedings set forth below. AndAdditionally, the Company is subject to legal proceedings that are not set forth below. While the Company believes it has valid claims and/or defenses to the matters described below, the nature of litigation is unpredictable, and the outcome of the following proceedings could include damages, fines, penalties and injunctive or administrative remedies. For any proceedings where losses are probable and reasonably capable of estimation, the Company accrues for a potential loss. While these accruals have been deemed reasonable by the Company’s management, the assessment process relies heavily on estimates and assumptions that may ultimately prove inaccurate or incomplete. Additionally, unforeseen circumstances or events may lead the Company to subsequently change its estimates and assumptions. Unless otherwise indicated below, the Company is at this time unable to estimate the possible loss, if any, associated with such litigation.
The Company currently intends to vigorously prosecute and/or defend these proceedings as appropriate. From time to time, however, the Company may settle or otherwise resolve these matters on terms and conditions that it believes to be in its best interest. ResolutionFor the three months ended March 31, 2020, the Company recorded a charge of approximately $5 million for commercial legal proceedings and claims. The ultimate resolution of any or all claims, legal proceedings or investigations could differ materially from our estimate and have a material adverse effect on the Company's results of operations and/or cash flow in any given accounting period, or on the Company's overall financial condition.
Additionally, the Company manufactures and derives a portion of its revenue from the sale of pharmaceutical products in the opioid class of drugs, and may therefore face claims arising from the regulation and/or consumption of such products.
Although the outcome and costs of the asserted and unasserted claims is difficult to predict, based on the information presently known to management, the Company does not currently expect the ultimate liability, if any, for such matters to have a material adverse effect on its business, financial condition, results of operations, or cash flows.
Medicaid Reimbursement Accrual
The Company is required to provide pricing information to state agencies, including agencies that administer federal Medicaid programs. Certain state agencies have alleged that manufacturers have reported improper pricing information, which allegedly caused them to overpay reimbursement costs. Other agencies have alleged that manufacturers have failed to timely file required reports concerning pricing information. Reserves are periodically established by the Company for any potential claims or settlements of overpayment. Although theThe Company intends to vigorously defend against any such claims, it had a reserve of $15 million at both June 30, 2019 and December 31, 2018.claims. The ultimate settlement of any potential liability for such claims may be higher or lower than estimated.
Patent Litigation
There is substantial litigation in the pharmaceutical, biological, and biotechnology industries with respect to the manufacture, use, and sale of new products which are the subject of conflicting patent and intellectual property claims. One or more patents often cover the brand name products for which the Company is developing generic versions and the Company typically has patent rights covering the Company’s branded products.
Under federal law, when a drug developer files an Abbreviated New Drug Application ("ANDA") for a generic drug seeking approval before expiration of a patent which has been listed with the FDA as covering the brand name product, the developer must certify its product will not infringe the listed patent(s) and/or the listed patent is invalid or unenforceable (commonly referred to as a "Paragraph IV" certification). Notices of such certification must be provided to the patent holder, who may file a suit for patent infringement within 45 days of the patent holder’s receipt of such notice. If the patent holder files suit within the 45-day period, the FDA can review and tentatively approve the ANDA, but generally is prevented from granting final marketing approval of the product until a final judgment in the action has been rendered in favor of the generic drug developer, or 30 months from the date the notice was received, whichever is sooner. The Company’s GenericGenerics segment is typically subject to patent infringement litigation brought by branded pharmaceutical manufacturers in connection with the Company’s Paragraph IV certifications seeking an order delaying the approval of the Company’s ANDA until expiration of the patent(s) at issue in the litigation. Likewise, the Company’s Specialty segment is currently involved in patent infringement litigation against generic drug manufacturers that have filed Paragraph IV certifications to market their generic drugs prior to expiration of the Company’s patents at issue in the litigation.
The uncertainties inherent in patent litigation make the outcome of such litigation difficult to predict. For the Company’s Generics segment, the potential consequences in the event of an unfavorable outcome in such litigation include delaying launch of its generic products until patent expiration. If the Company were to launch its generic product prior to successful resolution of a patent litigation, the Company could be liable for potential damages measured by the profits lost by the branded product manufacturer rather than the profits earned by the Company if it is found to infringe a valid, enforceable patent, or enhanced treble damages in cases of willful infringement. For the Company’s Specialty segment, an unfavorable outcome may significantly accelerate generic competition ahead of expiration of the patents covering the Company’s branded products. All such litigation typically involves significant expense.
The Company is generally responsible for all of the patent litigation fees and costs associated with current and future products not covered by its alliance and collaboration agreements. The Company has agreed to share legal expenses with respect to third-party and Company products under the terms of certain of the alliance and collaboration agreements. The Company records the costs of patent litigation as expense in the period when incurred for products it has developed, as well as for products which are the subject of an alliance or collaboration agreement with a third-party.
Patent Infringement Matters
Impax Laboratories, LLC. v. Zydus Pharmaceuticals USA, Inc. and Cadila Healthcare Ltd. (Rytary
®)On December 21, 2017, Impax filed suit against Zydus Pharmaceuticals USA, Inc. and Cadila Healthcare Ltd. (collectively, "Zydus") in the United States District Court for the District of New Jersey, alleging infringement of U.S. Patent No. 9,089,608, based on the filing of Zydus’s ANDA relating to carbidopa and levodopa extended release capsules, generic to Rytary
®. Zydus answered the complaint on April 27, 2018, asserting counterclaims of non-infringement and invalidity of U.S. Pat. Nos. 7,094,427; 8,377,474; 8,454,998; 8,557,283; and 9,089,607. Impax answered Zydus’s counterclaims on June 1, 2018. Zydus filed a motion for judgment on the pleadings regarding its counterclaims. On November 29, 2018, the Court granted Zydus’s motion for judgment as to its counterclaims. A case scheduleOther Litigation Related to the Company’s Business
Opana ER® FTC Antitrust Litigation
On February 25, 2014, Impax received a Civil Investigative Demand (“CID”) from the Federal Trade Commission (“FTC”) concerning its investigation into the drug Opana® ER and its generic equivalents. On March 30, 2016, the FTC filed a complaint against Impax, Endo Pharmaceuticals Inc. ("Endo"), and others in the United States District Court for the Eastern District of Pennsylvania, alleging that Impax and Endo violated antitrust laws when they entered into a June 2010 co-promotion and
On July 12, 2019, the Company received a CID from the FTC concerning an August 2017 settlement agreement between Impax and Endo, which resolved a dispute between the parties regarding, and amended, the above-referenced June 2010 settlement agreement related to Opana® ER. The
Company has been cooperating and intends to cooperatecontinue cooperating with the FTC regarding the CID. However, no assurance can be given as to the timing or outcome of the FTC’s underlying investigation.
Opana ER® Antitrust Litigation
From June 2014 to April 2015, 14 complaints styled as class actions on behalf of direct purchasers and indirect purchasers (also known as end-payors) and several separate individual complaints on behalf of certain direct purchasers (the “opt-out plaintiffs”) were filed against the manufacturer of the brand drug Opana ER® and Impax.
The direct purchaser plaintiffs comprise Value Drug Company and Meijer Inc. The end-payor plaintiffs comprise the Fraternal Order of Police, Miami Lodge 20, Insurance Trust Fund; Wisconsin Masons’ Health Care Fund; Massachusetts Bricklayers; Pennsylvania Employees Benefit Trust Fund; International Union of Operating Engineers, Local 138 Welfare Fund; Louisiana Health Service & Indemnity Company d/b/a Blue Cross and Blue Shield of Louisiana; Kim Mahaffay; and Plumbers & Pipefitters Local 178 Health & Welfare Trust Fund. The opt-out plaintiffs comprise Walgreen Co.; The Kroger Co.; Safeway, Inc.; HEB Grocery Company L.P.; Albertson’s LLC; Rite Aid Corporation; Rite Aid Hdqtrs. Corp.; and CVS Pharmacy, Inc.
On December 12, 2014, the United States Judicial Panel on Multidistrict Litigation (the "JPML") ordered the pending class actions transferred to the United States District Court for the Northern District of Illinois (“N.D. Ill.”) for coordinated pretrial proceedings, as In Re: Opana ER Antitrust Litigation (MDL No. 2580). (Actions subsequently filed in other jurisdictions also were transferred by the JPML to the N.D. Ill. to be coordinated or consolidated with the coordinated proceedings, and the District Court likewise has consolidated the opt-out plaintiffs’ actions with the direct purchaser class actions for pretrial purposes.)
In each case, the complaints allege that Endo engaged in an anticompetitive scheme by, among other things, entering into an anticompetitive settlement agreement with Impax to delay generic competition of Opana ER® and in violation of state and federal antitrust laws. Plaintiffs seek, among other things, unspecified monetary damages and equitable relief, including disgorgement and restitution. Discovery, including expert discovery, is ongoing. On March 25, 2019, plaintiffs filed motions for class certification and served opening expert reports. Defendants’ oppositions to class certification and rebuttal expert reports arewere filed and served on August 29, 2019. On November 5, 2019, plaintiffs filed reply briefs in further support of their motions for class certification. On January 17, 2020, defendants filed a motion for leave to file joint surreply briefs in response thereto; plaintiffs filed responses on January 24, 2020. On February 5, 2020, the court granted defendants’ motion for leave, and entered a case schedule to which the parties jointly stipulated, setting a trial date of March 15, 2021, though it will likely be delayed due to bethe COVID-19 pandemic. On April 15, 2020, defendants filed in August 2019. No trial date has been scheduled.
The Company believes it has substantial meritorious defenses to the claims asserted with respect to the litigation. However, any adverse outcome could negatively affect the Company and could have a material adverse effect on the Company's results of operations, cash flows and/or overall financial condition.
Attorney General of the State of Connecticut Interrogatories and Subpoena Duces Tecum
On July 14, 2014, Impax received a subpoena and interrogatories (the "Subpoena") from the State of Connecticut Attorney General ("Connecticut AG") concerning its investigation into sales of Impax's generic product, digoxin. According to the Connecticut AG, the investigation is to determine whether anyone engaged in a contract, combination or conspiracy in restraint of trade or commerce which has the effect of (i) fixing, controlling or maintaining prices or (ii) allocating or dividing customers or territories relating to the sale of digoxin in violation of Connecticut state antitrust law. The Company has produced documents and information in response to the Subpoena. However, no assurance can be given as to the timing or outcome of this investigation.
United States Department of Justice Investigations
On November 6, 2014, Impax disclosed that one of its sales representatives received a grand jury subpoena from the Antitrust Division of the United States Department of Justice (the "DOJ"). In connection with this same investigation, on March 13, 2015, Impax received a grand jury subpoena from the DOJ requesting the production of information and documents regarding the sales, marketing, and pricing of certain generic prescription medications. In particular, the DOJ’s investigation currently focuses on four4 generic medications: digoxin tablets, terbutaline sulfate tablets, prilocaine/lidocaine cream, and calcipotriene topical solution. The Company has been cooperating and intends to continue cooperating with the investigation. However, no assurance can be given as to the timing or outcome of the investigation.
On April 30, 2018, Impax received a CID from the Civil Division of the DOJ (the "Civil Division"). The CID requests the production of information and documents regarding the pricing and sale of Impax’s pharmaceuticals and Impax’s interactions with other generic pharmaceutical manufacturers. According to the CID, the investigation concerns allegations that generic pharmaceutical manufacturers, including Impax, engaged in market allocation and price-fixing agreements, paid illegal remuneration, and caused false claims to be submitted to the Federal government. The Company has been cooperating and intends to continue cooperating with the Civil Division’s investigation. However, no assurance can be given as to the timing or outcome of the investigation.
Texas State Attorney General Civil Investigative Demand
On May 27, 2014, a CID was served on Amneal by the Office of the Attorney General for the state of Texas (the "Texas AG") relating to products distributed by Amneal under a specific Amneal labeler code. Shortly thereafter, Amneal received a second CID with respect to the same products sold by Interpharm Holding, Inc. ("Interpharm"), the assets of which had been acquired by Amneal in June 2008. Amneal completed its production of the direct and indirect sales transaction data in connection with the products at issue and provided this information to the Texas AG in November 2015. In May 2016, the Texas AG delivered two 2 settlement demands to Amneal in connection with alleged overpayments made by the State of Texas for such products under its Medicaid programs. For the Amneal and Interpharm products at issue, the Texas AG’s initial demand was for an aggregate total of $36 million based on $16 million in alleged overpayments. After analyzing the Texas AG’s demand, Amneal raised certain questions regarding the methodology used in the Texas AG’s overpayment calculations, including the fact that the calculations treated all pharmacy claims after 2012 for the products at issue as claims for over-the-counter ("OTC") drugs, even though the products were prescription pharmaceuticals. This had the effect of increasing the alleged overpayment because the dispensing fee for OTC drugs was lower than that for prescription drugs. Therefore, the Texas AG’s calculations were derived by subtracting a lower (and incorrect) OTC dispensing fee from the higher (and correct) prescription dispensing fee. The Texas AG later acknowledged this discrepancy. In March 2019, the Texas AG provided Amneal with a re-calculation of the alleged overpayment, andoverpayment. In October 2019, Amneal isreached an agreement in discussionsprinciple with the Texas AG.
In Re Generic Pharmaceuticals Pricing Antitrust Litigation
Beginning in March 2016, and January 2019, numerous complaints styled as antitrust class actions on behalf of direct purchasers and indirect purchasers (or end-payors) and several separate individual complaints on behalf of certain direct and indirect purchasers (the “opt-out plaintiffs”) have been filed against manufacturers of generic digoxin, lidocaine/prilocaine, glyburide-metformin, and metronidazole, including Impax.
The end-payor plaintiffs comprisecomprised Plaintiff International Union of Operating Engineers Local 30 Benefits Fund; Tulsa Firefighters Health and Welfare Trust; NECA-IBEW Welfare Trust Fund; Pipe Trade Services MN; Edward Carpinelli; Fraternal Order of Police, Miami Lodge 20, Insurance Trust Fund; Nina Diamond; UFCW Local 1500 Welfare Fund; Minnesota Laborers Health and Welfare Fund; The City of Providence, Rhode Island; Philadelphia Federation of Teachers Health and Welfare Fund; United Food & Commercial Workers and Employers Arizona Health and Welfare Trust; Ottis McCrary; Plumbers & Pipefitters Local 33 Health and Welfare Fund; Plumbers & Pipefitters Local 178 Health and Welfare Trust Fund; Unite Here Health; Valerie Velardi; and Louisiana Health Service Indemnity Company. The direct purchaser plaintiffs comprisecomprised KPH Healthcare Services, Inc. a/k/a Kinney Drugs, Inc.; Rochester Drug Co-Operative, Inc.; César Castillo, Inc.; Ahold USA, Inc.; and FWK Holdings, L.L.C. The opt-out plaintiffs comprisecomprised The Kroger Co.; Albertsons Companies, LLC; H.E. Butt Grocery Company L.P.; Humana Inc.; and United Healthcare Services, Inc.
On April 6, 2017, the JPML ordered the consolidation of all civil actions involving allegations of antitrust conspiracies in the generic pharmaceutical industry regarding 18 generic drugs in the United States District Court for the Eastern District of Pennsylvania (“E.D. Pa.”), as In Re: Generic Pharmaceuticals Pricing Antitrust Litigation (MDL No. 2724). Consolidated class action complaints were filed on August 15, 2017 for each of the 18 drugs; Impax is named as a defendant in the 2 complaints respecting digoxin and lidocaine-prilocaine. Impax also is a defendant in the class action complaint filed with the MDL court on June 22, 2018 by certain direct purchasers of glyburide-metformin and metronidazole.
Each of the various complaints alleges a conspiracy to fix, maintain, stabilize, and/or raise prices, rig bids, and allocate markets or customers for the particular drug products at issue. Plaintiffs seek, among other things, unspecified monetary damages and equitable relief, including disgorgement and restitution. On October 16, 2018, the Court denied Impax and its co-defendants’ motion to dismiss the digoxin complaint. On February 15, 2019, the Court granted in part and denied in part defendants’ motions to dismiss various state antitrust, consumer protection, and unjust enrichment claims brought by two classes of indirect purchasers in the digoxin action. The Court dismissed seven 7 state law claims in the end-payor plaintiffs’ complaint and six6 state law claims in the indirect reseller plaintiffs’ complaint. Motions to dismiss the glyburide-metformin and metronidazole complaint, as well as 2 of the complaints filed by certain opt-out plaintiffs, were filed February 21, 2019. On March 11, 2019, the Court issued an order approving a stipulation withdrawing the direct purchaser plaintiffs’ glyburide-metformin claims against Impax. Document discovery otherwise is proceeding.
On May 10, 2019, the Company was named in a civil lawsuit filed by the Attorneys General of 43 States and the Commonwealth of Puerto Rico in the United States District Court for the District of Connecticut against numerous generic pharmaceutical manufacturers, as well as certain of their current or former sales and marketing executives, regarding an alleged conspiracy to fix prices and allocate or divide customers or markets for various products, including, with respect to the Company, bethanechol chloride tablets, norethindrone acetate tablets, and ranitidine HCL tablets, in violation of federal and state antitrust and consumer protection laws. Plaintiff States seek, among other things, unspecified monetary damages (including treble damages and civil penalties), as well as equitable relief, including disgorgement and restitution. On June 4, 2019, the JPML transferred the lawsuit to the E.D. Pa. for coordination and consolidation with MDL No. 2724.
