UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2023March 31, 2024
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 | 32-054692693-4225266 |
(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)
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 YorkThe Nasdaq Stock ExchangeMarket LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| | | | | | | | | | | | | | |
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 31, 2023,April 30, 2024, there were 154,194,960308,651,373 shares of the registrant’s Class A common stock outstanding, and 152,116,890 shares of Class B common stock outstanding, both with a par value of $0.01.
Amneal Pharmaceuticals, Inc.
Table of Contents
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q and Amneal Pharmaceuticals, Inc.’s other publicly available documents of Amneal Pharmaceuticals, Inc. contain “forward-looking statements” within the meaning of the safe harbor provisions of the United States (“U.S.”) Private Securities Litigation Reform Act of 1995. Management and representatives of Amneal Pharmaceuticals, Inc. and its subsidiaries (“the Company”, “we”, “us”, or “our”) also may from time to time make forward-looking statements. Forward-looking statements do not relate strictly to historical or current facts and reflect management’s assumptions, views, plans, objectives and projections about the future. Forward-looking statements may be identified by the use of words such as “plans,” “expects,” “will,” “anticipates,” “estimates”“targets,” “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; our 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 our control. Investors should realize that if underlying assumptions prove inaccurate, known or unknown risks or uncertainties materialize, or other factors or circumstances change, our actual results and financial condition could vary materially from expectations and projections expressed or implied in our forward-looking statements. Investors are therefore cautioned not to rely on these forward-looking statements.
Summary of Material Risks
Risks and uncertainties that make an investment in the Company speculative or risky or that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to:
•our ability to successfully develop, license, acquire and commercialize new products on a timely basis;
•the competition we face in the pharmaceutical industry from brand and generic drug product companies, and the impact of that competition on our ability to set prices;
•our ability to obtain exclusive marketing rights for our products;
•our ability to manage our growth through acquisitions and otherwise;
•our revenues derived from the sales of a limited number of products, a substantial portion of which are through a limited number of customers;
•the impact of a prolonged business interruption within our supply chain;
•the continuing trend of consolidation of certain customer groups;
•our dependence on third-party suppliers and distributors for raw materials for our products and certain finished goods;
•our substantial amount of indebtedness and our ability to generate sufficient cash to service our indebtedness in the future, and the impact of interest rate fluctuations on such indebtedness;
•our ability to secure satisfactory terms when negotiating a refinancing or other new indebtedness;
•our dependence on third-party agreements for a portion of our product offerings;
•legal, regulatory and legislative efforts by our brand competitors to deter competition from our generic alternatives;
•our dependence on information technology systems and infrastructure and the potential for cybersecurity incidents;
•our ability to attract, hire and retain highly skilled personnel;
•risks related to federal regulation of arrangements between manufacturers of branded and generic products;
•our reliance on certain licenses to proprietary technologies from time to time;
•the significant amount of resources we expend on research and development;development (“R&D”);
•the risk of product liability and other claims brought against us by consumersthird parties such as those described in Note 17. Commitments and other third parties;Contingencies - Other Litigation Related to the Company’s Business;
•risks related to changes in the regulatory environment, including U.S. federal and state laws related to healthcare fraud abuse and health information privacy and security and changes in such laws;
•changes to Food and Drug Administration (“FDA”) product approval requirements;
•the impact of healthcare reform and changes in coverage and reimbursement levels by governmental authorities and other third-party payers;
•our dependence on third-party agreements for a portion of our product offerings;
•our substantial amount of indebtedness and our ability to generate sufficient cash to service our indebtedness in the future, and the impact of interest rate fluctuations on such indebtedness;
•our potential expansion into additional international markets subjecting us to increased regulatory, economic, social and political uncertainties;
•our ability to identify, make and integrate acquisitions or investments in complementary businesses and products on advantageous terms;
•the impact of global economic, political or other catastrophic events, including recent events affecting the financial services industry;
•our ability to attract, hire and retain highly skilled personnel;events;
•our obligations under a tax receivable agreement may be significant;
•the high concentration of ownership of our Class A Common Stockcommon stock and the fact that we are controlled by the Amneal Group;Group (as defined in Item 1. Business in the Company’s 2023 Annual Report on Form 10-K); and
•such other factors as may be set forth elsewhere in the Company's Annual Report on Form 10-K for the year ended December 31, 2022,2023, particularly in the section entitled 1A. Risk Factors and our public filings with the SEC.
Investors should carefully read our Annual Report on Form 10-K for the year ended December 31, 2022,2023, including the section 1A. Risk Factors, for a description of certain risks that could, among other things, cause our actual results to differ materially from those expressed in our forward-looking statements. Investors should understand that it is not possible to predict or identify all such factors and should not consider the risks described herein and in our Annual Report to be a complete statement of all potential risks and uncertainties. The Company does not undertake to publicly update any forward-looking statement that may be made from time to time, whether as a result of new information or future events or developments.
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 June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net revenue | $ | 599,046 | | | $ | 559,355 | | | $ | 1,156,586 | | | $ | 1,056,988 | |
Cost of goods sold | 379,025 | | | 358,836 | | | 758,379 | | | 681,898 | |
Gross profit | 220,021 | | | 200,519 | | | 398,207 | | | 375,090 | |
Selling, general and administrative | 105,570 | | | 98,806 | | | 207,666 | | | 197,471 | |
Research and development | 37,799 | | | 50,748 | | | 76,489 | | | 103,546 | |
Intellectual property legal development expenses | 820 | | | 821 | | | 2,464 | | | 1,585 | |
Acquisition, transaction-related and integration expenses | — | | | 241 | | | — | | | 675 | |
Restructuring and other charges | 82 | | | — | | | 592 | | | 731 | |
Change in fair value of contingent consideration | (6,364) | | | (270) | | | (3,907) | | | (70) | |
Insurance recoveries for property losses and associated expenses | — | | | (1,911) | | | — | | | (1,911) | |
Charges related to legal matters, net | 2,017 | | | 251,877 | | | 1,581 | | | 249,551 | |
Other operating expense (income) | 13 | | | (1,175) | | | (1,211) | | | (1,175) | |
Operating income (loss) | 80,084 | | | (198,618) | | | 114,533 | | | (175,313) | |
Other (expense) income: | | | | | | | |
Interest expense, net | (50,857) | | | (35,623) | | | (100,172) | | | (68,958) | |
Foreign exchange gain (loss), net | 421 | | | (5,429) | | | 2,322 | | | (7,442) | |
Other income, net | 12 | | | 6,939 | | | 3,551 | | | 9,061 | |
Total other expense, net | (50,424) | | | (34,113) | | | (94,299) | | | (67,339) | |
Income (loss) before income taxes | 29,660 | | | (232,731) | | | 20,234 | | | (242,652) | |
(Benefit from) provision for income taxes | (23) | | | 7,350 | | | 645 | | | 3,889 | |
Net income (loss) | 29,683 | | | (240,081) | | | 19,589 | | | (246,541) | |
Less: Net (income) loss attributable to non-controlling interests | (17,766) | | | 119,273 | | | (14,615) | | | 124,015 | |
Net income (loss) attributable to Amneal Pharmaceuticals, Inc. before accretion of redeemable non-controlling interest | 11,917 | | | (120,808) | | | 4,974 | | | (122,526) | |
Accretion of redeemable non-controlling interest | — | | | — | | | — | | | (438) | |
Net income (loss) attributable to Amneal Pharmaceuticals, Inc. | $ | 11,917 | | | $ | (120,808) | | | $ | 4,974 | | | $ | (122,964) | |
| | | | | | | |
Net income (loss) per share attributable to Amneal Pharmaceuticals, Inc.'s class A common stockholders: | | | | | | | |
Basic | $ | 0.08 | | | $ | (0.80) | | | $ | 0.03 | | | $ | (0.82) | |
Diluted | $ | 0.08 | | | $ | (0.80) | | | $ | 0.03 | | | $ | (0.82) | |
Weighted-average common shares outstanding: | | | | | | | |
Basic | 153,738 | | | 150,993 | | | 152,928 | | | 150,445 | |
Diluted | 154,887 | | | 150,993 | | | 154,575 | | | 150,445 | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
Net revenue | $ | 659,191 | | | $ | 557,540 | |
Cost of goods sold | 421,131 | | | 379,354 | |
Gross profit | 238,060 | | | 178,186 | |
Selling, general and administrative | 112,595 | | | 102,096 | |
Research and development | 39,298 | | | 38,690 | |
Intellectual property legal development expenses | 984 | | | 1,644 | |
Restructuring and other charges | 1,470 | | | 510 | |
Change in fair value of contingent consideration | 100 | | | 2,457 | |
Charges (credit) related to legal matters, net | 94,359 | | | (436) | |
Other operating income | — | | | (1,224) | |
Operating (loss) income | (10,746) | | | 34,449 | |
Other (expense) income: | | | |
Interest expense, net | (65,703) | | | (49,315) | |
Foreign exchange (loss) gain, net | (1,197) | | | 1,901 | |
Increase in tax receivable agreement liability | (1,948) | | | (826) | |
Other income, net | 4,072 | | | 4,365 | |
Total other expense, net | (64,776) | | | (43,875) | |
Loss before income taxes | (75,522) | | | (9,426) | |
Provision for income taxes | 6,156 | | | 668 | |
Net loss | (81,678) | | | (10,094) | |
Less: Net (income) loss attributable to non-controlling interests | (9,965) | | | 3,151 | |
Net loss attributable to Amneal Pharmaceuticals, Inc. | $ | (91,643) | | | $ | (6,943) | |
| | | |
Net loss per share attributable to Amneal Pharmaceuticals, Inc.'s Class A common stockholders: | | | |
Basic and diluted | $ | (0.30) | | | $ | (0.05) | |
Weighted-average common shares outstanding: | | | |
Basic and diluted | 307,279 | | | 152,109 | |
The accompanying notes are an integral part of these consolidated financial statements.
Amneal Pharmaceuticals, Inc.
Consolidated Statements of Comprehensive Income (Loss)Loss
(unaudited; in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net income (loss) | $ | 29,683 | | | $ | (240,081) | | | $ | 19,589 | | | $ | (246,541) | |
Less: Net (income) loss attributable to non-controlling interests | (17,766) | | | 119,273 | | | (14,615) | | | 124,015 | |
Net income (loss) attributable to Amneal Pharmaceuticals, Inc. before accretion of redeemable non-controlling interest | 11,917 | | | (120,808) | | | 4,974 | | | (122,526) | |
Accretion of redeemable non-controlling interest | — | | | — | | | — | | | (438) | |
Net income (loss) attributable to Amneal Pharmaceuticals, Inc. | 11,917 | | | (120,808) | | | 4,974 | | | (122,964) | |
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustments arising during the period | 260 | | | (11,628) | | | 2,057 | | | (15,707) | |
Unrealized gain (loss) on cash flow hedge, net of tax | 8,312 | | | 14,070 | | | (5,958) | | | 67,694 | |
Less: Other comprehensive (income) loss attributable to non-controlling interests | (4,263) | | | (1,225) | | | 1,973 | | | (26,180) | |
Other comprehensive income (loss) attributable to Amneal Pharmaceuticals, Inc. | 4,309 | | | 1,217 | | | (1,928) | | | 25,807 | |
Comprehensive income (loss) attributable to Amneal Pharmaceuticals, Inc. | $ | 16,226 | | | $ | (119,591) | | | $ | 3,046 | | | $ | (97,157) | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
Net loss | $ | (81,678) | | | $ | (10,094) | |
Less: Net (income) loss attributable to non-controlling interests | (9,965) | | | 3,151 | |
Net loss attributable to Amneal Pharmaceuticals, Inc. | (91,643) | | | (6,943) | |
Other comprehensive (loss) income: | | | |
Foreign currency translation adjustments arising during the period | (390) | | | 1,797 | |
Unrealized gain (loss) on cash flow hedge, net of tax of $0 | 15,543 | | | (14,270) | |
Reclassification of cash flow hedge to earnings, net of tax of $0 | (6,515) | | | — | |
Less: Other comprehensive loss attributable to non-controlling interests | — | | | 6,236 | |
Other comprehensive income (loss) attributable to Amneal Pharmaceuticals, Inc. | 8,638 | | | (6,237) | |
Comprehensive loss attributable to Amneal Pharmaceuticals, Inc. | $ | (83,005) | | | $ | (13,180) | |
The accompanying notes are an integral part of these consolidated financial statements.
Amneal Pharmaceuticals, Inc.