On July 31, 2019, the Company and Impax were served with a Praecipe to Issue Writ of Summons and Writ of Summons filed in the Philadelphia County Court of Common Pleas by 87 health insurance companies and managed health care providers (America’s 1st Choice of South Carolina, Inc., et al. v. Actavis Elizabeth, LLC, et al., No. 190702094), naming as defendants in the putative action the same generic pharmaceutical manufacturers and individuals named in the above-referenced State Attorneys General lawsuit (America’s 1st Choice Of South Carolina, Inc., et al., v. Actavis Elizabeth, LLC, et al., No. 190702094).lawsuit. However, to date, no complaint has been filed or
served in this action.
On October 11, 2019, opt-out plaintiff United Healthcare Services, Inc. filed a second complaint, in the United States District Court for the District of Minnesota (United Healthcare Services, Inc. v. Teva Pharmaceuticals USA, Inc., et al., No. 0:19-cv-02696), following on and supplementing its original action, asserting antitrust claims against the Company and other generic pharmaceutical manufacturers arising from the facts alleged in the above-referenced State Attorneys General lawsuit. Plaintiff seeks, among other things, unspecified monetary damages and equitable relief, including disgorgement and restitution. The parties anticipate that the lawsuit will be transferred by the JPML to the E.D. Pa. for coordination and consolidation with MDL No. 2724.
On October 18, 2019, opt-out plaintiff Humana, Inc. also filed a second complaint, likewise following on supplementing its original action to assert antitrust claims against the Company and other generic pharmaceuticals manufacturers arising from the facts alleged in the above-referenced State Attorneys General lawsuit, and similarly seeking, among other things, unspecified monetary damages and equitable relief, including disgorgement and restitution. The lawsuit was filed in the E.D. Pa. (Humana Inc. v. Actavis Elizabeth, LLC, et al., No. 2:19-cv 04862), and likely will be incorporated into MDL No. 2724 for coordinated pretrial proceedings.
On November 14, 2019, the Company was named in a complaint filed in the Supreme Court of the State of New York, Nassau County, on behalf of 14 counties in the state of New York, who allege to be both direct and end-payor purchasers of generic pharmaceutical drugs (County of Nassau, et al., v. Actavis Holdco U.S., Inc., et al., No. 616029/2019). The complaint asserts antitrust claims against the Company and other generic pharmaceutical manufacturers arising from the facts alleged in the above-referenced State Attorneys General lawsuit. Plaintiff Counties seek, among other things, unspecified monetary damages and equitable relief, including disgorgement and restitution. On December 17, 2019, defendants removed the case to the United States District Court for the Eastern District of New York (No. 2:19-cv-07071) and, on January 3, 2020, the case was transferred by the JPML to the E.D. Pa. for coordination and consolidation with MDL No. 2724.
On December 11, 2019, the Company and Impax were named in a complaint filed in E.D. Pa. by Health Care Service Corp., a customer-owned health insurer opting out of the end-payor plaintiff class (Health Care Service Corp. v. Actavis Elizabeth, LLC, et al., No. 2:19-cv-05819-CMR). Plaintiff alleges a conspiracy among generic pharmaceutical manufacturers to fix prices and allocate or divide customers or markets for various products (including, with respect to the Company, bethanechol chloride tablets, norethindrone acetate tablets, and ranitidine HCL tablets; and with respect to Impax, digoxin, lidocaine-prilocaine, and metronidazole) in violation of federal and state antitrust and consumer protection laws. Plaintiff seeks, among other things, unspecified monetary damages and equitable relief, including disgorgement and restitution. The lawsuit likely will be incorporated into MDL No. 2724 for coordinated pretrial proceedings.
On December 16, 2019, a complaint was filed in the United States District Court for the District of Connecticut against Impax and against numerous generic pharmaceutical manufacturers on behalf of assignees of claims from third-party health benefit plans, opting out of the end-payor plaintiff class (MSP Recovery Claims, Series LLC, et al. v. Actavis Elizabeth, LLC, et al., No. 3:19-cv-01972-SRU), and alleging a conspiracy to fix prices and allocate or divide customers or markets for various products (including, with respect to Impax, digoxin and lidocaine-prilocaine) in violation of federal and state antitrust and consumer protection laws. Plaintiffs seek, among other things, unspecified monetary damages and equitable relief, including disgorgement and restitution. On January 10, 2020, the case was transferred by the JPML to the E.D. Pa. for coordination and consolidation with MDL No. 2724.
On December 19, 2019, the end-payor plaintiffs filed a new complaint, following on and supplementing their putative class action lawsuit pending in MDL No. 2724. Plaintiffs’ new complaint, which names as defendants the Company, Amneal, Impax, and numerous generic pharmaceutical manufacturers, alleges a conspiracy to fix prices and allocate or divide customers or markets for various products (including, with respect to the Company/Amneal, bethanechol chloride tablets, norethindrone acetate tablets, ranitidine HCL tablets, naproxen sodium tablets, oxycodone/acetaminophen tablets, phenytoin sodium capsules, and warfarin sodium tablets; and with respect to Impax, metronidazole, amphetamine salts tablets, dextroamphetamine sulfate ER capsules, cyproheptadine HCL tablets, methylphenidate tablets, and pilocarpine HCL tablets) in violation of federal and state antitrust and consumer protection laws. Plaintiffs continue to seek, among other things, unspecified monetary damages and equitable relief, including disgorgement and restitution.
On December 20, 2019, the indirect-reseller plaintiffs filed a new complaint naming the Company, following on and supplementing their putative class action lawsuit pending in MDL No. 2724. The new complaint is brought on behalf of both independent pharmacies and hospitals, and asserts antitrust claims against the Company and other generic pharmaceutical manufacturers (as well as distributors of generic pharmaceuticals, including AmerisourceBergen Corp., Cardinal Health Inc., and McKesson Corporation) arising from the facts alleged in the above-referenced State Attorneys General lawsuit. Plaintiffs continue to seek, among other things, unspecified monetary damages and equitable relief, including disgorgement and restitution.
On December 27, 2019, the Company and Impax were named in a complaint filed in the United States District Court for the Northern District of California by Molina Healthcare, Inc., a publicly traded healthcare management organization opting out of the end-payor plaintiff class (Molina Healthcare, Inc. v. Actavis Elizabeth, LLC, et al., No. 3:19-cv-08438). Plaintiff alleges a conspiracy among generic pharmaceutical manufacturers to fix prices and allocate or divide customers or markets for various products (including, with respect to the Company, bethanechol chloride tablets, norethindrone acetate tablets, and ranitidine HCL tablets; and with respect to Impax, digoxin, lidocaine-prilocaine, and metronidazole) in violation of federal and state antitrust and consumer protection laws. Plaintiff seeks, among other things, unspecified monetary
damages and equitable relief, including disgorgement and restitution. On February 5, 2020, the case was transferred by the JPML, to the E.D. Pa. for coordination and consolidation with MDL No. 2724.
On February 7, 2020, the direct purchaser plaintiffs filed a new complaint, following on and supplementing their putative class action lawsuit pending in MDL No. 2724. Plaintiffs’ new complaint, which names as defendants the Company, Amneal, Impax, and numerous generic pharmaceutical manufacturers, alleges a conspiracy to fix prices and allocate or divide customers or markets for various products (including, with respect to the Company/Amneal, bethanechol chloride tablets, ranitidine HCL tablets, naproxen sodium tablets, oxycodone/acetaminophen tablets, hydrocodone/acetaminophen tablets, phenytoin sodium capsules, and warfarin sodium tablets; and with respect to Impax, amphetamine salts tablets, dextroamphetamine sulfate ER capsules, methylphenidate tablets, and pilocarpine HCL tablets) in violation of federal and state antitrust and consumer protection laws. Plaintiffs continue to seek, among other things, unspecified monetary damages and equitable relief, including disgorgement and restitution.
On March 2, 2020, the Company, Amneal, and Amneal Pharmaceuticals of NY, LLC, were named in a complaint filed in the United States District Court for the Southern District of Texas by Harris County, Texas, which is the primary county for the Houston Metropolitan Area (Harris County, Texas v. Teva Pharmaceuticals USA, Inc., et al., No. 4:20-cv-00733). Plaintiff alleges a conspiracy among generic pharmaceutical manufacturers to fix prices and allocate or divide customers or markets for various products in violation of federal and state antitrust and consumer protection laws; specifically, plaintiff alleges that it has paid approximately $3.86 million since 2013 for products attributable to Amneal entities. On March 30, 2020, the JPML issued a conditional transfer order tagging the case for transfer to the E.D. Pa. for coordination and consolidation with MDL No. 2724.
Fact and document discovery in MDL No. 2724 are proceeding. On December 26, 2019, the MDL court entered a case management order extending by stipulation certain pretrial discovery deadlines, including leaving open-ended the date by which, after consultation with MDL court's appointed Special Master, the parties are to agree upon bellwether claims or cases for, inter alia, class certification and/or trials. On February 20, 2020, the Special Master issued a Report & Recommendation and Proposed Order providing for the establishment of two bellwether trial tracks; Track One would involve a jury trial of the overarching conspiracy claims presented in the States Attorneys General’s May 10, 2019 complaint (in which the Company and Amneal are defendants), and Track Two would consist of a second round of trials on one of three different individual drug conspiracy complaints (none of which involve the Company or any Amneal entities). Briefing in support of and in opposition to the Special Master’s proposal is underway.
The Company believes it has substantial meritorious defenses to the claims asserted with respect to the litigation. However, any adverse outcome could negatively affect the Company and could have a material adverse effect on the Company's results of operations, cash flows and/or overall financial condition.
Prescription Opioid Litigation
The Company and certain of its affiliates have been named as defendants in various matters relating to the promotion and sale of prescription opioid pain relievers. The Company is aware that other individuals and states and political subdivisions are filing comparable actions against, among others, manufacturers and parties that have promoted and sold prescription opioid pain relievers, and additional suits may be filed.
The complaints, asserting claims under provisions of different state and Federal law, generally contend that the defendants allegedly engaged in improper marketing of opioids, and seek a variety of remedies, including restitution, civil penalties, disgorgement of profits, treble damages, attorneys’ fees and injunctive relief. None of the complaints specifies the exact amount of damages at issue. The Company and its affiliates that are defendants in the various lawsuits deny all allegations asserted in these complaints and have filed or intend to file motions to dismiss where possible. Each of the opioid-related matters described below is in its early stages. The Company intends to continue to vigorously defend these cases. In light of the inherent uncertainties of civil litigation, the Company is not in a position to predict the likelihood of an unfavorable outcome or provide an estimate of the amount or range of potential loss in the event of an unfavorable outcome in any of these matters.
On August 17, 2017, plaintiff Linda Hughes, as the mother of Nathan Hughes, decedent, filed a complaint in Missouri state court naming Amneal Pharmaceuticals of New York LLC, Impax, five5 other pharmaceutical company defendants, and three3 healthcare provider defendants. Plaintiff alleges that use of defendants’ opioid medications caused the death of her son, Nathan Hughes. The complaint alleges causes of action against Amneal and Impax for strict product liability, negligent product liability, violation of Missouri Merchandising Practices Act and fraudulent misrepresentation. The case was removed to federal court on September 18, 2017. It was transferred to the United States District Court for the Northern District of Ohio on February 2, 2018 and is part of the multidistrict litigation pending as In Re National Prescription Opiate Litigation, MDL No. 2804 (the “MDL”). Plaintiff has filed a motion to remand the case to Missouri state court. That motion remains pending before the MDL court. All activity in the case is stayed by order of the MDL court.
On March 15, 2018, plaintiff Scott Ellington, purporting to represent the State of Arkansas, more than sixty60 counties and a dozen cities, filed a complaint in Arkansas state court naming Gemini Laboratories, LLC and fifty-oneNaN other pharmaceutical companies as defendants. Plaintiffs allege that Gemini and the other pharmaceutical company defendants improperly marketed, sold, and distributed opioid medications and failed to adequately warn about the risks of those medications. Plaintiffs allege causes of actions against Gemini and the other pharmaceutical company defendants for negligence and nuisance and alleged violations of multiple Arkansas statutes. Plaintiffs request past damages and restitution for monies allegedly spent by the State of Arkansas and the county and city plaintiffs for “extraordinary and additional services” for responding to
what plaintiffs term the “Arkansas Opioid Epidemic.” Plaintiffs also seek prospective damages to allow them to “comprehensively intervene in the Arkansas Opioid Epidemic,” punitive and treble damages as provided by law, and their costs and fees. The complaint does not include any specific damage amounts. Gemini filed a general denial and, on June 28, 2018, it joined the other pharmaceutical company defendants in moving to dismiss plaintiffs’ complaint. On January 29, 2019, the Court granted without prejudice Gemini’s motion to dismiss and dismissed Gemini from the litigation on March 22, 2019.
On March 27, 2018, plaintiff American Resources Insurance Company, Inc. filed a complaint in the United States District Court for the Southern District of Alabama against Amneal, Amneal Pharmaceuticals of New York, LLC, Impax, and thirty-five NaN other pharmaceutical company defendants. Plaintiff seeks certification of a class of insurers that since January 1, 2010, allegedly have been wrongfully required to: (i) reimburse for prescription opioids that allegedly were promoted, sold, and distributed illegally and improperly by the pharmaceutical company defendants; and (ii) incur costs for treatment of overdoses of opioid medications, misuse of those medications, or addiction to them. The complaint seeks compensatory and punitive damages, but plaintiff’s complaint does not include any allegation of specific damage amounts. On or about May 2, 2018, the case was transferred to the MDL. All activity in the case is stayed by order of the MDL court.
On May 30, 2018, plaintiff William J. Comstock filed a complaint in Washington state court against Amneal Pharmaceuticals of New York, LLC, and four 4 other pharmaceutical company defendants. Plaintiff alleges he became addicted to opioid medications manufactured and sold by the pharmaceutical company defendants, which plaintiff contends caused him to experience opioid-induced psychosis, prolonged hospitalizations, pain, and suffering. Plaintiff asserts causes of action against Amneal and the other pharmaceutical company defendants for negligence, fraudulent misrepresentation, and violations of the Washington Consumer Protection Act. On July 12, 2018, Amneal and other defendants removed the case to the United States District Court for the Eastern District of Washington. On August 17, 2018, the case was transferred to the MDL. All activity in the case is stayed by order of the MDL court.
On June 18, 2018, a Subpoena and CID issued by the Office of the Attorney General of Kentucky, Office of Consumer Protection was served on Amneal. The CID contains eleven11 requests for production of documents pertaining to opioid medications
On July 9, 2018, the Muscogee (Creek) Nation filed a First Amended Complaint in its case pending in the MDL against the Company and 55 other defendants consisting of pharmaceutical companies, wholesalers, distributors, and pharmacies. Plaintiff alleges it has been damaged by the Company and the other pharmaceutical company defendants as a result of alleged improper marketing, including off-label marketing, failure to adequately warn of the risks of opioid medications, and failure to properly monitor and control diversion of opioid medications within the Nation. The case has been designated as a bellwether motion to dismiss case for the MDL, meaning it is a test case for arguments directed at the complaints filed by Indian tribes in the MDL cases. On August 31, 2018, the Company moved to dismiss the First Amended Complaint, and also joined in separate motions to dismiss filed by different defense subgroups. Plaintiff opposed these motions. Additionally, on September 28, 2018, plaintiff filed a motion to add Amneal and Amneal Pharmaceuticals of New York, LLC, and to dismiss the Company from the complaint. The Company opposed that motion, and plaintiff filed a reply on October 19, 2018. On April 1, 2019, the MDL court's designated magistrate judge issued a Report and Recommendation as to the Company’s motion to dismiss, recommending dismissal of plaintiff’s Lanham Act claims and state-law claims based on an alleged duty to correct alleged misrepresentations of brand-name manufacturers, but recommending denial of relief as to all other claims. On April 12, 2019, the magistrate judge overruled the Company’s objection to adding Amneal and Amneal Pharmaceuticals of New York, LLC, but dismissed the Company. Amneal and Amneal Pharmaceuticals of New York, LLC, filed an objection to the magistrate’s Report and Recommendation as to the Company’s motion to dismiss on April 29, 2019. On June 13, 2019, the MDL court denied the objections and subsequently ordered the defendants to file Answers to the First Amended Complaint. On July 26,August 16, 2019, Amneal and Amneal Pharmaceuticals of New York, LLC filed their respective answers.
On July 18, 2018, the County of Webb, Texas requested waivers of service from Amneal and Amneal Pharmaceuticals of New York, LLC, in its case pending in the MDL. Plaintiff’s Amended Complaint, filed against Amneal and forty-one NaN other defendants consisting of pharmaceutical companies, wholesalers, distributors, and pharmacy benefit managers, alleges damages as a result of Amneal’s and the pharmaceutical company defendants’ improper marketing, failure to adequately warn of the risks of opioid medications, and failure to properly monitor and control diversion of opioid medications in or affecting Webb County. Amneal and Amneal Pharmaceuticals of New York, LLC have returned the requested waivers. All activity in the case is stayed by order of the MDL court.