Consolidated Balance Sheets
(unaudited; in thousands, except per share amounts)
| | June 30, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Assets | Assets | | | |
Current assets: | Current assets: | |
Current assets: | |
Current assets: | |
Cash and cash equivalents | |
Cash and cash equivalents | |
Cash and cash equivalents | Cash and cash equivalents | $ | 109,284 | | | $ | 25,976 | |
Restricted cash | Restricted cash | 5,298 | | | 9,251 | |
Trade accounts receivable, net | Trade accounts receivable, net | 674,736 | | | 741,791 | |
Inventories | Inventories | 550,558 | | | 530,735 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 81,764 | | | 103,565 | |
Related party receivables | Related party receivables | 149 | | | 500 | |
Total current assets | Total current assets | 1,421,789 | | | 1,411,818 | |
Property, plant and equipment, net | Property, plant and equipment, net | 459,108 | | | 469,815 | |
Goodwill | Goodwill | 599,206 | | | 598,853 | |
Intangible assets, net | Intangible assets, net | 1,015,376 | | | 1,096,093 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 34,031 | | | 38,211 | |
Operating lease right-of-use assets - related party | Operating lease right-of-use assets - related party | 16,566 | | | 17,910 | |
Financing lease right-of-use assets | Financing lease right-of-use assets | 61,570 | | | 63,424 | |
Other assets | Other assets | 93,240 | | | 103,217 | |
Total assets | Total assets | $ | 3,700,886 | | | $ | 3,799,341 | |
Liabilities and Stockholders' Equity | | | |
Liabilities and Stockholders' (Deficiency) Equity | |
Current liabilities: | |
Current liabilities: | |
Current liabilities: | Current liabilities: | |
Accounts payable and accrued expenses | Accounts payable and accrued expenses | $ | 512,719 | | | $ | 538,199 | |
Accounts payable and accrued expenses | |
Accounts payable and accrued expenses | |
Current portion of liabilities for legal matters | Current portion of liabilities for legal matters | 77,011 | | | 107,483 | |
Revolving credit facilities | 120,000 | | | 60,000 | |
Revolving credit facility | |
Current portion of long-term debt, net | Current portion of long-term debt, net | 30,405 | | | 29,961 | |
Current portion of operating lease liabilities | Current portion of operating lease liabilities | 9,861 | | | 8,321 | |
Current portion of operating lease liabilities - related party | Current portion of operating lease liabilities - related party | 2,992 | | | 2,869 | |
Current portion of financing lease liabilities | Current portion of financing lease liabilities | 3,219 | | | 3,488 | |
Related party payables - short term | Related party payables - short term | 21,143 | | | 2,479 | |
Total current liabilities | Total current liabilities | 777,350 | | | 752,800 | |
Long-term debt, net | Long-term debt, net | 2,549,177 | | | 2,591,981 | |
Note payable - related party | Note payable - related party | 40,560 | | | 39,706 | |
Operating lease liabilities | Operating lease liabilities | 28,296 | | | 32,126 | |
Operating lease liabilities - related party | Operating lease liabilities - related party | 14,388 | | | 15,914 | |
Financing lease liabilities | Financing lease liabilities | 59,836 | | | 60,769 | |
Related party payables - long term | Related party payables - long term | 9,123 | | | 9,649 | |
Liabilities for legal matters - long term | |
Other long-term liabilities | Other long-term liabilities | 39,282 | | | 87,468 | |
Total long-term liabilities | Total long-term liabilities | 2,740,662 | | | 2,837,613 | |
Commitments and contingencies (Notes 5 and 19) | |
Commitments and contingencies (Notes 4 and 17) | | Commitments and contingencies (Notes 4 and 17) | | | |
Redeemable non-controlling interests | Redeemable non-controlling interests | 32,106 | | | 24,949 | |
Stockholders' Equity | |
Preferred stock, $0.01 par value, 2,000 shares authorized, none issued at both June 30, 2023 and December 31, 2022 | — | | | — | |
Class A common stock, $0.01 par value, 900,000 shares authorized at both June 30, 2023 and December 31, 2022; 154,050 and 151,490 shares issued at June 30, 2023 and December 31, 2022, respectively | 1,540 | | | 1,514 | |
Class B common stock, $0.01 par value, 300,000 shares authorized at both June 30, 2023 and December 31, 2022; 152,117 shares issued at both June 30, 2023 and December 31, 2022 | 1,522 | | | 1,522 | |
Stockholders' (Deficiency) Equity | |
Preferred stock, $0.01 par value, 2,000 shares authorized at both March 31, 2024 and December 31, 2023; none issued at both March 31, 2024 and December 31, 2023 | |
Preferred stock, $0.01 par value, 2,000 shares authorized at both March 31, 2024 and December 31, 2023; none issued at both March 31, 2024 and December 31, 2023 | |
Preferred stock, $0.01 par value, 2,000 shares authorized at both March 31, 2024 and December 31, 2023; none issued at both March 31, 2024 and December 31, 2023 | |
Class A common stock, $0.01 par value, 900,000 shares authorized at both March 31, 2024 and December 31, 2023; 308,623 and 306,565 shares issued at March 31, 2024 and December 31, 2023, respectively | |
Class B common stock, $0.01 par value, 300,000 shares authorized at both March 31, 2024 and December 31, 2023; none issued at both March 31, 2024 and December 31, 2023 | |
Additional paid-in capital | Additional paid-in capital | 708,233 | | | 691,629 | |
Stockholders' accumulated deficit | Stockholders' accumulated deficit | (401,209) | | | (406,183) | |
Accumulated other comprehensive income | 8,083 | | | 9,939 | |
Total Amneal Pharmaceuticals, Inc. stockholders' equity | 318,169 | | | 298,421 | |
Accumulated other comprehensive loss | |
Total Amneal Pharmaceuticals, Inc. stockholders' (deficiency) equity | |
Non-controlling interests | Non-controlling interests | (167,401) | | | (114,442) | |
Total stockholders' equity | 150,768 | | | 183,979 | |
Total liabilities and stockholders' equity | $ | 3,700,886 | | | $ | 3,799,341 | |
Total stockholders' (deficiency) equity | |
Total liabilities and stockholders' (deficiency) equity | |
The accompanying notes are an integral part of these consolidated financial statements.
Amneal Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
(unaudited; in thousands) | | Six Months Ended June 30, |
| 2023 | | 2022 |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
Cash flows from operating activities: | Cash flows from operating activities: | | | |
Net income (loss) | $ | 19,589 | | | $ | (246,541) | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |
Net loss | |
Net loss | |
Net loss | |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 115,261 | | | 117,511 | |
Unrealized foreign currency (gain) loss | (1,561) | | | 8,014 | |
Depreciation and amortization | |
Depreciation and amortization | |
Unrealized foreign currency loss (gain) | |
Amortization of debt issuance costs and discount | Amortization of debt issuance costs and discount | 4,523 | | | 4,388 | |
Loss on refinancing - revolving credit facility | — | | | 291 | |
Intangible asset impairment charges | Intangible asset impairment charges | 1,283 | | | 5,112 | |
Change in fair value of contingent consideration | Change in fair value of contingent consideration | (3,907) | | | (70) | |
Stock-based compensation | Stock-based compensation | 14,157 | | | 16,327 | |
Inventory provision | Inventory provision | 41,806 | | | 17,748 | |
Insurance recoveries for property and equipment losses | — | | | (1,000) | |
Other operating charges and credits, net | Other operating charges and credits, net | 3,364 | | | 3,449 | |
Changes in assets and liabilities: | Changes in assets and liabilities: | |
Trade accounts receivable, net | |
Trade accounts receivable, net | |
Trade accounts receivable, net | Trade accounts receivable, net | 66,976 | | | (26,561) | |
Inventories | Inventories | (60,526) | | | (65,395) | |
Prepaid expenses, other current assets and other assets | Prepaid expenses, other current assets and other assets | 31,898 | | | (119,747) | |
Related party receivables | Related party receivables | 351 | | | (159) | |
Accounts payable, accrued expenses and other liabilities | Accounts payable, accrued expenses and other liabilities | (107,760) | | | 273,947 | |
Related party payables | Related party payables | 2,913 | | | 7,508 | |
Net cash provided by (used in) operating activities | 128,367 | | | (5,178) | |
Net cash (used in) provided by operating activities | |
Cash flows from investing activities: | Cash flows from investing activities: | | | |
Purchases of property, plant and equipment | Purchases of property, plant and equipment | (21,691) | | | (15,842) | |
Saol Acquisition | — | | | (84,714) | |
Purchases of property, plant and equipment | |
Purchases of property, plant and equipment | |
Acquisition of intangible assets | Acquisition of intangible assets | (1,488) | | | (10,000) | |
Deposits for future acquisition of property, plant and equipment | Deposits for future acquisition of property, plant and equipment | (842) | | | (3,955) | |
Proceeds from insurance recoveries for property and equipment losses | — | | | 1,000 | |
Net cash used in investing activities | Net cash used in investing activities | (24,021) | | | (113,511) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | |
Payments of deferred financing and refinancing costs | — | | | (1,622) | |
Payments of principal on debt, revolving credit facilities, financing leases and other | |
Payments of principal on debt, revolving credit facilities, financing leases and other | |
Payments of principal on debt, revolving credit facilities, financing leases and other | Payments of principal on debt, revolving credit facilities, financing leases and other | (87,566) | | | (63,010) | |
Borrowings on revolving credit facilities | Borrowings on revolving credit facilities | 100,000 | | | 85,000 | |
Proceeds from exercise of stock options | Proceeds from exercise of stock options | — | | | 239 | |
Employee payroll tax withholding on restricted stock unit vesting | Employee payroll tax withholding on restricted stock unit vesting | (2,033) | | | (3,291) | |
Payments of deferred consideration for acquisitions - related party | — | | | (43,998) | |
Acquisition of redeemable non-controlling interest | — | | | (1,722) | |
Tax distributions to non-controlling interests | Tax distributions to non-controlling interests | (35,557) | | | (9,917) | |
Net cash used in financing activities | Net cash used in financing activities | (25,156) | | | (38,321) | |
Effect of foreign exchange rate on cash | Effect of foreign exchange rate on cash | 165 | | | (1,547) | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 79,355 | | | (158,557) | |
Net (decrease) increase in cash, cash equivalents, and restricted cash | |
Cash, cash equivalents, and restricted cash - beginning of period | Cash, cash equivalents, and restricted cash - beginning of period | 35,227 | | | 256,739 | |
Cash, cash equivalents, and restricted cash - end of period | Cash, cash equivalents, and restricted cash - end of period | $ | 114,582 | | | $ | 98,182 | |
Cash and cash equivalents - end of period | Cash and cash equivalents - end of period | $ | 109,284 | | | $ | 91,979 | |
Restricted cash - end of period | Restricted cash - end of period | 5,298 | | | 6,203 | |
Cash, cash equivalents, and restricted cash - end of period | Cash, cash equivalents, and restricted cash - end of period | $ | 114,582 | | | $ | 98,182 | |
The accompanying notes are an integral part of these consolidated financial statements.
Amneal Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows (continued)
(unaudited; in thousands)
| | Six Months Ended June 30, |
| 2023 | | 2022 |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 |
Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | | |
Cash paid for interest | Cash paid for interest | $ | 88,705 | | | $ | 57,322 | |
Cash received (paid), net for income taxes | $ | 3,917 | | | $ | (6,747) | |
Cash paid for interest | |
Cash paid for interest | |
Cash (paid) received, net for income taxes | |
| Supplemental disclosure of non-cash investing and financing activity: | Supplemental disclosure of non-cash investing and financing activity: | |
Supplemental disclosure of non-cash investing and financing activity: | |
Supplemental disclosure of non-cash investing and financing activity: | |
Tax distributions to non-controlling interests | Tax distributions to non-controlling interests | $ | 18,285 | | | $ | — | |
Contingent consideration for acquisition | $ | — | | | $ | 8,796 | |
Payable for acquisition of intangible assets | $ | 1,000 | | | $ | 31,500 | |
Tax distributions to non-controlling interests | |
Tax distributions to non-controlling interests | |
The accompanying notes are an integral part of these consolidated financial statements.
Amneal Pharmaceuticals, Inc.