On August 24, 2018, the Tucson Medical Center filed a complaint against the Company and 18 other defendants consisting of pharmaceutical companies, distributors, and unidentified John Doe defendants, in the Superior Court of the State of Arizona, Pima County. Plaintiff alleges damages as a result of Amneal’s and the pharmaceutical company defendants’ improper marketing, failure to adequately warn of the risks of opioid medications, and failure to properly monitor and control diversion of opioid medications. Plaintiff seeks economic damages related to its purchase of opioid medications and for the costs of unreimbursed healthcare it has provided as a result of the opioid epidemic over and above ordinary healthcare services. In addition, plaintiff seeks compensatory damages, treble damages, punitive damages, awards of attorney’s fees, and abatement of the alleged public nuisance, as provided by law. On September 24, 2018, the distributor defendants removed the case to the United States District Court for the District of Arizona. Plaintiff filed a motion to remand on September 25, 2018, which the distributor defendants opposed. The Company filed a motion to dismiss on October 1, 2018. On October 8, 2018, following the Court’s denial of its remand motion, plaintiff voluntarily dismissed its Complaint without prejudice. Plaintiff re-filed its Complaint on October 9, 2018, in the Superior Court of the
State of Arizona, Pima County, along with a motion to designate the case as “complex.” The distributor defendants filed a notice of removal on October 29, 2018. Plaintiff filed an Emergency Motion to Remand on October 30, 2018. On December 19, 2018, the Court granted plaintiff’s motion and remanded the case to the Superior Court of Pima County, Arizona. On February 13, 2019, the Company again filed a motion to dismiss the complaint. The defendants (including the Company) also moved for a discovery stay pending resolution of their motions to dismiss. The Court entered an order on April 8, 2019 staying discovery until the earlier of June 25, 2019 or when the Court rules on the defendants’ separate motions to dismiss. On June 12, 13, and 14, 2019, the Court held hearings on all pending motions to dismiss. Immediately prior to the hearing on Amneal’s Motion to Dismiss, plaintiff agreed to a voluntary dismissal without prejudice of Amneal, which the parties then entered on the record. The co-defendants are attempting to re-removeremoved the case to federal court;court, but the federal court re-remanded the case to state court. Plaintiff initially amended its complaint in state court and attempted to name Amneal as a defendant; however, plaintiff did not serve that complaint on Amneal. On February 7, 2020, plaintiff filed a second amended complaint that did not name Amneal as a defendant. Accordingly, Amneal is attempting to amend its complaint.
On October 4, 2018, the City of Martinsville, Virginia, filed a complaint in Virginia state court, naming the Company, Amneal, Amneal Pharmaceuticals of New York, LLC, Impax, and 45 other pharmaceutical companies and other entities as defendants. Plaintiff alleges that the defendants are liable for the economic and non-economic injuries allegedly suffered by resident doctors, health care payors, and opioid-addicted individuals, as well as for the costs incurred in addressing the opioid epidemic. Plaintiff requests an unspecified amount of damages against the defendants. The case was removed to federal court on December 13, 2018
In October and November 2018, the SouthEast Alaska Regional Health Consortium, the Kodiak Area Native Association, and the Norton Sound Health Corporation requested that the Company execute waivers of service in their cases pending in the MDL. Plaintiffs’ complaints name the Company and 37 other entities as defendants. Plaintiffs allege damages and seek injunctive relief, compensatory and statutory damages, “as well as the means to abate the epidemic” that they allege was “created by Defendants’ wrongful and/or unlawful conduct.” All activity in these cases is stayed by order of the MDL court.
On December 3, 2018, Appalachian Regional Healthcare, Inc., filed a complaint in Kentucky state court, naming Amneal and
On January 23, 2019, Indian Health Council, Inc., requested that the Company execute a waiver of service in its case pending in the MDL. Plaintiff’s complaint names the Company and 18 other pharmaceutical companies and other entities as defendants. Plaintiff, an intertribal health organization which provides healthcare services to its consortium’s member tribes, alleges that the defendants are liable for the economic injuries it allegedly suffered as a result of its role in responding to an alleged “epidemic of opioid epidemic.abuse”. Plaintiff requests an unspecified amount of damages against the defendants. The case has been transferred to the MDL. All activity in the case is stayed by order of the MDL court.
On February 7, 2019, Kentucky River District Health Department requested that the Company execute a waiver of service in its case pending in the MDL. Plaintiff’s putative class action complaint names Amneal and 20 other pharmaceutical companies and other entities as defendants. Plaintiff alleges that the defendants are liable for the economic injuries it suffered, on behalf of itself and similarly situated Kentucky health departments, as a result of their role in responding to an alleged opioid“opioid epidemic.” Plaintiff requests an unspecified amount of damages against the defendants. All activity in the case is stayed by order of the MDL court.
In February and March 2019, the Aleutian Pribilof Islands Association and Alaska Native Tribal Health Consortium requested that the Company execute waivers of service in their cases pending in the MDL. Plaintiffs’ complaints name the Company and 37 other entities as defendants. Plaintiffs allege damages and seek injunctive relief, compensatory and statutory damages, “as well as the means to abate the epidemic” that they allege was “created by Defendants’ wrongful and/or unlawful conduct.” All activity in these cases is stayed by order of the MDL court.
In March 2019, Glynn County, Georgia, requested waivers of service from the Company and Amneal in its case pending in the MDL. Plaintiff’s second amended short-form complaint, filed against Amneal and 39 other defendants consisting of pharmaceutical companies, wholesalers, retailers, and distributors, alleges damages as a result of defendants’ alleged improper marketing, fraud, including RICO violations, failure to adequately warn of the risks of opioid medications, failure to properly monitor and control diversion of opioid medications in or affecting Glynn County, negligence, public nuisance, and unjust enrichment. All activity in the case is stayed by order of the MDL court.
On March 14, 2019, the City of Concord, New Hampshire, filed a short-form amendment to its Second Amended Complaint in the MDL court adding the Company, Amneal, and Impax, to 31 other defendants, including pharmaceutical companies, corporate officers of certain brand manufacturer pharmaceutical companies, and distributors. As to the Company, Amneal, and Impax, plaintiff asserts claims for violation of the New Hampshire Consumer Protection Act, public nuisance, unjust enrichment, and violation of RICO. Plaintiff alleges that defendants are liable
for economic injuries experienced by plaintiff, including unspecified restitution, civil penalties, disgorgement of unjust enrichment and attorneys’ fees, as well as for injunctive relief as to defendants’ further false or misleading statements as to opioids, and for exemplary damages. Amneal was served on April 25, 2019. All activity in the case is stayed by order of the MDL court.
On March 15, 2019, the International Union of Painters and Allied Trades, District Council No. 21 Welfare Fund, and, separately, the International Brotherhood of Electrical Workers Local 98 Health & Welfare Fund, and International Brotherhood of Electrical Workers Local 98 Sound and Communications Health and Welfare Fund, filed complaints in the Philadelphia County Common
In March 2019, the State of New Mexico filed a Second Amended Complaint in its case pending against numerous generic drug manufacturers and distributors in the First District Court of Santa Fe County, naming as defendants Amneal and Amneal Pharmaceuticals of New York, LLC. Plaintiff seeks unspecified damages, and in junctiveinjunctive relief, “to eliminate the hazard to public health and safety caused by the opioid epidemic, to abate the nuisance, in [the state], and to recoup State monies that have been spent” on account of defendants’ alleged “false, deceptive and unfair marketing and/or unlawful diversion of prescription opioids.” On July 17, 2019, the Amneal entities moved to dismiss for lack of personal jurisdiction and failure to state a claim upon which relief can be granted. The motionsOn October 15, 2019, the court entered an order dismissing the plaintiff’s negligence per se claims, but declining to dismiss remain pending.
In April 2019, several Virginia municipalities (the County Board of Arlington, Dinwiddie County, and Mecklenburg County) filed Complaints in their respective local circuit courts against the Company, Amneal, Amneal Pharmaceuticals of New York, LLC, and Impax along with numerous additional generic drug manufacturers, distributors, and pharmacies. In each Complaint, plaintiffs seek unspecified damages and equitable relief, alleging that defendants were negligent and/or grossly negligent in flooding the relevant municipalities with prescription opioid medications and engaged in civil conspiracies to do so. Each case had been removed to the United States District Court for the Eastern District of Virginia, but all three since have been remanded back to Virginia state court. Responsive pleadings areThe Company was nonsuited (dismissed) from the Arlington case. Amended Complaints were filed in the Dinwiddie and Mecklenburg cases at the end of November 2019, but they did not yet due.
On June 10, 2019, in their cases currently pending in the MDL, West Virginia municipal-entity plaintiffs Cabell County Commission and the City of Huntington were granted leave to file, then filed, a Joint and Third Amended Complaint naming approximately 20 additional defendants, including the Company, Amneal, Amneal Pharmaceuticals of New York, LLC, and Impax. The plaintiff municipalities, seek unspecified actual, treble, and punitive damages and disgorgement “to eliminate the hazard to public health and safety, to abate the public nuisance caused by the opioid epidemic in the City and County and to compensate both for abatement measures undertaken or underway and damages sustained as a result of the opioid epidemic” they allege the defendants “proximately caused.” These actions have been designated “Track Two” bellwether cases by the MDL court (intended to be adjudicated following the “Track One” cases for which bellwether trials arehad been scheduled for October 2019). On December 31, 2018, the MDL court entered an Order directing the then-parties in these Track Two actions to work with one of the MDL court's appointed Special Masters to prepare case management deadlines. On May 12, 2019, the Special Master entered an Order acknowledging that the press of issues surrounding ongoing litigation of the Track One cases had prevented both the parties and the MDL court from acting on the directives of the prior Track Two Order, and setting deadlines of June 10, 2019 for plaintiffs to amend their complaints, and June 14, 2019 for the submission of proposals for case management by the then-parties to the cases (the Amneal entities were not served with plaintiffs’ Third Amended Complaints until June 25, 2019). However,On December 16, 2019, the MDL court granted plaintiffs’ motion to date, none ofsever all defendants from the existing parties to the cases have filed or submitted any case management proposals to the Special Master. Accordingly, the case management aspect of these Track Two cases remains pending.
In October 2019, the Company, Amneal, Amneal Pharmaceuticals of New York, LLC, and Impax were served with a putative class action complaint, which also names as defendants numerous manufacturers of opioid products (and certain corporate officers thereof), filed in the United States District Court for the Middle District of Tennessee by several individuals who allegedly purchased prescription opioid medication in cash and/or with an insurance co-payment (Rhodes, et al., v. Rhodes Technologies, Inc., et al., No. 3:19-cv-00885). Plaintiffs claim that they would not have purchased these prescription opioid products had defendants not allegedly misrepresented the products’ “addiction propensities,” and thereby suffered economic loss. Plaintiffs purport to represent a nationwide class of all individuals who directly or indirectly purchased prescription opioid medication from January 2008 to the present in 31 different states, allege causes of action for violations of those states’
antitrust laws and consumer protection statutes (and unjust enrichment), and seek, in addition to class certification, unspecified monetary damages (including actual, statutory, and punitive or treble damages) and equitable relief, including declaratory judgment and restitution.
There are currently 26 cases brought by various West Virginia and Kentucky hospitals that have been consolidated in the state-court West Virginia Opioid Litigation Multi-Litigation Panel (the “MLP”). On November 20, 2019, the manufacturer defendants collectively filed a motion to dismiss, in which Amneal joined, and the Company filed its own individual motion to dismiss. The MLP has denied the manufacturer defendants’ motion to dismiss, but has not yet ruled on the Company’s separate motion. There also are 5 additional cases brought by West Virginia municipalities against the Company, Amneal, Amneal Pharmaceuticals of New York, LLC, and Impax which have been transferred to the MLP. The Amneal entities’ responsive pleading deadline is May 18, 2020, and we intend to file motions to dismiss in those cases. The MLP also ordered an early mediation on February 26 and 27, 2020, during which plaintiffs did not make a settlement demand. The MLP has ordered a public nuisance bench trial to occur beginning on March 22, 2021. Defendants have filed a motion for reconsideration of the order denying a jury trial.
Including the above-referenced cases, in connection with the further extended MDL pleading amendment deadline of March 16, 2019, the Company and certain of its affiliates recently have been named in approximately 600 additional complaints filed915 cases now pending in the MDL court andor in various state and territorial courts, including cases brought by:
• | Political subdivision / municipal entity plaintiffs from the states of Alabama, Arkansas, Arizona, California, Colorado, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Puerto Rico, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming; |
• | Third-party payor plaintiffs; |
• | Individual plaintiffs; |
• | Indian tribe plaintiffs; and |
• | Hospital / healthcare provider plaintiffs. |
Requests for waivers for service of process have been transmitted by plaintiffs’ counsel to defense counsel in relation to the Company and certain of its affiliates in certainmost of these cases. NeitherIn each case where service on the Company nor any ofor its affiliates has been served in these cases.
The Company believes it has substantial meritorious defenses to the claims asserted with respect to the litigation. However, any adverse outcome could negatively affect the Company and could have a material adverse effect on the Company's results of operations, cash flows and/or overall financial condition.
Securities Class Action
On April 17, 2017, Lead Plaintifflead plaintiff New York Hotel Trades Council & Hotel Association of New York City, Inc. Pension Fund filed an amended class action complaint in the United States District Court for the Northern District of California on behalf of itself and others similarly situated against Impax and four current or former Impax officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.10b-5 (Fleming v. Impax Laboratories Inc., et al., No. 4:16-cv-06557-HSG). Plaintiff asserts claims regarding alleged misrepresentations about three generic drugs. Its principal claim alleges that Impax concealed that it colluded with competitor Lannett Corp. to fix the price of generic drug digoxin, and that its digoxin profits stemmed from this collusive pricing. Plaintiff also alleges that Impax concealed from the market anticipated erosion in the price of generic drug diclofenac and that Impax overstated the value of budesonide, a generic drug that it acquired from Teva. On June 1, 2017, Impax filed its motion to dismiss the amended complaint. On September 7, 2018, the Court granted Impax’s motion, dismissing plaintiffs’plaintiff’s claims without prejudice and with leave to amend theirthe complaint. Plaintiff filed a second amended complaint October 26, 2018. Impax filed a motion to dismiss the second amended complaint on December 6, 2018; plaintiffs’ opposition thereto was filed on January 17, 2019; and Impax’s reply in support of its motion to dismiss was filed on February 7, 2019. A hearing before the Court on the motion to dismiss took place on May 2, 2019.
On June 11,December 18, 2019, the trial court denied Impax’s motion. On June 24, 2019, Impax noticed its intent to appeal to the Superior Court the trial court’s denial of the motion to compel arbitration, and moved both to stay the trial court proceedings pending that appeal and for an extension of case management deadlines. On July 12, 2019, the trial court denied both motions.
The Company believes it has appealed this most recent ordersubstantial meritorious defenses to the California State Court of Appeal. Plaintiff filed her opening appellate brief on February 22, 2019; Impax’s brief in response
United States Department of Justice / Drug Enforcement Administration Subpoenas
On July 7, 2017, Amneal Pharmaceuticals of New York, LLC received an administrative subpoena issued by the Long Island, NY District Office of the Drug Enforcement Administration (the “DEA”) requesting information related to compliance with certain recordkeeping and reporting requirements pursuant to regulations promulgated by the DEA. The Company is cooperating with this request for information and has provided relevant information responsive to the request. The Company and the U.S. Attorney for the Eastern District of New York (“E.D.N.Y.”) have entered into a tolling agreement (and several amendments thereto) with respect to the investigation. The material provisions of the tolling agreement (as amended) provide that the investigation is ongoing, that the U.S. Attorney will not file a claim against the Company on or before December 19, 2019,November 11, 2020, and requests that the Company agree that the applicable statute(s) of limitations be tolled during the period from January 19, 2018 through December 20, 2019.November 12, 2020. The Company cannot predict at this time whether the U.S. Attorney will file a lawsuit or other claims against the Company with respect to the investigation.
On March 14, 2019, Amneal received a subpoena (the “Subpoena”) from an Assistant U.S. Attorney (“AUSA”) for the Southern District of Florida. The Subpoena requests information and documents generally related to the marketing, sale, and distribution of oxymorphone. The Company has been cooperating and intends to continue to cooperate with the AUSA regarding the Subpoena. However, no assurance can be given as to the timing or outcome of its underlying investigation.
On May 28, 2019, Amneal received a subpoena (the “Subpoena”) from an AUSA for the E.D.N.Y. requesting information and documents generally related to the Company’s compliance with Controlled Substances Act regulations. The Company intends to cooperate with the AUSA regarding the Subpoena. The Company and the U.S. Attorney for the E.D.N.Y. have entered into a tolling agreement (and several amendments thereto) with respect to the investigation. The material provisions of the tolling agreement (as amended) provide that the E.D.N.Y. has made no decision as yet as to the appropriate resolution of its pending investigation, that the Company’s time to present evidence and arguments to the E.D.N.Y. concerning the investigation is extended to November 12, 2019,2020, and that the Company agrees that the applicable statute(s) of limitations are tolled during the period from April 12, 2019 through November 12, 2019.2020. The Company cannot predict at this time whether the U.S. Attorney will file a lawsuit or other claims against the Company with respect to the investigation.