Consolidated Statements of Changes in Stockholders’ Equity (Deficiency)
(unaudited; in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | Class B Common Stock | | Additional Paid-in Capital | | Stockholders' Accumulated Deficit | | Accumulated Other Comprehensive Income | | Non- Controlling Interests | | Total Equity | | Redeemable Non-Controlling Interests |
| Shares | | Amount | | Shares | | Amount | | | | | | |
Balance at March 31, 2023 | 153,321 | | | $ | 1,532 | | | 152,117 | | | $ | 1,522 | | | $ | 700,722 | | | $ | (413,126) | | | $ | 3,764 | | | $ | (159,746) | | | $ | 134,668 | | | $ | 27,527 | |
Net income | — | | | — | | | — | | | — | | | — | | | 11,917 | | | — | | | 10,315 | | | 22,232 | | | 7,451 | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | 131 | | | 129 | | | 260 | | | — | |
Stock-based compensation | — | | | — | | | — | | | — | | | 6,561 | | | — | | | — | | | — | | | 6,561 | | | — | |
Restricted stock unit vesting, net of shares withheld to cover payroll taxes | 729 | | | 8 | | | — | | | — | | | 950 | | | — | | | 10 | | | (1,030) | | | (62) | | | — | |
Unrealized gain on cash flow hedge, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | 4,178 | | | 4,134 | | | 8,312 | | | — | |
Tax distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (21,203) | | | (21,203) | | | (2,872) | |
Balance at June 30, 2023 | 154,050 | | | $ | 1,540 | | | 152,117 | | | $ | 1,522 | | | $ | 708,233 | | | $ | (401,209) | | | $ | 8,083 | | | $ | (167,401) | | | $ | 150,768 | | | $ | 32,106 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| New PubCo | | | | | | | | | | | | |
| Class A Common Stock | | Additional Paid-in Capital | | Stockholders' Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Non- Controlling Interests | | Total Equity (Deficiency) | | Redeemable Non-Controlling Interests |
| Shares | | Amount | | | | | | |
Balance at December 31, 2023 | 306,565 | | | $ | 3,066 | | | $ | 539,240 | | | $ | (490,176) | | | $ | (32,349) | | | $ | 230 | | | $ | 20,011 | | | $ | 41,293 | |
Net (loss) income | — | | | — | | | — | | | (91,643) | | | — | | | (135) | | | (91,778) | | | 10,100 | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | (390) | | | — | | | (390) | | | — | |
Stock-based compensation | — | | | — | | | 6,722 | | | — | | | — | | | — | | | 6,722 | | | — | |
Exercise of stock options | 10 | | | — | | | 28 | | | — | | | — | | | — | | | 28 | | | — | |
Restricted stock unit vesting, net of shares withheld to cover payroll taxes | 2,048 | | | 20 | | | (7,270) | | | — | | | — | | | — | | | (7,250) | | | — | |
Unrealized gain on cash flow hedge, net of tax of $0 | — | | | — | | | — | | | — | | | 15,543 | | | — | | | 15,543 | | | — | |
Tax distributions, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,371) | |
Reclassification of cash flow hedge to earnings, net of tax of $0 | — | | | — | | | — | | | — | | | (6,515) | | | — | | | (6,515) | | | — | |
Balance at March 31, 2024 | 308,623 | | | $ | 3,086 | | | $ | 538,720 | | | $ | (581,819) | | | $ | (23,711) | | | $ | 95 | | | $ | (63,629) | | | $ | 47,022 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | Class B Common Stock | | Additional Paid-in Capital | | Stockholders' Accumulated Deficit | | Accumulated Other Comprehensive Income | | Non- Controlling Interests | | Total Equity | | Redeemable Non-Controlling Interests |
| Shares | | Amount | | Shares | | Amount | | | | | | |
Balance at December 31, 2022 | 151,490 | | | $ | 1,514 | | | 152,117 | | | $ | 1,522 | | | $ | 691,629 | | | $ | (406,183) | | | $ | 9,939 | | | $ | (114,442) | | | $ | 183,979 | | | $ | 24,949 | |
Net income | — | | | — | | | — | | | — | | | — | | | 4,974 | | | — | | | 1,627 | | | 6,601 | | | 12,988 | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | 1,029 | | | 1,028 | | | 2,057 | | | — | |
Stock-based compensation | — | | | — | | | — | | | — | | | 14,157 | | | — | | | — | | | — | | | 14,157 | | | — | |
Restricted stock unit vesting, net of shares withheld to cover payroll taxes | 2,560 | | | 26 | | | — | | | — | | | 2,447 | | | — | | | 72 | | | (4,602) | | | (2,057) | | | — | |
Unrealized gain on cash flow hedge, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | (2,957) | | | (3,001) | | | (5,958) | | | — | |
Tax distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (48,011) | | | (48,011) | | | (5,831) | |
Balance at June 30, 2023 | 154,050 | | | $ | 1,540 | | | 152,117 | | | $ | 1,522 | | | $ | 708,233 | | | $ | (401,209) | | | $ | 8,083 | | | $ | (167,401) | | | $ | 150,768 | | | $ | 32,106 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Old PubCo | | | | | | | | | | | | |
| Class A Common Stock | | Class B Common Stock | | Additional Paid-in Capital | | Stockholders' Accumulated Deficit | | Accumulated Other Comprehensive Income | | Non- Controlling Interests | | Total Equity | | Redeemable Non-Controlling Interests |
| Shares | | Amount | | Shares | | Amount | | | | | | |
Balance at December 31, 2022 | 151,490 | | | $ | 1,514 | | | 152,117 | | | $ | 1,522 | | | $ | 691,629 | | | $ | (406,183) | | | $ | 9,939 | | | $ | (114,442) | | | $ | 183,979 | | | $ | 24,949 | |
Net (loss) income | — | | | — | | | — | | | — | | | — | | | (6,943) | | | — | | | (8,688) | | | (15,631) | | | 5,537 | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | 898 | | | 899 | | | 1,797 | | | — | |
Stock-based compensation | — | | | — | | | — | | | — | | | 7,596 | | | — | | | — | | | — | | | 7,596 | | | — | |
Restricted stock unit vesting, net of shares withheld to cover payroll taxes | 1,831 | | | 18 | | | — | | | — | | | 1,497 | | | — | | | 62 | | | (3,572) | | | (1,995) | | | — | |
Unrealized loss on cash flow hedge, net of tax of $0 | — | | | — | | | — | | | — | | | — | | | — | | | (7,135) | | | (7,135) | | | (14,270) | | | — | |
Tax distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (26,808) | | | (26,808) | | | (2,959) | |
Balance at March 31, 2023 | 153,321 | | | $ | 1,532 | | | 152,117 | | | $ | 1,522 | | | $ | 700,722 | | | $ | (413,126) | | | $ | 3,764 | | | $ | (159,746) | | | $ | 134,668 | | | $ | 27,527 | |
The accompanying notes are an integral part of these consolidated financial statements.