Ranitidine Lawsuits
On January 27, 2020, the Company and Amneal were named in a putative class action complaint filed in the United States District Court for the Northern District of Illinois by several named plaintiffs on behalf of consumers who purchased Zantac® (ranitidine) and have not been diagnosed with, but “live in constant fear of developing,” cancer, alleging that the defendants, comprising various entities alleged to have manufactured or sold brand-name Zantac® or generic ranitidine, failed to disclose and/or concealed the product’s “dangerous propensities” in respect of the alleged presence in the product of N-Nitrosodimethylamine (or NDMA) (White, et al., v. GlaxoSmithKline plc, et al., No. 1:19-cv-07773). The complaint purports to state claims for violations of state consumer protection acts, breaches of implied warranties, negligence/gross negligence, and fraudulent concealment (and seeks the certification of corresponding nationwide classes and subclasses). In addition to class certification, plaintiffs seek, among other things, unspecified monetary damages and equitable relief, including the implementation and funding of a medical monitoring program. The complaint is one of hundreds of similar putative class actions and personal injury/product liability lawsuits filed in federal courts nationwide. In November 2019, the JPML established In re Zantac/Ranitidine NDMA Litigation (MDL No. 2924) for coordinated or consolidated pretrial proceedings and, on February 6, 2020, ordered the MDL centralized in the Southern District of Florida. On February 24, 2020 this lawsuit was transferred to and consolidated with MDL No. 2924. On March 2, 2020, plaintiffs voluntarily dismissed their claims without prejudice against the generic ranitidine manufacturers named as defendants (including the Company and Amneal).
On March 6, 2020, plaintiff Kathy McMillian filed a personal injury / products liability complaint in the United States District Court for the Southern District of Alabama against brand and generic ranitidine product manufacturers (including Amneal), as well as Walmart, Inc., alleging that she developed kidney cancer as a result of her use of Zantac®, Equate®, and/or generic ranitidine, and that defendants knew about but failed to warn regarding an alleged “NDMA defect” in those products (McMillian v. Sanofi-Aventis U.S. LLC, et al., No. 1:20-cv-00141-N). Plaintiff seeks unspecified amounts of both compensatory and punitive damages, as well as attorneys’ fees and other costs. On March 31, 2020, the case was transferred to and consolidated with MDL No. 2924 and, accordingly, responsive pleading deadlines are stayed.
On March 13, 2020, plaintiff Walter Jones, on behalf of decedent Sue Jones, filed an amended complaint naming the Company, Amneal, and Amneal Pharmaceuticals of New York, LLC, in his personal injury / products liability lawsuit against brand and generic ranitidine product manufacturers pending in the United States District Court for the Western District of Tennessee (Jones v. Boehringer Ingelheim Pharmaceuticals, Inc., et al., No. 1:20-cv-2157-JDB-JAY). Plaintiff alleges that his decedent spouse developed liver cancer and died as a result of six years of use with Zantac®, and that defendants knew about but failed to warn regarding an alleged “NDMA defect” in their ranitidine products. Plaintiff seeks unspecified amounts of both compensatory and punitive damages, as well as attorneys’ fees and other costs. On March 31, 2020, the case was transferred to and consolidated with MDL No. 2924 and, accordingly, responsive pleading deadlines are stayed.
The Company believes it has twosubstantial meritorious defenses to the claims asserted with respect to these lawsuits. However, any adverse outcome could negatively affect the Company and could have a material adverse effect on the Company's results of operations, cash flows and/or overall financial condition.
Metformin Notice & Demand Letter
On April 14, 2020, Amneal received a letter from counsel on behalf of Mohammed Rahman and a putative class of purchasers of prescription metformin, providing notice of alleged breaches of express and implied warranties and violations of state consumer protection laws regarding the quality and safety of the metformin allegedly purchased. Specifically, the letter alleges that because the metformin Mr. Rahman and the putative class purchased “contain[ed] NDMA,” the product is “worthless,” “unusable and unfit for human consumption.” The letter demands that Amneal cease and desist from selling “defective metformin” and make full restitution to all purchasers of “defective metformin.” The Company anticipates that it will be served with the putative class action lawsuit that was filed by Mr. Rahman and his counsel on April 7, 2020 in the United States District Court for the District of New Jersey (Rahman v. Amneal Pharmaceuticals LLC, No. 2:20-cv-03757-BRM-JAD).
The Company believes it has substantial meritorious defenses to the claims asserted with respect to this matter. However, any adverse outcome could negatively affect the Company and could have a material adverse effect on the Company's results of operations, cash flows and/or overall financial condition.
18. Segment Information
As a result of the Acquisitions, the Company added a third reportable segment, AvKARE, to its existing reportable segments, Generics and Specialty. Generics develops, manufactures and commercializes complex oral solids, injectables, ophthalmics, liquids, topicals, softgels, inhalation products and transdermals across a broad range of therapeutic categories. The Company'sGenerics’ retail and institutional portfolio contains approximately 200250 product families, many of which represent difficult-to-manufacture products or products that have a high barrier-to-entry, such as oncologics, anti-infectives and supportive care products for healthcare providers.
Specialty delivers proprietary medicines to the U.S. market. The Company offers a growing portfolio in core therapeutic categories including central nervous system disorders, endocrinology, parasitic infections and other therapeutic areas. The Company's specialty products are marketed through skilled specialty sales and marketing teams, who call on neurologists, movement disorder specialists, endocrinologists and primary care physicians in key markets throughout the U.S.
AvKARE provides pharmaceuticals, medical and surgical products and services primarily to governmental agencies, primarily focused on serving the Department of Defense and the Department of Veterans Affairs. AvKARE is also a wholesale distributor of bottle and unit dose pharmaceuticals under the registered names of AvKARE and AvPAK, as well as medical and surgical products. AvKARE is also a packager and wholesale distributor of pharmaceuticals and vitamins to its retail and institutional customers who are located throughout the United States focused primarily on offering 340b-qualified entities products to provide consistency in care and pricing.
The Company’s chief operating decision maker evaluates the financial performance of the Company’s segments based upon segment operating income (loss). Items below income (loss) from operations are not reported by segment, since they are excluded from the measure of segment profitability reviewed by the Company’s chief operating decision maker. Additionally, general and administrative expenses, certain selling expenses, certain litigation settlements, and non-operating income and expenses are included in "Corporate and Other." The Company does not report balance sheet information by segment since it is not reviewed by the Company’s chief operating decision maker.
The tables below present segment information reconciled to total Company financial results, with segment operating income or loss including gross profit less direct selling expenses, research and development expenses, and other operating expenses to the extent specifically identified by segment (in thousands):
Three Months Ended March 31, 2020 |
| Generics (1) (2) |
|
| Specialty (2) |
|
| AvKARE (1) |
|
| Corporate and Other |
|
| Total Company |
| |||||
Net revenue |
| $ | 352,586 |
|
| $ | 87,977 |
|
| $ | 57,970 |
|
| $ | — |
|
| $ | 498,533 |
|
Cost of goods sold |
|
| 218,865 |
|
|
| 47,818 |
|
|
| 46,895 |
|
|
| — |
|
|
| 313,578 |
|
Cost of goods sold impairment charges |
|
| 1,456 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,456 |
|
Gross profit |
|
| 132,265 |
|
|
| 40,159 |
|
|
| 11,075 |
|
|
| — |
|
|
| 183,499 |
|
Selling, general and administrative |
|
| 16,623 |
|
|
| 20,942 |
|
|
| 10,788 |
|
|
| 29,623 |
|
|
| 77,976 |
|
Research and development |
|
| 29,034 |
|
|
| 7,345 |
|
|
| — |
|
|
| — |
|
|
| 36,379 |
|
In-process research and development impairment charges |
|
| 960 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 960 |
|
Intellectual property legal development expenses |
|
| 1,265 |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 1,270 |
|
Charges related to legal matters |
|
| 2,500 |
|
|
| 2,000 |
|
|
| — |
|
|
| — |
|
|
| 4,500 |
|
Other operating expenses |
|
| 46 |
|
|
| — |
|
|
| — |
|
|
| 4,577 |
|
|
| 4,623 |
|
Operating income (loss) |
| $ | 81,837 |
|
| $ | 9,867 |
|
| $ | 287 |
|
| $ | (34,200 | ) |
| $ | 57,791 |
|
(1) | Operating results for the sale of Amneal products by AvKARE are included in Generics. |
(2) | During the three months ended September 30, 2019, operating results for Oxymorphone were reclassified from Generics to Specialty, where it is sold as a non-promoted product. Prior period results have not been restated to reflect the reclassification. |
Three Months Ended March 31, 2019 |
| Generics |
|
| Specialty |
|
| Corporate and Other |
|
| Total Company |
| ||||
Net revenue |
| $ | 382,477 |
|
| $ | 63,643 |
|
| $ | — |
|
| $ | 446,120 |
|
Cost of goods sold |
|
| 278,878 |
|
|
| 30,865 |
|
|
| — |
|
|
| 309,743 |
|
Cost of goods sold impairment charges |
|
| 53,297 |
|
|
| — |
|
|
| — |
|
|
| 53,297 |
|
Gross profit |
|
| 50,302 |
|
|
| 32,778 |
|
|
| — |
|
|
| 83,080 |
|
Selling, general and administrative |
|
| 24,148 |
|
|
| 21,327 |
|
|
| 38,961 |
|
|
| 84,436 |
|
Research and development |
|
| 50,151 |
|
|
| 3,707 |
|
|
| — |
|
|
| 53,858 |
|
In-process research and development impairment charges |
|
| 22,787 |
|
|
| — |
|
|
| — |
|
|
| 22,787 |
|
Intellectual property legal development expenses |
|
| 3,121 |
|
|
| 1,045 |
|
|
| — |
|
|
| 4,166 |
|
Other operating expenses |
|
| 4,678 |
|
|
| 2,062 |
|
|
| 5,453 |
|
|
| 12,193 |
|
Operating (loss) income |
| $ | (54,583 | ) |
| $ | 4,637 |
|
| $ | (44,414 | ) |
| $ | (94,360 | ) |
Three Months Ended June 30, 2019 | Generics | Specialty | Corporate and Other | Total Company | ||||||||||||
Net revenue | $ | 335,064 | $ | 69,578 | $ | — | $ | 404,642 | ||||||||
Cost of goods sold | 263,423 | 32,958 | — | 296,381 | ||||||||||||
Cost of goods sold impairment charges | 3,012 | — | — | 3,012 | ||||||||||||
Gross profit | 68,629 | 36,620 | — | 105,249 | ||||||||||||
Selling, general and administrative | 14,379 | 16,150 | 36,752 | 67,281 | ||||||||||||
Research and development | 45,448 | 2,568 | — | 48,016 | ||||||||||||
Intellectual property legal development expenses | 2,511 | — | — | 2,511 | ||||||||||||
Acquisition, transaction-related and integration expenses | 987 | 1,366 | 1,166 | 3,519 | ||||||||||||
Restructuring and other charges | 418 | — | 2,417 | 2,835 | ||||||||||||
Operating income (loss) | $ | 4,886 | $ | 16,536 | $ | (40,335 | ) | $ | (18,913 | ) |
Six Months Ended June 30, 2019 | Generics | Specialty | Corporate and Other | Total Company | ||||||||||||
Net revenue | $ | 717,541 | $ | 133,221 | $ | — | $ | 850,762 | ||||||||
Cost of goods sold | 542,301 | 63,823 | — | 606,124 | ||||||||||||
Cost of goods sold impairment charges | 56,309 | — | — | 56,309 | ||||||||||||
Gross profit | 118,931 | 69,398 | — | 188,329 | ||||||||||||
Selling, general and administrative | 38,527 | 37,477 | 75,713 | 151,717 | ||||||||||||
Research and development | 95,599 | 6,275 | — | 101,874 | ||||||||||||
In-process research and development impairment charges | 22,787 | — | — | 22,787 | ||||||||||||
Intellectual property legal development expenses | 5,632 | 1,045 | — | 6,677 | ||||||||||||
Acquisition, transaction-related and integration expenses | 3,584 | 3,250 | 2,717 | 9,551 | ||||||||||||
Restructuring and other charges | 2,499 | 178 | 6,319 | 8,996 | ||||||||||||
Operating (loss) income | $ | (49,697 | ) | $ | 21,173 | $ | (84,749 | ) | $ | (113,273 | ) |
Three Months Ended June 30, 2018 | Generics | Specialty | Corporate and Other | Total Company | ||||||||||||
Net revenue | $ | 361,770 | $ | 52,017 | $ | — | $ | 413,787 | ||||||||
Cost of goods sold | 211,534 | 23,958 | — | 235,492 | ||||||||||||
Gross profit | 150,236 | 28,059 | — | 178,295 | ||||||||||||
Selling, general and administrative | 19,621 | 13,549 | 22,833 | 56,003 | ||||||||||||
Research and development | 47,206 | 3,129 | — | 50,335 | ||||||||||||
Intellectual property legal development expenses | 4,004 | 43 | — | 4,047 | ||||||||||||
Acquisition, transaction-related and integration expenses | 114,622 | — | 92,885 | 207,507 | ||||||||||||
Restructuring and other charges | 24,797 | 2,421 | 17,247 | 44,465 | ||||||||||||
Legal settlement gains | (3,000 | ) | — | — | (3,000 | ) | ||||||||||
Operating (loss) income | $ | (57,014 | ) | $ | 8,917 | $ | (132,965 | ) | $ | (181,062 | ) |
Six Months Ended June 30, 2018 | Generics | Specialty | Corporate and Other | Total Company | ||||||||||||
Net revenue | $ | 636,959 | $ | 52,017 | $ | — | $ | 688,976 | ||||||||
Cost of goods sold | 342,128 | 23,958 | — | 366,086 | ||||||||||||
Gross profit | 294,831 | 28,059 | — | 322,890 | ||||||||||||
Selling, general and administrative | 30,824 | 13,549 | 36,751 | 81,124 | ||||||||||||
Research and development | 91,415 | 3,129 | — | 94,544 | ||||||||||||
Intellectual property legal development expenses | 8,580 | 43 | — | 8,623 | ||||||||||||
Acquisition, transaction-related and integration expenses | 114,622 | — | 100,020 | 214,642 | ||||||||||||
Restructuring and other charges | 24,797 | 2,421 | 17,247 | 44,465 | ||||||||||||
Legal settlement gains | (3,000 | ) | — | — | (3,000 | ) | ||||||||||
Operating income (loss) | $ | 27,593 | $ | 8,917 | $ | (154,018 | ) | $ | (117,508 | ) |
19. Related Party Transactions
The Company has various business agreements with certain third-party companies in which there is some common ownership and/or management between those entities, on the one hand, and the Company, on the other hand. The Company has no direct ownership or management in any of such related party companies. The related party relationships that generated income and/ or expense in the respective reporting periods are described below.
Financing Lease/Financing ObligationLease - Related Party
The Company has a financing lease for two2 buildings located in Long Island, New York, that are used as an integrated manufacturing and office facility. For annual payments required under the terms of the non-cancelable lease agreement over the next five years and thereafter, refer to
Lease costs and interest expense related to this lease were each approximately $1 million for the three months ended March 31, 2020. Lease costs and interest expense related to this lease were each approximately $1 million for the three months ended March 31, 2019.
Kanan, LLC
Kanan, LLC ("Kanan") is an independent real estate company which owns Amneal’s manufacturing facilities located at 65 Readington Road, Branchburg, New Jersey, 131 Chambers Brook Road, Branchburg, New Jersey and 1 New England Avenue, Piscataway, New Jersey. Amneal leases these facilities from Kanan under two2 separate triple-net lease agreements that expire in 2027 and 2031, respectively, at an annual rental cost of approximately $2 million combined, subject to CPI rent escalation adjustments as provided in the lease agreements. Rent expense paid to the related party for both of the three months ended June 30,March 31, 2020 and 2019 and 2018 was $0.5 million. Rent expense paid to the related party for both of the six months ended June 30, 2019 and 2018 was $1 million.
Asana Biosciences, LLC
Asana Biosciences, LLC (“Asana”) is an early stage drug discovery and research and development company focusing on several therapeutic areas, including oncology, pain and inflammation. Amneal provided research and development services to Asana under a development and manufacturing agreement. The total amount of income earned from this arrangement for the three and six months ended June 30,March 31, 2019 was $1$0.3 million and $1.4 million, respectively (none(NaN in 2018)2020). At June 30,both March 31, 2020 and December 31, 2019 receivables of approximately $1 million were due from the related party for research and development related services.
Industrial Real Estate Holdings NY, LLC
Industrial Real Estate Holdings NY, LLC ("IRE") is an independent real estate management entity, which among other activities, is the landlord of Amneal’s leased manufacturing facility located at 75 Adams Avenue, Hauppauge, New York. The lease expires in March 2021.2026. Rent expense paid to the related party for both the three months ended June 30,March 31, 2020 and 2019 and 2018 was $0.3 million and $0.2 million, respectively. Rent expense paid for the related party for the six months ended June 30, 2019 and 2018 was $0.6 million and $0.5 million, respectively.
Kashiv BioSciences, LLC
Kashiv BioSciences, LLC ("Kashiv") is an independent contract development organization focused primarily on the development of 505(b) (2) NDA products. Amneal has various business agreements with Kashiv.
The parties entered into a sublease agreement with Kashivlease for a portionparking spaces in Piscataway, NJ. The total amount of one of its research and development facilities. The sublease automatically renews annually if not terminated and has an annual base rent of $2 million. On January 15, 2018, Amneal and Kashiv entered into an Assignment and Assumption of Lease Agreement. The lease was assignedexpense paid to Kashiv and Amneal was relieved of all obligations. Rental income from the related party subleasethis agreement for the three months ended June 30, 2019March 31, 2020 was less than $0.1 million (none(NaN in 2018)2019). Rental income from the related party sublease for the six months ending June 30, 2019 and 2018 was less than $0.1 million and $0.4 million, respectively.
Amneal has also entered into various development and commercialization arrangements with Kashiv to collaborate on the development and commercialization of certain generic pharmaceutical products. The total reimbursable expenses associated with these arrangements for the three months ended March 31, 2020 and six month period ended June 30, 2019 was $2were $0.2 million and $3$0.8 million, respectively (none in 2018).respectively. Kashiv receives a percentage of net profits with respect to Amneal’s sales of these products. The total profit share paid to Kashiv for the three months ended June 30,March 31, 2020 and 2019 and 2018 was $0.7 million and $2 million, respectively. The total profit share paid to Kashiv for the six months ended June 30, 2019 and 2018 was $1 million and $2 million, respectively. At June 30, 2019 and December 31, 2018 payables of approximately $3 million and $0.8$0.7 million, respectively, were due to the related party for royalty-related transactions.
Pursuant to a product development agreement, Amneal and Kashiv agreed to collaborate on the development and commercialization of Levothyroxine Sodium. Under the agreement, the IPintellectual property and ANDA for this product is owned by Amneal and Kashiv is to receive a profit share for all sales of the product made by Amneal. Amneal is precluded from selling the product made by Kashiv during the term of the license and supply agreement with JSP. Under the terms of the amended agreement with Kashiv, Amneal paid $2 million in July 2019 and may be required to pay up to an additional $18 million upon certain regulatory
In November 2019, Amneal and Kashiv entered into a licensing agreement for the development and commercialization of Kashiv’s orphan drug K127 (pyridostigmine) for the treatment of Myasthenia Gravis. Under the terms of the agreement, Kashiv will be responsible for all development and clinical work required to secure Food and Drug Administration approval and Amneal will be responsible for filing the NDA and commercializing the product. The Company made an upfront payment of approximately $2 million to Kashiv in December 2019, which was recorded in research and development, and Kashiv is eligible to receive development and regulatory milestones totaling approximately $17 million. Kashiv is also eligible to receive tiered royalties from the low double-digits to mid-teens on net sales of K127. For the three months ended March 31, 2020, the Company recorded a $2 million payable to the related party(NaN in 2019), as research and the cost was recognized as R&Ddevelopment expense to compensate Kashiv for costs incurred to develop the product.
On February 20, 2020, the development of biosimilar pharmaceutical products. AmnealCompany and Adello are parties toKashiv entered into a master services agreement pursuant to which, from time to time, Amnealcovering certain services that Kashiv provides human resourcesthe Company for commercial product support for EluRyng and product quality assurance services on behalf of Adello. The parties are also party to a license agreement for parking spaces in Piscataway, NJ. The total amount of income received from Adello from these agreements was less than $0.1 million for both the threeother products, including ranitidine and six months ended June 30, 2019. The total amount of net expense paid to Adello from these agreements for bothnitrofurantoin. For the three months ended March 31, 2020, the Company recorded $1 million (NaN in 2019), as cost of goods sold to compensate Kashiv for services performed.
At March 31, 2020 and six endedDecember 31, 2019 payables of approximately $10 million and June 30, 2018 was less than $0.1 million.
On October 1, 2017, Amneal and AdelloKashiv, entered into a license and commercialization agreement pursuantagreement. Kashiv granted Amneal an exclusive license, under its New Drug Application, to which the parties have agreed to cooperate with respect to certain development activities in connection withdistribute and sell two biologic pharmaceutical products. In addition, under the agreement, Adello has appointed Amneal as its exclusive marketing partner for suchbio-similar products in the United States. U.S. Kashiv is responsible for development, regulatory
filings, obtaining FDA approval, and manufacturing, and Amneal is responsible for marketing, selling and pricing activities. The term of the agreement is 10 - years from the respective product’s launch date.
In connection with the agreement, Amneal paid an upfront amount of $2 million in October 2017 for execution of the agreement which was recorded withinexpensed in research and development expenses.development. The agreement also provides for potential future milestone payments to Adello.
PharmaSophia, LLC
PharmaSophia, LLC ("PharmaSophia") is a joint venture formed by Nava Pharma, LLC ("Nava") and Oakwood Laboratories, LLC for the purpose of developing certain products. Currently PharmaSophia is actively developing two injectable products. PharmaSophia and Nava are parties to a research and development agreement pursuant to which Nava provides research and development services to PharmaSophia. Nava subcontracted this obligation to Amneal, entering into a subcontract research and development services agreement pursuant to which Amneal provides research and development services to Nava in connection with the products being developed by PharmaSophia. The total amount of income earned from these agreements for the three months ended June 30,March 31, 2020 and 2019 was $0.2 million and 2018 was $0.3 million, respectively. At March 31, 2020 and $0.1 million, respectively. The total amountDecember 31, 2019 receivables of income earned from these agreements for the six months ended June 30, 2019 and 2018 was $0.6 million and $0.2 million, respectively. At June 30, 2019 and December 31, 2018 receivables of $0.7 million and $0.1 million, respectively, were due from the related party.
Fosun International Limited
Fosun International Limited (“Fosun”) is a Chinese international conglomerate and investment company that is a shareholder of the Company. On June 6, 2019, the Company entered into a license and supply agreement with a subsidiary of Fosun, which is a Chinese pharmaceutical company. Under the terms of the agreement, the Company will hold the imported drug license required for pharmaceutical products manufactured outside of China and will supply Fosun with finished, packaged products for Fosun to then sell in the China market. Fosun will be responsible for obtaining regulatory approval in China and for shipping the product from Amneal’s facility to Fosun’s customers in China. In consideration for access to the Company's U.S. regulatory filings to support its China regulatory filings in China and for the supply of product, Fosun paid the Company a $1 million non-refundable
Apace KY, LLC d/b/a Apace Packaging LLC
Apace KY, LLC d/b/a Apace Packaging LLC (“Apace”) provides packaging solutions pursuant to an exclusive packaging agreement. Apace markets its services which include bottling and blistering for the pharmaceutical industry. The total amount of expenses from this arrangement for the three months ended March 31, 2020 was $2 million (NaN in 2019). At March 31, 2020, payables of approximately $1 million were due to the related party for packaging services.
Tracy Properties LLC
R&S leases operating facilities, office and warehouse space from Tracy Properties LLC. The total amount of expenses from this arrangement for the three months ended March 31, 2020 was $0.1 million (NaN in 2019). At March 31, 2020, payables of approximately less than $0.1 million were due to the related party for lease expenses.
AzaTech Pharma LLC
R&S purchases inventory from AzaTech Pharma LLC for resale. The total amount of expenses from this arrangement for the three months ended March 31, 2020 was $0.8 million (NaN in 2019). At March 31, 2020, payables of approximately less than $0.5 million were due to the related party for inventory purchases.
AvPROP, LLC
AvKARE LLC leases its operating facilities from AvPROP, LLC. Rent expense from this arrangement for the three months ended March 31, 2020 was $0.1 million.
Tarsadia Investments, LLC
Tarsadia Investments, LLC (“Tarsadia”) is a private investment firm that provides financial services and is a shareholder of the Company. Tarsadia offers capital and strategic support for companies with substantial growth potential primarily in the healthcare, financial services, real estate, and clean technology sectors. The Company entered into an agreement in which Tarsadia will provide financial consulting services. The services are not expected to have a material impact to the Company’s financial statements.
Tax Distributions
Under the terms of the Limited Liability Company Agreement, Amneal is obligated to make tax distributions to its members, which are also holders of non-controlling interests in the Company. For further details, refer to
NoteNotes Payable – Related Party
The sellers of AvKARE, LLC and R&S hold the Company acquiredremaining 34.9% interest in Rondo (“Rondo Class B Units”). Certain holders of the non-controlling interests in oneRondo Class B Units are also holders of Amneal's non-public subsidiaries for approximately $3 million. As of December 31, 2018, the Company recorded a $3 million related party payable for this transaction which was paid in full as of June 30, 2019.
20. Goodwill and Intangible Assets
The changes in goodwill for the sixthree months ended June 30, 2019March 31, 2020 and for the year ended December 31, 20182019 were as follows (in thousands):
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Balance, beginning of period |
| $ | 419,504 |
|
| $ | 426,226 |
|
Impax acquisition adjustment |
|
| — |
|
|
| (1,255 | ) |
Goodwill acquired during the period |
|
| 95,955 |
|
|
| — |
|
Goodwill divested during the period |
|
| — |
|
|
| (5,175 | ) |
Currency translation |
|
| (726 | ) |
|
| (292 | ) |
Balance, end of period |
| $ | 514,733 |
|
| $ | 419,504 |
|
June 30, 2019 | December 31, 2018 | ||||||
Balance, beginning of period | $ | 426,226 | $ | 26,444 | |||
Impax acquisition adjustment | (1,255 | ) | — | ||||
Goodwill acquired during the period | — | 401,488 | |||||
Goodwill divested during the period | (5,175 | ) | — | ||||
Currency translation | 221 | (1,706 | ) | ||||
Balance, end of period | $ | 420,017 | $ | 426,226 |
As of June 30,March 31, 2020, $361 million, $89 million, and $65 million of goodwill was allocated to the Specialty, Generics, and AvKARE segments, respectively. As of December 31, 2019, $361 million and $59 million of goodwill was allocated to the Specialty and Generics segment, respectively. As ofFor the year ended December 31, 2018, $360 million and $66 million of goodwill was allocated to the Specialty and Generics segment, respectively. For the six months ended June 30, 2019, goodwill divested was associated with the sale of the Company's operations in the United Kingdom and Germany.Kingdom. For the year ended December 31, 2018,2019, the adjustment to goodwill acquired was associated with the Impax and Gemini acquisitions.Combination. Refer to
Intangible assets at June 30, 2019March 31, 2020 and December 31, 20182019 are comprised of the following (in thousands):
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||||||||||||||||||
|
| Weighted-Average Amortization Period (in years) |
| Cost |
|
| Accumulated Amortization |
|
| Net |
|
| Cost |
|
| Accumulated Amortization |
|
| Net |
| ||||||
Amortizing intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product rights |
| 9.7 |
| $ | 1,191,135 |
|
| $ | (229,959 | ) |
| $ | 961,176 |
|
| $ | 1,197,535 |
|
| $ | (198,857 | ) |
| $ | 998,678 |
|
Other intangible assets |
| 6.1 |
|
| 140,400 |
|
|
| (7,530 | ) |
|
| 132,870 |
|
|
| 3,000 |
|
|
| (1,000 | ) |
|
| 2,000 |
|
Total |
|
|
| $ | 1,331,535 |
|
| $ | (237,489 | ) |
| $ | 1,094,046 |
|
| $ | 1,200,535 |
|
| $ | (199,857 | ) |
| $ | 1,000,678 |
|
In-process research and development |
|
|
|
| 381,115 |
|
|
| — |
|
|
| 381,115 |
|
|
| 382,075 |
|
|
| — |
|
|
| 382,075 |
|
Total intangible assets |
|
|
| $ | 1,712,650 |
|
| $ | (237,489 | ) |
| $ | 1,475,161 |
|
| $ | 1,582,610 |
|
| $ | (199,857 | ) |
| $ | 1,382,753 |
|
June 30, 2019 | December 31, 2018 | ||||||||||||||||||||||||
Weighted-Average Amortization Period (in years) | Cost | Accumulated Amortization | Net | Cost | Accumulated Amortization | Net | |||||||||||||||||||
Amortizing intangible assets: | |||||||||||||||||||||||||
Product rights | 11.0 | $ | 1,265,150 | $ | (142,704 | ) | $ | 1,122,446 | $ | 1,282,011 | $ | (88,081 | ) | $ | 1,193,930 | ||||||||||
Customer relationships | — | — | — | 7,005 | (1,955 | ) | 5,050 | ||||||||||||||||||
Other intangible assets | 10.5 | 3,000 | (900 | ) | 2,100 | 5,620 | (1,561 | ) | 4,059 | ||||||||||||||||
Total | $ | 1,268,150 | $ | (143,604 | ) | $ | 1,124,546 | $ | 1,294,636 | $ | (91,597 | ) | $ | 1,203,039 | |||||||||||
In-process research and development | 428,784 | — | 428,784 | 451,930 | — | 451,930 | |||||||||||||||||||
Total intangible assets | $ | 1,696,934 | $ | (143,604 | ) | $ | 1,553,330 | $ | 1,746,566 | $ | (91,597 | ) | $ | 1,654,969 |
The Company evaluated assets for potential impairment by comparing estimated future undiscounted net cash flows to the carrying amount of the asset. For the three months ended June 30, 2019,March 31, 2020, the Company recognized a total of $3 million of intangible asset impairment charges, which was recognized in cost of goods sold. For the six months ended June 30, 2019, the Company recognized a total of $79$2 million of intangible asset impairment charges, of which $56$1 million was recognized in cost of goods sold impairment charges and $23$1 million was recognized in in-process research and development expense. impairment charges.
The impairment charges for the three months ended March 31, 2020 are primarily related to four products, two of which are2 currently marketed products and two of which are 2 in-process research and development (“IPR&D&D”) products, all acquired as part of the Combination. For the currently marketed products, the impairment charges were the result of2 products experienced significant price erosion during the first quarter of 2019,2020, without an offsetting increase in customer demand, resulting in significantly lower than
expected future cash flows. Forflows and negative margins. The IPR&D charges are associated with two products, one IPR&D product, the impairment charge was the result of increased competition atwhich experienced a delay in its estimated launch resulting in significantly lower than expected future cash flows. Fordate and the other IPR&D product,was canceled due to the impairment charge was the resultwithdrawal of a strategic decision to no longer pursue approval of the product.
During the sixthree months ended June 30,March 31, 2020, the Company recognized $137 million of intangible assets associated with the Acquisitions, of which all are classified in other intangible assets in the table above. These intangible assets consist of government licenses, government contracts, national contracts, customer relationships and a trade name and are amortized to selling, general, and administrative over their estimated useful lives. Refer to Note 3.Acquisitions and Divestitures for additional information.
During the three months ended March 31, 2019, the Company recognized a $50 million product rights intangible asset for the exclusive rights to sell Levothyroxine in the U.S. market under a license and supply agreement with JSP. Refer to
Note 5. Alliance and Collaboration for additional information.For the sixthree months ended June 30,March 31, 2019, included in the Company's divested United Kingdom operations were a net customer relationship intangible asset and a net trade name intangible asset of $5 million and $2 million, respectively. Refer to
Amortization expense related to intangible assets recognized is as follows (in thousands):
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
Amortization | $ | 42,576 |
|
| $ | 30,963 |
|
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Amortization | $ | 34,796 | $ | 16,694 | $ | 65,759 | $ | 18,454 |
The following table presents future amortization expense for the next five years and thereafter, excluding $429$381 million of IPR&D intangible assets (in thousands):
|
| Future Amortization |
| |
Remainder of 2020 |
| $ | 137,058 |
|
2021 |
|
| 174,569 |
|
2022 |
|
| 159,512 |
|
2023 |
|
| 148,090 |
|
2024 |
|
| 140,704 |
|
Thereafter |
|
| 334,113 |
|
Total |
| $ | 1,094,046 |
|
Future Amortization | |||
Remainder of 2019 | $ | 76,018 | |
2020 | 143,075 | ||
2021 | 142,600 | ||
2022 | 132,283 | ||
2023 | 129,564 | ||
2024 | 127,844 | ||
Thereafter | 373,162 | ||
Total | $ | 1,124,546 |
21. Stockholders’ Equity and Integration Expenses
Non-Controlling Interests
Under the componentsterms of the Company’s acquisition, transaction-relatedLimited Liability Company Agreement, Amneal is obligated to make tax distributions to its members. For the three months ended March 31, 2020 and integration expenses2019, 0 tax distribution was recorded due to tax losses incurred. As of March 31, 2019, 0 liability was included in related-party payables for the three and six months ended June 30, 2019 andtax distribution.