Amneal Pharmaceuticals, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(unaudited; in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | Class B Common Stock | | Additional Paid-in Capital | | Stockholders' Accumulated Deficit | | Accumulated Other Comprehensive (Loss) Income | | Non- Controlling Interests | | Total Equity | | Redeemable Non-Controlling Interests |
| Shares | | Amount | | Shares | | Amount | | | | | | |
Balance at March 31, 2022 | 150,775 | | | $ | 1,506 | | | 152,117 | | | $ | 1,522 | | | $ | 666,799 | | | $ | (278,353) | | | $ | (349) | | | $ | 16,282 | | | $ | 407,407 | | | $ | 16,420 | |
Net (loss) income | — | | | — | | | — | | | — | | | — | | | (120,808) | | | — | | | (121,320) | | | (242,128) | | | 2,047 | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | (5,792) | | | (5,836) | | | (11,628) | | | — | |
Stock-based compensation | — | | | — | | | — | | | — | | | 8,262 | | | — | | | — | | | — | | | 8,262 | | | — | |
Exercise of stock options | 47 | | | — | | | — | | | — | | | 128 | | | — | | | — | | | — | | | 128 | | | — | |
Restricted stock unit vesting, net of shares withheld to cover payroll taxes | 374 | | | 4 | | | — | | | — | | | 399 | | | — | | | — | | | (636) | | | (233) | | | — | |
Unrealized gain on cash flow hedge, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | 7,009 | | | 7,061 | | | 14,070 | | | — | |
Tax distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,887) | | | (2,887) | | | (582) | |
Balance at June 30, 2022 | 151,196 | | | $ | 1,510 | | | 152,117 | | | $ | 1,522 | | | $ | 675,588 | | | $ | (399,161) | | | $ | 868 | | | $ | (107,336) | | | $ | 172,991 | | | $ | 17,885 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | Class B Common Stock | | Additional Paid-in Capital | | Stockholders' Accumulated Deficit | | Accumulated Other Comprehensive (Loss) Income | | Non- Controlling Interests | | Total Equity | | Redeemable Non-Controlling Interests |
| Shares | | Amount | | Shares | | Amount | | | | | | |
Balance at December 31, 2021 | 149,413 | | | $ | 1,492 | | | 152,117 | | | $ | 1,522 | | | $ | 658,350 | | | $ | (276,197) | | | $ | (24,827) | | | $ | 6,633 | | | $ | 366,973 | | | $ | 16,907 | |
Net (loss) income | — | | | — | | | — | | | — | | | — | | | (122,526) | | | — | | | (128,419) | | | (250,945) | | | 4,404 | |
Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | (7,816) | | | (7,891) | | | (15,707) | | | — | |
Stock-based compensation | — | | | — | | | — | | | — | | | 16,327 | | | — | | | — | | | — | | | 16,327 | | | — | |
Exercise of stock options | 54 | | | — | | | — | | | — | | | 193 | | | — | | | — | | | 46 | | | 239 | | | — | |
Restricted stock unit vesting, net of shares withheld to cover payroll taxes | 1,729 | | | 18 | | | — | | | — | | | 718 | | | — | | | (112) | | | (4,001) | | | (3,377) | | | — | |
Unrealized gain on cash flow hedge, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | 33,623 | | | 34,071 | | | 67,694 | | | — | |
Tax distributions, net | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7,330) | | | (7,330) | | | (2,587) | |
Reclassification of redeemable non-controlling interest | — | | | — | | | — | | | — | | | — | | | (438) | | | — | | | (445) | | | (883) | | | 883 | |
Acquisition of redeemable non-controlling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,722) | |
Balance at June 30, 2022 | 151,196 | | | $ | 1,510 | | | 152,117 | | | $ | 1,522 | | | $ | 675,588 | | | $ | (399,161) | | | $ | 868 | | | $ | (107,336) | | | $ | 172,991 | | | $ | 17,885 | |
The accompanying notes are an integral part of these consolidated financial statements.
Amneal Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
(unaudited)
1. Nature of Operations
Amneal Pharmaceuticals, Inc. (the “Company”) is a global pharmaceutical company that develops, manufactures, markets, and distributes a diverse portfolio of essential medicines, including complexretail generics, injectables, and biosimilars in our Generics segment and specialty branded pharmaceuticals. The Company operates principally in the United States (the “U.S.(“U.S.”), India, and Ireland, and sells to wholesalers, distributors, hospitals, governmental agencies, chain pharmacies and individual pharmacies, either directly or indirectly. The Company is a holding company whose principal assets are 100% of the common units (“Amneal Common Units”) of Amneal Pharmaceuticals, LLC (“Amneal”).
The Company held 50.3% of Amneal Common Units and the group, together with their affiliates and certain assignees, who owned Amneal when it was a private company (the “Members” or the “Amneal Group”) held the remaining 49.7% as of June 30, 2023.
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 (“U.S. GAAP”), should be read in conjunction with the Company’s annual audited financial statements for the year ended December 31, 20222023 included in the Company’s 20222023 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, 2023,March 31, 2024, cash flows for the sixthree months ended June 30,March 31, 2024 and 2023 and 2022 and the results of its operations, its comprehensive income (loss)loss and its changes in stockholders’ equity (deficiency) for the three and six months ended June 30, 2023March 31, 2024 and 2022.2023. The consolidated balance sheet data at December 31, 20222023 was derived from the Company’s audited annual financial statements, but does not include all disclosures required by U.S. GAAP.
Except for the updates included in this note, the accounting policies of the Company are set forth in Note 2. Summary of Significant Accounting Policies contained in the Company’s 20222023 Annual Report on Form 10-K.
Use of Estimates
The preparation of financial statements requires the Company's management to make estimates and assumptions that affect the reported financial position at the date of the financial statements and the reported results of operations during the reporting period. Such estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The following are some, but not all, of such estimates: the determination of chargebacks, sales returns, rebates, billbacks, valuation of intangible and other assets acquired in business combinations, allowances for accounts receivable, accrued liabilities, liabilities for legal matters, contingent liabilities, initial and subsequent valuation of contingent consideration recognized in business combinations, stock-based compensation, valuation of inventory balances, the determination of useful lives for product rights and the assessment of expected cash flows used in evaluating goodwill and other long-lived assets for impairment. Actual results could differ from those estimates.
Reclassification
The prior period balance related to the TRA (as defined in Note 5. Income Taxes) of $0.8 million, formerly included in other income, net for the three months ended March 31, 2023, has been reclassified to the income statement caption “increase in tax receivable agreement liability” to conform to the current period presentation in the consolidated statements of operations. This reclassification did not impact total other expense, net or net loss.
The prior period balance related to long-term liabilities for legal matters of $0.3 million, formerly included in other long-term liabilities as of December 31, 2023, has been reclassified to the balance sheet caption “liabilities for legal matters - long term” to conform to the current period presentation in the consolidated balance sheets. This reclassification did not impact total long-term liabilities or total liabilities.
Recently AdoptedIssued Accounting Pronouncements
In October 2021,November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which provides improvements to reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 requires disclosures to include the title and position of the chief operating decision maker (“CODM”), significant segment expenses that are regularly provided to the CODM, a description of other segment items by reportable segment, and any additional measures of a segment’s profit or loss used by the CODM when deciding how to allocate resources. ASU 2023-07 also requires all annual disclosures currently required by Topic 280 to be included in interim periods. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.
In December 2023, the FASB issued ASU 2021-08,2023-09, Business CombinationsIncome Taxes (Topic 805)740): Accounting for Contract Assets and Contract Liabilities from Contracts with CustomersImprovements to Income Tax Disclosures (“ASU 2021-08”2023-09”), which enhances the transparency and usefulness of income tax disclosures. ASU 2023-09 requires that public business entities to recognizeon an annual basis disclose specific categories in the rate reconciliation and measure contract assets and contract liabilities acquired inprovide additional information for reconciling items that meet a business combinationquantitative threshold. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.
3. Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers(“ (“ASC 606”). The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. ASU 2021-08 was effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted ASU 2021-08 effective January 1, 2023 and will apply the guidance to subsequent acquisitions. The adoption of ASU 2021-08 did not have an impact on the Company’s consolidated financial statements because the Company did not acquire a business during the three and six months ended June 30, 2023.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides elective amendments for entities that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), to expand and clarify the scope of Topic 848 to include derivative instruments on discounting transactions. In December 2022, the FASB issued ASU 2022-06, Reference Rate reform (Topic 848): Deferral of the Sunset Date of Topic 848, which deferred the sunset date of Topic 848, Reference Rate Reform to December 31, 2024. The Company adopted ASU 2020-04 during the three months ended June 30, 2023 (refer to Note 15. Debt and Note 18. Financial Instruments for additional information). The adoption of ASU 2020-04 did not have a material impact on the Company’s consolidated financial statements.
Reclassifications
The prior period balance related to cost of goods sold impairment charges of $5.1 million, formerly included in a separate income statement caption for both the three and six months ended June 30, 2022, has been reclassified to be included within the income statement caption cost of goods sold to conform with the current period presentation.
The prior period balance related to loss on refinancing of $0.3 million, formerly included in a separate income statement caption for both the three and six months ended June 30, 2022, has been reclassified to be included within the income statement caption other income, net to conform to the current period presentation.
3. Acquisition
Saol Baclofen Franchise Acquisition
On December 30, 2021, the Company entered into an asset purchase agreement with certain entities affiliated with Saol International Limited (collectively, “Saol”), a private specialty pharmaceutical company, pursuant to which it agreed to acquire Saol’s baclofen franchise, including Lioresal®, LYVISPAH™, and a pipeline product under development (the “Saol Acquisition”). The Saol Acquisition expanded the Company’s commercial institutional and specialty portfolio in neurology and added commercial infrastructure in advance of its entry into the biosimilar institutional market. The transaction closed on February 9, 2022. Consideration for the Saol Acquisition included $84.7 million, paid at closing with cash on hand, and contingent royalty payments based on annual net sales for certain acquired assets, beginning in June 2023.
Refer to Note 3. Acquisitionsin the Company’s 2022 Annual Report on Form 10-K for additional information.
4. Revenue Recognition
The Company recognizes revenue in accordance with ASC 606. 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.
License Agreements
Refer to Note 5.4. Alliance and Collaboration for further information related to revenue recognition associated with a license agreement with multiple performance obligations.agreements.
Concentration of Revenue
The following table summarizes revenues from each of the Company’s customers which individually accounted for 10% or more of its total net revenue:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
Customer A | 21 | % | | 22 | % |
Customer B | 15 | % | | 14 | % |
Customer C | 23 | % | | 20 | % |
Customer D | 10 | % | | 9 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Customer A | 24 | % | | 19 | % | | 23 | % | | 19 | % |
Customer B | 16 | % | | 17 | % | | 15 | % | | 17 | % |
Customer C | 20 | % | | 21 | % | | 20 | % | | 22 | % |
Customer D | 11 | % | | 11 | % | | 10 | % | | 11 | % |
Disaggregated Revenue
The Company’s significant therapeutic classes for its Generics and Specialty segments and sales channels for its AvKARE segment, as determined based on net revenue for the three and six months ended June 30,March 31, 2024 and 2023, and 2022, are set forth below (in thousands):
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| | Three Months Ended March 31, | | | | Three Months Ended March 31, |
| | 2024 | | | | 2024 | | 2023 |
Generics | Generics | | | | | | | |
| Anti-infective | $ | 6,092 | | | $ | 5,566 | | | $ | 11,266 | | | $ | 11,811 | |
| Hormonal / allergy | 126,435 | | | 118,309 | | | 231,286 | | | 214,677 | |
| Antiviral | 3,597 | | | 1,296 | | | 29,071 | | | 11,867 | |
| Central nervous system | 83,604 | | | 108,787 | | | 168,186 | | | 189,912 | |
| Cardiovascular system | 33,146 | | | 32,043 | | | 65,649 | | | 55,496 | |
| Gastroenterology | 19,905 | | | 17,531 | | | 34,269 | | | 34,151 | |
| Oncology | 28,546 | | | 18,424 | | | 39,124 | | | 35,632 | |
| Metabolic disease/ endocrine | 14,936 | | | 9,988 | | | 24,201 | | | 21,221 | |
| Respiratory | 11,136 | | | 12,118 | | | 23,951 | | | 17,783 | |
| Dermatology | 17,949 | | | 17,937 | | | 35,953 | | | 31,414 | |
| Other therapeutic classes | 27,809 | | | 22,329 | | | 53,704 | | | 57,689 | |
| International and other | 546 | | | 567 | | | 847 | | | 989 | |
| Total Generics net revenue | 373,701 | | | 364,895 | | | 717,507 | | | 682,642 | |
| Anti-infective | |
| Anti-infective | |
| Anti-infective | |
| Hormonal / allergy | |
| Antiviral | |
| Central nervous system | |
| Cardiovascular system | |
| Gastroenterology | |
| Oncology | |
| Metabolic disease / endocrine | |
| Respiratory | |
| Dermatology | |
| Other therapeutic classes | |
| International and other | |
| Total Generics net revenue | |
Specialty | Specialty | |
| Hormonal / allergy | 29,011 | | | 24,320 | | | 53,774 | | | 43,739 | |
| Central nervous system | 59,563 | | | 65,356 | | | 119,702 | | | 123,524 | |
| Other therapeutic classes | 8,420 | | | 7,325 | | | 15,196 | | | 14,824 | |
| Total Specialty net revenue | 96,994 | | | 97,001 | | | 188,672 | | | 182,087 | |
| Hormonal / allergy | |
| Hormonal / allergy | |
| Hormonal / allergy | |
| Central nervous system | |
| License agreement (1) | |
| Other therapeutic classes | |
| Total Specialty net revenue | |
AvKARE | AvKARE | |
| Distribution | 83,795 | | | 64,240 | | | 167,025 | | | 124,503 | |
| Government label | 29,870 | | | 22,280 | | | 54,386 | | | 46,739 | |
| Institutional | 8,982 | | | 6,060 | | | 17,844 | | | 12,375 | |
| Other | 5,704 | | | 4,879 | | | 11,152 | | | 8,642 | |
| Total AvKARE net revenue | 128,351 | | | 97,459 | | | 250,407 | | | 192,259 | |
| Total net revenue | $ | 599,046 | | | $ | 559,355 | | | $ | 1,156,586 | | | $ | 1,056,988 | |
| Distribution | |
| Distribution | |
| Distribution | |
| Government label | |
| Institutional | |
| Other | |
| Total AvKARE net revenue | |
| Total net revenue | |
(1)Refer to Note 4. Alliance and Collaboration for information on revenue recognized under a license agreement.