During December 2018, (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Acquisition, transaction-related and integration expenses(1) | $ | 3,519 | $ | 21,008 | $ | 9,551 | $ | 28,143 | |||||||
Profit participation units(2) | — | 158,757 | — | 158,757 | |||||||||||
Transaction-related bonus(3) | — | 27,742 | — | 27,742 | |||||||||||
Total | $ | 3,519 | $ | 207,507 | $ | 9,551 | $ | 214,642 |
Redeemable Non-Controlling Interests
As discussed in Note 3. Acquisitions and integration expenses and a corresponding capital contribution of $159 million for the three and six months ended June 30, 2018.
Since the redemption of the restructuring plan,Rondo Class B Units is outside of the Company estimates that it will incur a pre-tax restructuring chargeCompany's control, the units have been presented outside of approximately $10 to $12 millionstockholders' equity as redeemable non-controlling interests. Upon closing of cash expenditures related to severance benefits. Other cash expenditures associated with this restructuring plan, including decommissioning and dismantling the sites and other third party costs cannot be estimated at this time.
The Company will attribute 34.9% of the net income of Rondo to the redeemable non-controlling interests. The Company will also accrete the redeemable non-controlling interests to redemption value upon an event that makes redemption probable.
Changes in Accumulated Other Comprehensive Loss by Component (in thousands):
|
| Foreign currency translation adjustment |
|
| Unrealized gain (loss) on cash flow hedge, net of tax |
|
| Accumulated other comprehensive loss |
| |||
Balance December 31, 2018 |
| $ | (7,755 | ) |
| $ | — |
|
| $ | (7,755 | ) |
Other comprehensive (loss) income before reclassification |
|
| (729 | ) |
|
| 7,764 |
|
|
| 7,035 |
|
Amounts reclassified from accumulated other comprehensive loss |
|
| 1,461 |
|
|
| — |
|
|
| 1,461 |
|
Reallocation of ownership interests |
|
| (809 | ) |
|
| — |
|
|
| (809 | ) |
Balance December 31, 2019 |
|
| (7,832 | ) |
|
| 7,764 |
|
|
| (68 | ) |
Other comprehensive loss before reclassification |
|
| (2,525 | ) |
|
| (30,812 | ) |
|
| (33,337 | ) |
Reallocation of ownership interests |
|
| (7 | ) |
|
| 7 |
|
|
| — |
|
Balance March 31, 2020 |
| $ | (10,364 | ) |
| $ | (23,041 | ) |
| $ | (33,405 | ) |
22. Subsequent Event
As the financial markets stabilized following a period of high volatility due to the COVID-19 pandemic, the Company repaid $200 million of the $300 million of borrowings under the Revolving Credit Facility in May 2020.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Amneal Pharmaceuticals, Inc. (the "Company," "we," "us," or "our") is a pharmaceutical company specializing in developing, manufacturing, marketing and distributing high-value generic pharmaceutical products across a broad array of dosage forms and therapeutic areas, as well as branded products. We were formed on October 4, 2017, under the name Atlas Holdings, Inc. for the purpose of facilitating the combination (the "Combination") of Impax Laboratories, Inc. ("Impax") and Amneal Pharmaceuticals LLC ("Amneal"), which closed on May 4, 2018.
The following discussion and analysis for the three and six months ended June 30, 2019March 31, 2020 should be read in conjunction with the consolidated financial statements and related notes of thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements for the year ended December 31, 20182019 included in our 20182019 Annual Report on Form 10-K.
On January 31, 2020, we acquired a 65.1% controlling interest in both AvKARE Inc., a Tennessee corporation now a limited liability company (“AvKARE, LLC”), and Dixon-Shane, LLC d/b/a R&S Northeast LLC, a Kentucky limited liability company (“R&S”). As a result of the AvKARE, LLC and R&S acquisitions (the “Acquisitions”), we now have three reportable segments, Generics, Specialty, and AvKARE.
Our Specialty segment is engaged in the development, promotion, sale and distribution of proprietary branded pharmaceutical products, with a focus on products addressing central nervous system ("CNS") disorders, including migraine and Parkinson’s disease. Our portfolio of products includes Rytary®, an extended release oral capsule formulation of carbidopa-levodopa for the treatment of Parkinson’s disease, post-encephalitic parkinsonism, and parkinsonism that may follow carbon monoxide intoxication or manganese intoxication. In addition to Rytary®, our promoted Specialty portfolio includes Zomig® (zolmitriptan) products, for the treatment of migraine headaches, which is sold under a license agreement with AstraZeneca UKU.K. Limited, Emverm® (mebendazole) 100 mg chewable tablets, for the treatment of pinworm, whipworm, common roundworm, common hookworm and American hookworm in single or mixed infections, and Unithroid® (levothyroxine sodium), for the treatment of hypothyroidism, which is sold under a license and distribution agreement with JSP.
For Specialty products, the majority of the product’s commercial value is usually realized during the period in which the product has market exclusivity. In the U.S. and some other countries, when market exclusivity expires and generic versions of a product are approved and marketed, there can often be very substantial and rapid declines in the branded product’s sales.
Our Generics segment includes over 200approximately 250 product families covering an extensive range of dosage forms and delivery systems, including both immediate and extended release oral solids, powders, liquids, sterile injectables, nasal sprays, inhalation and respiratory products, ophthalmics (which are sterile pharmaceutical preparations administered for ocular conditions), films, transdermal patches and topicals (which are creams or gels designed to administer pharmaceuticals locally through the skin). We focus on developing products with substantial barriers-to-entry resulting from complex drug formulations or manufacturing, or legal or regulatory challenges. Generic products, particularly in the U.S., generally contribute most significantly to revenues and gross margins at the time of their launch, and even more so in periods of market exclusivity, or in periods of limited generic competition. As such, the timing of new product introductions can have a significant impact on the Company’s financial results. The entrance into the market of additional competition generally has a negative impact on the volume and pricing of the affected products. Additionally, pricing is often affected by factors outside of the Company’s control.
AvKARE provides pharmaceuticals, medical and surgical products and services primarily to governmental agencies, primarily focused on serving the Department of Defense and the Department of Veterans Affairs. AvKARE is a wholesale distributor of bottle and unit dose pharmaceuticals under the registered names of AvKARE and AvPAK, as well as medical and surgical products. AvKARE is also a packager and wholesale distributor of pharmaceuticals and vitamins to its retail and institutional customers who are located throughout the United States of America focused primarily on offering 340b-qualified entities products to provide consistency in care and pricing.
The pharmaceutical industry is highly competitive and highly regulated. As a result, we face a number of industry-specific factors and challenges, which can significantly impact our results. For a more detailed explanation of our business and its risks, refer to our
COVID-19 Pandemic
On March 11, 2020, the World Health Organization designated the outbreak of a novel strain of coronavirus (“COVID-19”) as a global pandemic. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including imposing restrictions on movement and travel such as quarantines and shelter-in-place requirements, and restricting or prohibiting outright some or all commercial and business activity, including the manufacture and distribution of certain goods and the provision of non-essential services. These measures, though currently temporary in nature, may become more severe and continue indefinitely depending on the evolution of the endoutbreak.
The Company did not observe significant impacts on its business or results of the second quarter 2019, our Generics segment experienced both industry-wide and company-specific challenges that resulted in our financial performance falling short of our expectations since the beginning of the year. Such challenges include increased competition on certain key generic products, the uncertainty of supply of epinephrine auto-injector (generic Adrenaclick®) from our third-party supplier, and delays in key product approvals and launches, including generic NuvaRing®. We expect these challenges and others to persist at leastoperations for the remainderthree months ended March 31, 2020 due to the global emergence of 2019.
overall market liquidity constraints, we borrowed $300 million under our revolving credit facility in depth, company wide reviewMarch 2020 as a precautionary measure. As the financial markets stabilized following a period of high volatility due the COVID-19 pandemic, the Company repaid $200 million of the $300 million of borrowings under the Revolving Credit Facility in May 2020. (Refer to Note 13.Debt, for further details). As noted in our 2019 Annual Report on Form 10-K, several of our organizational structures, operational budgets, currentkey domestic manufacturing, packaging, and R&D facilities are located in New York and New Jersey, the two states with the highest confirmed cases of COVID-19. To offset any potential decreased second quarter output, we will increase production during the third and fourth quarters, if necessary.
To the extent that COVID-19 continues or worsens, national, state, and local governments may impose additional restrictions or extend the restrictions already in place. The continuing spread of COVID-19 and the related safety and business operating restrictions could result in a number of adverse impacts to our business, including, but not limited to, additional disruption to the economy and our customers, additional work restrictions, and supply chains being interrupted or slowed. Also, governments may impose other laws, regulations, or taxes that could adversely impact our business, financial condition, or results of operations. Further, depending on the extent to which our customers are affected, they could delay or reduce purchases of services we provide. The potential effects of COVID-19 also could impact us in a number of other ways including, but not limited to, reductions to our profitability, fluctuations in foreign currency markets, the availability of future capital projectsborrowings, the cost of borrowings, credit risks of our customers and existing capabilitycounterparties, and infrastructure alignments, resultingpotential impairment of the carrying amount of goodwill or other definite-lived assets.
We will continue to actively monitor the situation and may take further precautionary and preemptive actions as may be required by national, state, or local authorities or that we determine are in the comprehensive restructuring planbest interests of our employees, customers, partners, suppliers, and shareholders. To the extent the pandemic worsens, we announcedcannot predict the effects it may have on our business, in July 2019. The restructuring plan is designedparticular with respect to reduce costs, optimizedemand for our organizationalservices, our strategy, and manufacturing infrastructure, which we expectour prospects, the effects on our customers, or the impact on our financial results. Refer to reduce costs by approximately $50 million per year once the plan has been executed. For additional information, refer to
Results of Operations
Consolidated Results
The following table sets forth our summarized, consolidated results of operations for the three and six months ended June 30,March 31, 2020 and 2019 and 2018 (in thousands):
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
Net revenue | $ | 498,533 |
|
| $ | 446,120 |
|
Cost of goods sold |
| 313,578 |
|
|
| 309,743 |
|
Cost of goods sold impairment charges |
| 1,456 |
|
|
| 53,297 |
|
Gross profit |
| 183,499 |
|
|
| 83,080 |
|
Selling, general and administrative |
| 77,976 |
|
|
| 84,436 |
|
Research and development |
| 36,379 |
|
|
| 53,858 |
|
In-process research and development impairment charges |
| 960 |
|
|
| 22,787 |
|
Intellectual property legal development expenses |
| 1,270 |
|
|
| 4,166 |
|
Acquisition, transaction-related and integration expenses |
| 2,575 |
|
|
| 6,032 |
|
Charges related to legal matters |
| 4,500 |
|
|
| — |
|
Restructuring and other charges |
| 2,048 |
|
|
| 6,161 |
|
Operating income (loss) |
| 57,791 |
|
|
| (94,360 | ) |
Total other expense, net |
| (44,447 | ) |
|
| (38,820 | ) |
Income (loss) before income taxes |
| 13,344 |
|
|
| (133,180 | ) |
Benefit from income taxes |
| (108,173 | ) |
|
| (8,428 | ) |
Net income (loss) | $ | 121,517 |
|
| $ | (124,752 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net revenue | $ | 404,642 | $ | 413,787 | $ | 850,762 | $ | 688,976 | |||||||
Cost of goods sold | 296,381 | 235,492 | 606,124 | 366,086 | |||||||||||
Cost of goods sold impairment charges | 3,012 | — | 56,309 | — | |||||||||||
Gross profit | 105,249 | 178,295 | 188,329 | 322,890 | |||||||||||
Selling, general and administrative | 67,281 | 56,003 | 151,717 | 81,124 | |||||||||||
Research and development | 48,016 | 50,335 | 101,874 | 94,544 | |||||||||||
In-process research and development impairment charges | — | — | 22,787 | — | |||||||||||
Intellectual property legal development expenses | 2,511 | 4,047 | 6,677 | 8,623 | |||||||||||
Acquisition, transaction-related and integration expenses | 3,519 | 207,507 | 9,551 | 214,642 | |||||||||||
Legal settlement gains | — | (3,000 | ) | — | (3,000 | ) | |||||||||
Restructuring and other charges | 2,835 | 44,465 | 8,996 | 44,465 | |||||||||||
Operating loss | (18,913 | ) | (181,062 | ) | (113,273 | ) | (117,508 | ) | |||||||
Total other expense, net | (37,314 | ) | (81,444 | ) | (76,134 | ) | (92,982 | ) | |||||||
Loss before income taxes | (56,227 | ) | (262,506 | ) | (189,407 | ) | (210,490 | ) | |||||||
Benefit from income taxes | (5,701 | ) | (12,416 | ) | (14,129 | ) | (12,052 | ) | |||||||
Net loss | $ | (50,526 | ) | $ | (250,090 | ) | $ | (175,278 | ) | $ | (198,438 | ) |
Net Revenue
Net revenue for the three months ended June 30, 2019 decreasedMarch 31, 2020 increased by 2%12%, or $9$53 million, to $405$499 million as compared to $414$446 million for the three months ended June 30, 2018.March 31, 2019. The decreaseincrease over the prior year is primarily attributable to price and volume erosion of $114$58 million mainlyfrom the newly acquired AvKARE segment, $62 million from new product launches after March 31, 2019 in our Generics segment and $11 million in divestitures of our international businesses and the loss of exclusivity on Albenzaprimarily from volume increases in our Specialty segment, which were partially offset by $58 million from the timing of the Combination and the acquisition of Gemini Laboratories, LLC ("Gemini"), a $46 million contribution from Levothyroxine sodium tablets ("Levothyroxine") which launched in Q4 2018, and $12 million from new product launches in our Generics segment.
Cost of Goods Sold and Gross Profit
Cost of goods sold, including impairment charges, increased 27%decreased 13%, or $64$48 million, to $299$315 million for the three months ended June 30, 2019March 31, 2020 as compared to $235$363 million for the three months ended June 30, 2018.March 31, 2019. The increasedecrease in cost of goods sold was primarily attributable to the timing of the Combination and Gemini acquisition and $20a $52 million in inventory charges in our Generics segment. Cost of goods sold also increased over the prior year period due to incremental expenses related to the Combination, including amortization of intangible assets of $18 million, site closure costs of $7 million and royalties of $3 million.
Accordingly, gross profit for the sixthree months ended June 30, 2019March 31, 2020 was $188$183 million (22%(37% of total revenues)net revenue) as compared to gross profit of $323$83 million (47%(19% of total revenues)net revenue) for the sixthree months ended June 30, 2018.March 31, 2019. Our gross profit as a percentage of sales declinednet revenue increased compared to the prior year period primarily as a result of the $52 million decline in intangible impairment charges, increased inventory related charges, and price erosion in our Generics segment as well as other factors described above.
Selling, General, and Administrative
Selling, general,General, and administrative ("Administrative (“SG&A"&A”) expenses for the three months ended June 30, 2019March 31, 2020 were $67$78 million, as compared to $56$84 million for the three months ended June 30, 2018.March 31, 2019. The $11$6 million increase from the prior period was primarily due to the timing of the Combination and Gemini acquisition, including selling expenses associated with our Specialty segment, stock-based compensation and higher Corporate functions spend including public company costs that did not exist prior to the Combination. These increases were partially offset by post-merger operating synergies.
Research and Development
Research and development (“R&D”) expenses remained relatively consistent for the three months ended June 30, 2019 and 2018 at $48 million and $50 million, respectively.
In-Process Research and Development Impairment Charges
We recognized in-process research and development ("(“IPR&D"&D”) impairment charges of $1 million in our Generics segment for the three months ended March 31, 2020. The charges are primarily associated with two products. One of the products experienced a delay in its estimated launch date and the other product was canceled due to the withdrawal of our development partner.
We recognized IPR&D impairment charges for the three months ended June 30,March 31, 2019 and 2018.
Intellectual Property Legal Development Expense
Intellectual property legal development expenses for the three months ended June 30, 2019 was $3March 31, 2020 were $1 million as compared to $4 million for the three months ended June 30, 2018. Intellectual property legal development expenses for the six months ended June 30, 2019 was $7 million as compared to $9 million for the six months ended June 30, 2018.March 31, 2019. These costs include, but are not limited to, formulation assessments, patent challenge opinions and strategy, and litigation expenses to defend the intellectual property.
Acquisition, Transaction-Related and Integration Expenses
We recognized approximately $4$3 million of acquisition, transaction-related and integration expenses for the three months ended June 30, 2019March 31, 2020 as compared to $208$6 million for the three months ended June 30, 2018. We recognized approximately $10 million of acquisition, transaction-related and integration expenses for the six months ended June 30, 2019 as compared to $215 million for the six months ended June 30, 2018.
Expenses for the three and six months ended June 30, 2019March 31, 2020 were primarily related to the ongoing integration and site closure expenses associated with Impax and Gemini. DuringAcquisitions. The decrease from the prior year period, expenses wereis primarily for transaction-related costs associated with pre-Combination activities.
Charges Related to Legal Matters
For the three months ended March 31, 2020, we recorded charges of $5 million for commercial legal proceedings and claims, approximately $3 million of which was recorded in our Generics segment and $2 million in our Specialty segment.
Restructuring and Other Charges
On July 10, 2019, we announced a plan to restructure our operations that is intended to reduce costs and optimize our organizational and manufacturing infrastructure. Pursuant to the restructuring plan as revised, we expect to reduce our headcount by approximately 300 to 350, primarily by ceasing manufacturing at our Hauppauge, NY facility.
Restructuring and other charges were $2 million for the three months ended March 31, 2020, and primarily consisted of restructuringcharges associated with cash severance and other benefits provided pursuant to our severance programs for former senior executives.
Restructuring and other charges for the three months ended June 30,March 31, 2019 whichwere $6 million and primarily consisted of employee restructuring separation charges of approximately $1$2 million for cash and other severance provided pursuant to our severance programs for employees at our Hayward, CaliforniaCA facility and other facilities and approximately $2$4 million for cash severance charges associated with the cost of other employee severance charges. The restructuring and other chargesbenefits for former senior executives.
Other Expense, Net
Other expense, net was $44 million for the three months ended June 30, 2018 were $44 million, which was primarily associated with a reduction in workforce resulting from the Combination.
Benefit From Income Taxes
For the three months ended March 31, 2020 and 2019, the Company's benefit for income taxes and effective tax rates were $108 million and (810.6%) and $8 million and 6.3%, respectively. The year over year change is primarily associated with the $110 million benefit from the changecarryback of U.S. Federal deferred tax assets under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which the Company expects to receive in foreign exchange rates, primarily as a result of the impact of fluctuationscash in the Swiss Franc, Indian Rupee and Euro on intercompany loans and a $20 million declineyear ending December 31, 2020. The CARES Act is an emergency economic stimulus package in loss from extinguishment of debt, partially offset by $7 million of additional interest expense associated with an increase in long-term debt relatedresponse to the Combinationcoronavirus outbreak which, among other things, includes provisions relating to income and the acquisitionnon-income-based tax laws. These deferred tax assets had a 100% valuation allowance as of Gemini and a $2 million lossDecember 31, 2019.
Net Income (Loss)
We recognized on sale of our operations in the Germany.
Generics
The following table sets forth results of operations for our Generics segment for the three and six months ended June 30,March 31, 2020 and 2019 and 2018 (in thousands):
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
Net revenue | $ | 352,586 |
|
| $ | 382,477 |
|
Cost of goods sold |
| 218,865 |
|
|
| 278,878 |
|
Cost of goods sold impairment charges |
| 1,456 |
|
|
| 53,297 |
|
Gross profit |
| 132,265 |
|
|
| 50,302 |
|
Selling, general and administrative |
| 16,623 |
|
|
| 24,148 |
|
Research and development |
| 29,034 |
|
|
| 50,151 |
|
In-process research and development impairment charges |
| 960 |
|
|
| 22,787 |
|
Charges related to legal matters |
| 2,500 |
|
|
| — |
|
Intellectual property legal development expenses |
| 1,265 |
|
|
| 3,121 |
|
Other operating expense |
| 46 |
|
|
| 4,678 |
|
Operating income (loss) | $ | 81,837 |
|
| $ | (54,583 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net revenue | $ | 335,064 | $ | 361,770 | $ | 717,541 | $ | 636,959 | |||||||
Cost of goods sold | 263,423 | 211,534 | 542,301 | 342,128 | |||||||||||
Cost of goods sold impairment charges | 3,012 | — | 56,309 | — | |||||||||||
Gross profit | 68,629 | 150,236 | 118,931 | 294,831 | |||||||||||
Selling, general and administrative | 14,379 | 19,621 | 38,527 | 30,824 | |||||||||||
Research and development | 45,448 | 47,206 | 95,599 | 91,415 | |||||||||||
In-process research and development impairment charges | — | — | 22,787 | — | |||||||||||
Intellectual property legal development expenses | 2,511 | 4,004 | 5,632 | 8,580 | |||||||||||
Legal settlement gains | — | (3,000 | ) | — | (3,000 | ) | |||||||||
Other operating expenses | 1,405 | 139,419 | 6,083 | 139,419 | |||||||||||
Operating income (loss) | $ | 4,886 | $ | (57,014 | ) | $ | (49,697 | ) | $ | 27,593 |
Net Revenue
Generics net revenue was $335$353 million for the three months ended June 30, 2019,March 31, 2020, a decrease of $27$29 million or 7%8% when compared with the same period in 2018. Volume and pricing2019. The year over year decrease was primarily driven by price erosion of $105 million in our existing business as well asprimarily from Levothyroxine and Diclofenac Gel generic competition, a $11$13 million decline from the reclassification of Oxymorphone to our Specialty segment, and a $15 million decline from the divestitures of our international businesses primarily in international revenues from divestitures werethe U.K. and Germany, partially offset by $46 million in sales of Levothyroxine which launched in Q4 2018, a $32 million impact from the timing of the Combination and $12 million from new product launches. Favorable volume growth increased sales in Levothyroxine, Abiraterone Acetate, Chlorpromazine HCI, Guanfacine and Hydroxyprogesterone Caproate Injection, which were partially offset by price and volume declines in sales of Yuvafem, Diclofenac Gel and Aspirin Dipyridamole ER Capsules.
Cost of Goods Sold and Gross Profit
Generics cost of goods sold, including impairment charges, for the three months ended June 30, 2019March 31, 2020 was $266$220 million, an increasea decrease of 26%34% or $55$112 million compared to the three months ended June 30, 2018.March 31, 2019. The year over year increase isdecrease was primarily associated with sales of Impax products added to portfolio with the Combination and $20a $52 million decline in inventoryintangible asset impairment charges. Cost of goods sold also increased over the prior year period due to $3 million of impairment charges as well as incremental expenses related to the Combination, including amortization of intangible assets of $9 million and site closure costs of $7 million.
Generics gross profit for the sixthree months ended June 30, 2019March 31, 2020 was $119$132 million (17%(38% of totalGenerics net revenue) as compared to gross profit of $295$50 million (46%(13% of totalGenerics net revenue) for the sixthree months ended June 30, 2018.March 31, 2019. Our Generics gross profit as a percentage of sales declinedincreased compared to the prior year period primarily as a result of the $56$52 million decline in impairment charge, price erosioncharges and the other factors described above.
Selling, General, and Administrative
Generics SG&A expensesexpense for the three months ended June 30, 2019 were $14March 31, 2020 was $17 million, as compared to $20$24 million for the three months ended June 30, 2018.March 31, 2019. The $6 millionyear over year decrease from the prior period was primarily due to post Combination operating synergiesassociated with cost savings initiatives associated with our restructuring and the divesting our UKintegration programs and Germany businesses.
Research and Development
Generics research and development expenses for the sixthree months ended June 30, 2019 were $96March 31, 2020 was $29 million, asa decrease of 42% or $21 million compared to $91 million for the sixthree months ended June 30, 2018.March 31, 2019. The $5 million increaseyear over year decrease is primarily attributable to the timing of the Combination.
In-Process Research and Development Impairment Charges
We recognized IPR&D impairment charges of $1 million for the three months ended March 31, 2020. The charges are primarily associated with two products. One of the products experienced a delay in its estimated launch date and the other product was canceled due to the withdrawal of our development partner.
We recognized IPR&D impairment charges for the three months ended June 30, 2019.
Charges Related to Legal Matters
For the other IPR&D product, the impairment charge was the result of a strategic decision to no longer pursue approval of the product.
Intellectual Property Legal Development Expenses
Generics intellectual property legal development expenses for the three months ended June 30, 2019March 31, 2020 were $3$1 million as compared to $4$3 million for the prior year period. Generics intellectual property legal development expenses for the six months ended June 30, 2019 were $6 million as compared to $9 million for the prior year period. For both the three and six month periods, theseThese costs include, but are not limited to, formulation assessments, patent challenge opinions and strategy, and litigation expenses to defend the intellectual property.
Other Operating Expenses
For the three and six months ended June 30,March 31, 2020, other operating expenses were immaterial. For the three months ended March 31, 2019, we recorded $5 million of other operating expenses. These expenses of $1 million and $7 million, respectively. For both the three and six months ended June 30, 2018, we recorded other expenses of $139 million. For the three and six month periods, these charges were primarily attributable to integration site closure, and restructuring expenses associated with the Combination.
Specialty
The following table sets forth results of operations for our Specialty segment for the three and six months ended June 30,March 31, 2020 and 2019 and 2018 (in thousands):
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net revenue |
| $ | 87,977 |
|
| $ | 63,643 |
|
Cost of goods sold |
|
| 47,818 |
|
|
| 30,865 |
|
Gross profit |
|
| 40,159 |
|
|
| 32,778 |
|
Selling, general and administrative |
|
| 20,942 |
|
|
| 21,327 |
|
Research and development |
|
| 7,345 |
|
|
| 3,707 |
|
Charges related legal matters |
|
| 2,000 |
|
|
| — |
|
Intellectual property legal development expenses |
|
| 5 |
|
|
| 1,045 |
|
Other operating expense |
|
| — |
|
|
| 2,062 |
|
Operating income |
| $ | 9,867 |
|
| $ | 4,637 |
|
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net revenue | $ | 69,578 | $ | 52,017 | $ | 133,221 | $ | 52,017 | |||||||
Cost of goods sold | 32,958 | 23,958 | 63,823 | 23,958 | |||||||||||
Gross profit | 36,620 | 28,059 | 69,398 | 28,059 | |||||||||||
Selling, general and administrative | 16,150 | 13,549 | 37,477 | 13,549 | |||||||||||
Research and development | 2,568 | 3,129 | 6,275 | 3,129 | |||||||||||
Intellectual property legal development expenses | — | 43 | 1,045 | 43 | |||||||||||
Other operating expenses | 1,366 | 2,421 | 3,428 | 2,421 | |||||||||||
Operating income | $ | 16,536 | $ | 8,917 | $ | 21,173 | $ | 8,917 |
Net Revenue
Specialty net revenue for the three months ended June 30, 2019March 31, 2020 was $70$88 million, an increase of 34%38% or $18$24 million compared to the three months ended June 30, 2018.March 31, 2019. The increase from the prior year period was primarily due to a $26$13 million timing impact from the Combination and Gemini acquisition, which was partially offset by areclassification of Oxymorphone from our Generics segment as well as an $8 million declineincrease in our existing business primarily associated with the lossvolume increases in Rytary and Unithroid.
Cost of exclusivity on Albenza.
Specialty net revenuecost of goods sold, for the sixthree months ended June 30, 2019March 31, 2020 was $133$48 million, an increase of 156%$17 million or $81 million55% compared to the sixthree months ended June 30, 2018.March 31, 2019. The increase from the prior year period was primarily due to the reclassification of Oxymorphone, $9 million of incremental royalty expense associated with the reclassification of Oxymorphone and $5 million of incremental amortization expense, as well as a $99 million timing impact from the Combination and Gemini acquisition, which was partially offset by a $18 million declinevolume increase in our existing business primarily associated with the loss of exclusivity on Albenza.
Accordingly, Specialty gross profit for the three months ended June 30, 2019March 31, 2020 was $37 million (53% of total revenues) as compared to gross profit of $28 million (54% of total revenues) for the three months ended June 30, 2018.
Selling, General, and Administrative
Specialty SG&A expense of $21 million for the three months ended June 30, 2018. The $2 million increase fromMarch 31, 2020 was flat with the prior period was primarily due to the timing of the Combination and Gemini acquisition, partially offset by operating post-Combination operating synergies.
Research and Development
Specialty research and development expenses for the sixthree months ended June 30, 2019March 31, 2020 were $6$7 million, as compared to $3$4 million for the sixthree months ended June 30, 2018.March 31, 2019. The $3 million increase from the prior year period was primarily due to clinical costs associated witha $2 million milestone achievement of one of our bio studies.
Charges Related to Legal Matters
For the three months ended June 30,March 31, 2020, we recorded a charge of $2 million for commercial legal proceedings.
Other Operating Expenses
For the three months ended March 31, 2019, we recognized other operating expenses of $1$2 million were primarily attributable to integration expenses associated with the Combination (none in the Specialty2020).
AvKARE
The following table sets forth results of operations for our AvKARE segment compared to $2 million for the three months ended June 30, 2018. ForMarch 31, 2020 (in thousands):
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net revenue |
| $ | 57,970 |
|
| $ | — |
|
Cost of goods sold |
|
| 46,895 |
|
|
| — |
|
Gross profit |
|
| 11,075 |
|
|
| — |
|
Selling, general and administrative |
|
| 10,788 |
|
|
| — |
|
Operating income |
| $ | 287 |
|
| $ | — |
|
Our AvKARE segment consists of the six months ended June 30, 2019,businesses we recognized other operating expenses of $3 millionacquired in the Specialty segment comparedAcquisitions on January 31, 2020. Prior to $2 million for the six months ended June 30, 2018. For the threeAcquisitions, we did not have an AvKARE segment. Refer to Note 3. Acquisitions and six month periods, these expenses were primarily attributable to acquisition, site closure and integration expenses associated with the Combination.
Liquidity and Capital Resources
Our primary source of liquidity is cash generated from operations, available cash and borrowings under debt financing arrangements, including $489$394 million of available additional capacity on our asset backed revolving credit facility ("ABL").Revolving Credit Facility as of May 11, 2020, as defined below. We believe these sources are sufficient to fund our planned operations, meet our interest and contractual obligations and provide sufficient liquidity over the next 12 months. However, our ability to satisfy our working capital requirements and debt obligations will depend upon economic conditions and demand for our products, which are factors that may be out of our control.
Our primary uses of capital resources are to fund operating activities, including research and development expenses associated with new product filings, and pharmaceutical product manufacturing expenses, license payments, and spending on production facility expansions and capital equipment items.
On March 27, 2020, President Trump signed into law the CARES Act. The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, includes provisions relating to income and non-income-based tax laws. We anticipate receiving approximately $110 million in cash from U.S. federal tax refunds associated with the CARES Act (refer to Note 8.Income Taxes). Other non-income-based tax provisions include deferral of the employer share of Social Security payroll taxes due from the CARES Act date of enactment through December 31, 2020, and a potential 50% credit on qualified wages against employment taxes each quarter with any excess credits eligible for refunds The Company continues to carefully analyze eligibility and application of both the income tax and non-income-based tax provisions.
Over the next 12 months, we will make substantial payments for monthly interest and quarterly principal amounts due on our term loan under our senior secured credit facility (the "Term Loan"), any future borrowings under the ABL,loans, Revolving Credit Facility, severance and capital expenditures. We made a $50 million paymentexpect that we will continue to JSP on April 22, 2019 pursuanthave sufficient cash resources to the terms of a licensesupport our debt service payments and supply agreement, as described in
We are party to a tax receivable agreement that requires us to make cash payments to APHC Holdings LLC (formerly known as Amneal Holdings LLC) ("Holdings") in respect of certain tax benefits that we may realize or may be deemed to realize as a result of redemptions or exchanges of Amneal common units by Holdings. The tax receivable agreement also requires that we make an accelerated payment to Holdings equal to the present value of all future payments due under the agreement upon certain change of control and similar transactions. The timing of any payments under the tax receivable agreement will vary depending upon a number of factors, but we expect that the payments could be substantial, and could be in excess of the tax savings that we ultimately realize. Because of the foregoing, our obligations under the tax receivable agreement could have a substantial negative impact on our liquidity. For further details, see
In addition, pursuant to the limited liability operating agreement of Amneal, in connection with any tax period, Amneal will be required to make distributions to its members, on a pro rata basis in proportion to the number of Amneal Common Units held by each member, of cash until each member (other than the Company) has received an amount at least equal to its assumed tax liability and the Company has received an amount sufficient to enable it to timely satisfy all of its U.S. federal, state and local and non-U.S. tax liabilities, and meet its obligations pursuant to the tax receivable agreement. For the three and six months ended June 30, 2019, Amneal made an aggregate of nil and $13 million, respectively, inMarch 31, 2020, no tax distributions were made to Holdings. The amount due to Holdings as of June 30, 2019 is immaterial.
At June 30, 2019,March 31, 2020, our cash and cash equivalents consist of cash on deposit and highly liquid investments. A portion of our cash flows are derived outside the United States. As a result, we are subject to market risk associated with changes in foreign exchange rates. We maintain cash balances at both U.S. based and foreign country based commercial banks. At various times during the year, our cash balances held in the United States may exceed amounts that are insured by the Federal Deposit Insurance Corporation (FDIC). We make our investments in accordance with our investment policy. The primary objectives of our investment policy are liquidity and safety of principal.
Cash Flows
(in thousands)
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
| $ | 49,026 |
|
| $ | (108,410 | ) |
Investing activities |
|
| (262,042 | ) |
|
| (21,466 | ) |
Financing activities |
|
| 467,979 |
|
|
| (21,864 | ) |
Effect of exchange rate changes on cash |
|
| (860 | ) |
|
| (296 | ) |
Net increase (decrease) in cash, cash equivalents, and restricted cash |
| $ | 254,103 |
|
| $ | (152,036 | ) |
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
Cash (used in) provided by: | |||||||
Operating activities | $ | (87,316 | ) | $ | (71,550 | ) | |
Investing activities | (44,795 | ) | (360,924 | ) | |||
Financing activities | (30,939 | ) | 423,995 | ||||
Effect of exchange rate changes on cash | 1,293 | (853 | ) | ||||
Net decrease in cash, cash equivalents, and restricted cash | $ | (161,757 | ) | $ | (9,332 | ) |
Cash Flows from Operating Activities
Net cash used inprovided by operating activities was $87$49 million for the sixthree months ended June 30, 2019March 31, 2020 compared to net cash used in operating activities of $72$108 million for the sixthree months ended June 30, 2018.March 31, 2019. The change was primarily attributed to unfavorablefavorable timing ofimpacts from the collections of trade accounts receivable, increased interest due to additional debtreceivables and payments of the combined company, an unfavorable impact from accounts payable and accrued expenses, asand a result of the timing of cash disbursements and an increasedecrease in payments primarily associated with severance chargesof employee separation benefits and interest, which were partially offset by decreased transaction and integration costs.
Cash Flows from Investing Activities
The decreaseincrease in cash used in investing activities of $316$241 million for the sixthree months ended June 30, 2019March 31, 2020 compared to the sixthree months ended June 30, 2018,March 31, 2019, was primarily related to a decreasean increase in cash paid for acquisitions and an increase in the proceeds received on the sale of international businesses.
Cash Flows from Financing Activities
Net cash provided by financing activities was $468 million for the three months ended March 31, 2020 compared to net cash used by financing activities of $22 million for the three months ended March 31, 2019. The change was primarily attributable to the net proceeds from a $300 million borrowing on our Revolving Credit Facility to mitigate the uncertainty surrounding overall market liquidity due to COVID-19, net proceeds from a $180 million term loan associated with the Acquisitions and a decrease in tax distributions to members.
As the impact of the stockCOVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. A continued worldwide disruption could materially affect our future access to sources of its Creo Pharma Holding Limited subsidiary,liquidity, particularly our cash flows from operations, and financial condition. In the event of a sustained market deterioration, we may need additional liquidity, which comprised substantially all of the Company's operations in the United Kingdom,would require us to AI Sirona (Luxembourg) Acquisition S.a.r.l ("AI Sirona") for net cash consideration of approximately $32 million which was received in April 2019.
Commitments and Contractual Obligations
The contractual obligations of the Company are set forth in
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operationscontained in the Company’s
|
| Payments Due by Period (in thousands) |
| |||||||||||||||||
Contractual Obligations |
| Total |
|
| Less Than 1 Year |
|
| 1-3 Years |
|
| 3-5 Years |
|
| More Than 5 Years |
| |||||
Rondo Term Loan (1) |
| $ | 180,000 |
|
| $ | 6,750 |
|
| $ | 18,000 |
|
| $ | 18,000 |
|
| $ | 137,250 |
|
Revolving Credit Facility (2) |
|
| 300,000 |
|
|
| 300,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Interest payments on Rondo Term Loan (3) |
|
| 36,507 |
|
|
| 6,338 |
|
|
| 15,651 |
|
|
| 13,966 |
|
|
| 552 |
|
(1) | Rondo Term loan relates to the Acquisitions. |
(2) | Borrowings under the Company’s Revolving Credit Facility provide liquidity to mitigate the uncertainty surrounding overall market liquidity due to COVID-19. |
(3) | Interest on the Rondo Term Loan was calculated based on the applicable rate at March 31, 2020. |
The foregoing table does not include herein certain updatesthe $45 million of aggregate principal and the related interest due on the long-term promissory notes (“Sellers Notes”) and the short-term promissory note (“Short-Term Sellers Note”) issued in connection with the Acquisition because of the uncertainty as to when those obligations.amounts will be repaid. Refer to the section Acquisition Financing – Notes Payable-Related Party below for additional information. The $50 million Levothyroxine license and supply contract liability outstanding at March 31, 2019 was paidforegoing table also does not include interest due on the Revolving Credit Facility drawn in April 2019.
Levothyroxine License and Supply Agreement; Transition Agreement
On August 16, 2018, the Company entered into a license and supply agreement with Jerome Stevens Pharmaceuticals, Inc. ("JSP") for Levothyroxine. This agreement designated the Company as JSP's exclusive commercial partner for Levothyroxine in the U.S. market for a 10-year term commencing on March 22, 2019. Under this license and supply agreement with JSP, the Company accrued the up-front license payment of $50 million on March 22, 2019, which was paid in April 2019. The agreement also provides for the Company to pay a profit share to JSP based on net profits of the Company's sales of Levothyroxine, after considering product costs.
On November 9, 2018, the Company entered into a transition agreement ("Transition Agreement") with Lannett and JSP. Under the terms of the Transition Agreement, the Company assumed the distribution and marketing of Levothyroxine from Lannett beginning December 1, 2018 through March 22, 2019, ahead of the commencement date of the license and supply agreement with JSP described above.
In accordance with the terms of the Transition Agreement, the Company made $47 million of non-refundable payments to Lannett. For the three months ended June 30,March 31, 2019, and the year ended December 31, 2018, $37 million and $10 million, respectively,(none in 2020) were expensed to cost of goods sold, as the Company sold Levothyroxine. As of December 31, 2018, the Company had a $4 million transition contract liability, which was fully settled in February 2019.
Additionally, during the year ended December 31, 2019, the Company recorded $1 million in cost of sales related to reimbursement due to Lannett for certain of its unsold inventory at the end of the Transition Period, which was fully settled in March 2020.
Outstanding Debt Obligations
Senior Secured Credit Agreements
On May 4, 2018 we entered into a senior credit agreement that provided the a term loan (“Term LoanLoan”) with a principal amount of $2.7 billion and the ABLan asset backed revolving credit facility (“Revolving Credit Facility”) under which loans and letters of credit up to a principal amount of $500 million, on which $394 million are available (principal amount of up to $25 million is available for letters of credit) (collectively, the "Senior Secured Credit Facilities"). The Term Loan is repayable in equal quarterly installments at a rate of 1.00% or the original principal amount annually, with the balance payable at maturity on May 4, 2025. The Term Loan bears a variable annual interest rate, which is one-month LIBOR plus 3.5% at June 30, 2019.March 31, 2020. The ABLRevolving Credit Facility bears an annual interest rate of one-month LIBOR plus 1.5%1.25% at June 30, 2019March 31, 2020 and matures on May 4, 2023. As of June 30, 2019, theThe annual interest rate for the ABLRevolving Credit Facility may be reduced or increased by 0.25% based on step-downs and step-ups determined by the average historical excess availability. At June 30, 2019, we had no outstanding borrowings under the ABL.
The proceeds of any loans made under the Senior Secured Credit FacilityFacilities can be used for capital expenditures, acquisitions, working capital needs and other general purposes, subject to covenants as described below. We pay a commitment fee based on the average daily unused amount of the ABLRevolving Credit Facility at a rate based on average historical excess availability, between 0.25% and 0.375% per annum. At June 30, 2019,March 31, 2020, the ABLRevolving Credit Facility commitment fee rate is 0.375% per annum.
During March 2020, as a precautionary measure to mitigate the uncertainty surrounding overall market liquidity due to COVID-19, we borrowed $300 million on the Revolving Credit Facility all of which is outstanding at March 31, 2020. During May 2020, $200 million was repaid.
The Senior Secured Credit Facilities contain a number of covenants that, among other things, create liens on Amneal's and its subsidiaries' assets. The Senior Secured Credit Facilities contain certain negative covenants that, among other things and subject to certain exceptions, restrict Amneal’s and its subsidiaries' ability to incur additional debt or guarantees, grant liens, make loans, acquisitions or other investments, dispose of assets, merge, dissolve, liquidate or consolidate, pay dividends or other payments on capital stock, make optional payments or modify certain debt instruments, modify certain organizational documents, enter into arrangements that restrict the ability to pay dividends or grant liens, or enter into or consummate transactions with affiliates. The ABLRevolving Credit Facility also includes a financial covenant whereby Amneal must maintain a minimum fixed charge coverage ratio if certain borrowing conditions are met. The Senior Secured Credit Facilities contain customary events of default, subject to certain exceptions. Upon the occurrence of certain events of default, the obligations under the Senior Secured Credit Facilities may be accelerated and the commitments may be terminated. At June 30, 2019,March 31, 2020, Amneal was in compliance with all covenants under the Senior Secured Credit Facilities.
Acquisition Financing – Revolving Credit and Term Loan Agreement
On January 31, 2020, in connection with the Acquisitions, Rondo Intermediate Holdings, LLC (“Rondo Holdings”), a wholly-owned subsidiary of Rondo, entered into a revolving credit and term loan agreement (“Rondo Credit Facility”) that provided a term loan ("Rondo Term Loan") with a principal amount of $180 million and a revolving credit facility (“Rondo Revolving Credit Facility”) which loans up to a principal amount of $30 million. The Rondo Term Loan is repayable in equal quarterly installments at a rate of 5.0% of the original principal amount annually, with the balance payable at maturity on January 31, 2025. The Rondo Credit Facility bears a variable annual interest rate, which is one-month LIBOR plus 3.0% at March 31, 2020 and matures on January 31, 2025. The annual interest rate for borrowing under the Rondo Credit Facility may be reduced or increased by 0.25% based on step-downs and step-ups determined by the total net leverage ratio, as defined in that agreement. At March 31, 2020, the Company had no outstanding borrowings under the Rondo Revolving Credit Facility.
A commitment fee based on the average daily unused amount of the Rondo Credit Facility is assessed at a rate based on total net leverage ratio, between 0.25% and 0.50% per annum. At March 31, 2020, the Rondo Credit Facility commitment fee rate is 0.4% per annum.
The Rondo Credit Facility contains a number of covenants that, among other things, create liens on the equity securities and assets of Rondo Holdings, Rondo, AvKARE, LLC and R&S. The Rondo Credit Facility contains certain negative, affirmative and financial covenants that, among other things, restrict the ability to incur additional debt, grant liens, transact in mergers and acquisitions, make certain investments and payments or engage in certain transactions with affiliates. The Rondo Credit Facility also contains customary events of default. Upon the occurrence of certain events of default, the obligations under the Rondo Credit Facility may be accelerated and/ or the interest rate may be increased. At March 31, 2020, Rondo was in compliance with all covenants. The Company is not party to the Rondo Credit Facility and is not a guarantor of any debt incurred thereunder.
Acquisition Financing – Notes Payable-Related Party
The Sellers Notes with a stated principal amount of $44 million and the Short-Term Sellers Note with a stated principal amount of $1 million were issued by Rondo or its subsidiary, Rondo Top Holdings, LLC, on January 31, 2020, the closing date of the Acquisitions. The Sellers Notes are unsecured and accrue interest at a rate of 5% per annum, not compounded, until June 30, 2025. The Sellers Notes are subject to prepayment at the option of Rondo, as the obligor, without premium or penalty. Mandatory payment of the outstanding principal and interest is due on June 30, 2025 if certain financial targets are achieved, the borrowers’ cash flows are sufficient (as defined in the Sellers Notes) and repayment is not prohibited by senior debt. If repayment of all outstanding principal and accrued interest on the Sellers Notes is not made on June 30, 2025, the requirements for repayment are revisited on June 30 of each subsequent year until all principal and accrued interest on the Sellers Notes are satisfied no later than January 31, 2030 or earlier, upon a change in control. The Short-Term Sellers Note is also unsecured and accrues interest at a rate of 1.6% and is due on January 31, 2020.
The Sellers Notes were recorded at a fair value of $35 million, which was estimated using the Monte-Carlo simulation approach under the option pricing framework. The Short-Term Sellers Note of $1 million was recorded at the stated principal amount of $1 million, which approximates fair value. The $9 million discount on the Sellers Notes will be amortized to interest expense using the effective interest method from January 31, 2020 to June 30, 2025 as the carrying value of the Sellers Notes will accrete to the stated principal amount of $44 million.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2019.
Critical Accounting Policies
For a discussion of the Company’s critical accounting policies, see
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in ourRecently Issued Accounting Standards
Recently issued accounting standards are discussed in
Note 2. Summary of Significant Accounting Policies.Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has not been any material change in our assessment of the Company’s quantitative and qualitative disclosures about market risks, see
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our ChiefCo-Chief Executive OfficerOfficers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our ChiefCo-Chief Executive OfficerOfficers and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our ChiefCo-Chief Executive OfficerOfficers and Chief Financial Officer concluded that our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, were effective as of June 30, 2019March 31, 2020 at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
During the quarter ended June 30, 2019,March 31, 2020, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Limitations on the Effectiveness of Controls
Systems of disclosure controls and internal controls over financial reporting and their associated policies and procedures, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the system of control are achieved. Further, the design of a control system must be balanced against resource constraints, and therefore the benefits of controls must be considered relative to their costs. Given the inherent limitations in all systems of controls, no evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, within a 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 override 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 policies or procedures may deteriorate. Accordingly, given the inherent limitations in a cost-effective system of internal control, financial statement misstatements due to error or fraud may occur and may not be detected. Our disclosure controls and procedures are designed to provide a reasonable assurance of achieving their objectives. We conduct periodic evaluations of our systems of controls to enhance, where necessary, our control policies and procedures.
Part II - Other Information
Item 1. Legal Proceedings
Information pertaining to legal proceedings can be found in
NoteItem 1A. Risk Factors
Other than as set forth below, there have been no material changes to the disclosuredisclosures presented in our 20182019 Annual Report on Form 10-K under
The spread of the novel coronavirus (“COVID-19”) and other adverse public health developments could adversely affect our business and results of operations.
On March 11, 2020, the World Health Organization designated the outbreak of a novel strain of coronavirus (“COVID-19”) as a global pandemic. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including imposing restrictions on movement and travel such as quarantines and shelter-in-place requirements, and restricting or prohibiting outright some or all commercial and business activity, including the manufacture and distribution of certain goods and the provision of non-essential services. These measures, though currently temporary in nature, may become more severe and continue indefinitely depending on the evolution of the outbreak. To date, no fully effective vaccines or treatments have been developed and effective vaccines or treatments may not be discovered soon enough to protect against a worsening of the outbreak or to prevent COVID-19 from becoming endemic.
Our business and results of operations could be adversely affected by the Amneal Group.COVID-19 outbreak. In particular, the continued global spread of COVID-19 could adversely impact the Company's operations, including, among other things, its manufacturing operations, supply chain, sales and marketing and clinical trial operations. Any of these factors could adversely affect the Company's business, operating results or financial condition. The interestsUnited States and China, two countries particularly hard hit by the outbreak, represent vital aspects of our direct and indirect supply chain and the United States is the largest end market for our products, representing the geographic source of almost our entire 2019 net revenue. We have taken precautionary measures intended to help minimize the risk of the Amneal Groupvirus to our employees, including requiring non-production employees to work remotely, suspending all non-essential travel worldwide, and restricting or prohibiting attendance at industry events and in-person work-related meetings. While these measures are temporary, they may differ fromcontinue until the interestsoutbreak is contained. The spread of COVID-19 could also negatively affect the operations of the third parties with whom we do business, including our raw material providers, aspects of our supply chain and our development, collaboration and commercial partners, for the same or different reasons that it is impacting our business directly. We expect the foregoing and other stockholders.
The spread of common stock.
The continued spread of COVID-19 has adversely affected many industries as well as the Amneal Group could enter into similar arrangements. In connection with these arrangements,economies and financial markets of many countries, including the CompanyUnited States and China, resulting in a significant deceleration of economic activity. This slowdown has entered into agreements with certain Amneal Group membersreduced production, decreased the level of trade, and led to widespread corporate downsizing, causing a sharp increase in unemployment. In recent weeks, we have also seen significant disruption of and extreme volatility in the lending institutions to whom their securities may be pledged. Because of the recent drop in our stock price, the value of pledged Amneal securities has decreased,global capital markets, which could increase the likelihoodcost of, a margin call on a pledge of Amneal securities. The voluntary or forced sale of some or all these units or shares pursuantentirely restrict access to, a margin call or otherwise could causecapital. This volatility and uncertainty have adversely affected our stock price and may continue to declinedo so. The impact of this outbreak on the U.S., Chinese and negatively impact our business. Similarly, a voluntary or forced saleworld economies is uncertain and, unless the outbreak is contained, these adverse impacts could cause the Company to lose its “controlled company” status under the New York Stock Exchange listing requirements, which would require us to comply over a transition period with certain
Considerable uncertainty still surrounds the COVID-19 virus and its potential effects, and the extent of control.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit No. | Description of Document | |
Separation Agreement between | ||
10.4 | ||
10.5 | ||
10.6 | ||
10.7 | ||
10.8 | ||
31.1 | ||
101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended | |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
** | This certificate is being furnished solely to accompany the report pursuant to 18 U.S.C. 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
† | Denotes management compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 11, 2020 | ||||
Amneal Pharmaceuticals, Inc. | ||||
(Registrant) | ||||
By: | /s/ Chirag Patel | |||
Chirag Patel | ||||
President and Co-Chief Executive Officer | ||||
(Co-Principal Executive Officer) | ||||
By: | /s/ Chintu Patel | |||
Chintu Patel | ||||
Co-Chief Executive Officer | ||||
(Co-Principal Executive Officer) | ||||
By: | /s/ | |||
Anastasios Konidaris | ||||
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
56