A rollforward of the major categories of sales-related deductions for the sixthree months ended June 30, 2023March 31, 2024 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, 2023 | $ | 559,334 | | | $ | 23,892 | | | $ | 136,486 | | | $ | 90,690 | |
Provision related to sales recorded in the period | 885,322 | | | 30,073 | | | 16,220 | | | 61,271 | |
Credits/payments issued during the period | (987,202) | | | (26,550) | | | (15,598) | | | (55,250) | |
Balance at March 31, 2024 | $ | 457,454 | | | $ | 27,415 | | | $ | 137,108 | | | $ | 96,711 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Contract Charge - Backs and Sales Volume Allowances | | Cash Discount Allowances | | Accrued Returns Allowance | | Accrued Medicaid and Commercial Rebates |
Balance at December 31, 2022 | $ | 573,592 | | | $ | 27,454 | | | $ | 145,060 | | | $ | 86,030 | |
Provision related to sales recorded in the period | 1,619,720 | | | 54,566 | | | 34,997 | | | 114,905 | |
Credits/payments issued during the period | (1,767,481) | | | (51,805) | | | (47,125) | | | (103,395) | |
Balance at June 30, 2023 | $ | 425,831 | | | $ | 30,215 | | | $ | 132,932 | | | $ | 97,540 | |
5.4. 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 (“R&D”)&D services over multiple periods. The Company’s significant arrangements are discussed below.
Orion Corporation License Agreement
On December 28, 2022, Amneal signed a long-term license agreement with Orion Corporation (“Orion”), a globally operating Finnish pharmaceutical company, to commercialize a number of its complex generic products in most parts of Europe, Australia and New Zealand (the “Orion Agreement”). The initial term of the Orion Agreement commences upon commercial launch of the products and will continue for eight years. The Orion Agreement will automatically renew for successive two-year terms unless either party declines such renewal in writing at least one year in advance.
UnderDuring both the terms of the Orion Agreement, Amneal granted Orion licenses to certain generic products commercially available in the U.S. today and select high-value pipeline products currently under development. In addition, Amneal will be responsible for the performance of all R&D activities to be conducted to obtain regulatory approval for each product. Amneal is entitled to be reimbursed for a percentage of mutually agreed upon R&D expenses from Orion. Orion will be responsible for preparing and filing regulatory documentation, along with paying any application fees seeking regulatory approval for the products.
Upon achieving regulatory approval for products, Amneal will be responsible for manufacturing and supplying products to Orion. Orion will be responsible for all commercialization and marketing activities for the territories described above. Amneal will earn revenue for supplying products to Orion at the greater of: (i) cost plus a stated margin, or (ii) a fixed percentage of the net selling price, as defined in the Orion Agreement.
Upon signing of the Orion Agreement, Amneal was entitled to an upfront, non-refundable payment of €20.0 million, or $21.4 million (based on the exchange rate as of that date), which was collected in January 2023. Amneal is eligible to receive certain one-time sales-based milestones in the aggregate of €45.0 million, or $49.0 million, based on the exchange rate as of June 30, 2023, contingent upon whether Orion achieves certain annual sales targets.
The Orion Agreement is within the scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”). The Company identified performance obligations related to: (1) the grant of a license of functional intellectual property (“IP”), (2) the performance of R&D activities, and (3) the supply of products. The Company evaluated that the grant of licenses is in the scope of ASC 606, whereas the performance of R&D activities is in the scope of ASC 730-20, Research and Development Arrangements, because the Company determined that performing R&D activities on behalf of other parties is not part of the ordinary activities of its business. The Company records reimbursement received from Orion for R&D activities as a reduction of R&D expense. The Company concluded each future purchase order from Orion represents a separate contract. Amneal will record revenue related to each purchase order when it transfers control of the products to Orion. At December 31, 2022, Amneal had not performed any reimbursable R&D activities under the Orion Agreement or supplied any products to Orion.
The Company determined that the transaction price under the arrangement was the upfront payment of $21.4 million, which was allocated to the performance obligations based on their relative standalone selling prices. The remaining sales-based milestones payments are variable consideration and were not included in the transaction price because they were fully constrained under ASC 606.
For the year ended December 31, 2022, the Company recognized $8.0 million in license revenue related to the delivery of functional IP, which was recorded in net revenues. The remaining $13.4 million of the transaction price was allocated to the
R&D activities performance obligation and was recorded as deferred income, of which $6.7 million was recorded in accounts payable and accrued expenses and $6.7 million was recorded in other long-term liabilities as of December 31, 2022. During the sixthree months ended June 30, March 31, 2024 and 2023, the Company recognized $0.6 million as a reduction to R&D expense related to services performed under the Orion Agreement (none during the three months ended June 30, 2023).Agreement. As of June 30, 2023,March 31, 2024, deferred income of $8.6$10.7 million and $4.2$1.2 million respectively, was recorded in accounts payable and accrued expenses and other long-term liabilities.liabilities, respectively. As of June 30,December 31, 2023, deferred income of $7.8 million and $4.7 million was recorded in accounts payable and accrued expenses and other long-term liabilities, respectively. As of March 31, 2024, no products have been supplied by Amneal under the Orion Agreement. Refer to Note 5. Alliance and Collaboration in our 2023 Annual Report on Form 10-K for additional information.
ONGENTYS® License Agreement
On December 5, 2023, the Company entered into a license agreement with BIAL-Portela & Ca., S.A. (“BIAL”) for the exclusive royalty-free right to market and distribute ONGENTYS® (opicapone) in the U.S. starting on December 18, 2023 and ending at such time when generic opicapone sales reach certain predetermined thresholds (the “BIAL License Agreement”). ONGENTYS® is BIAL’s proprietary, once-daily, peripherally-acting, highly-selective catechol-O-methyltransferase inhibitor approved by theFDA in 2020 as an add-on treatment to carbidopa/levodopa in patients with Parkinson’s disease experiencing “Off” episodes. Under the BIAL Agreement, the Company is responsible for commercialization and marketing of ONGENTYS® in the U.S. and BIAL is responsible for manufacturing and supply. The BIAL Agreement also requires the Company to spend a minimum of $6.0 million in medical and marketing activities directly related to ONGENTYS®. The Company commenced distribution of ONGENTYS® during the three months ended March 31, 2024.
During December 2023, the Company paid a nonrefundable license fee of $12.5 million to BIAL, which was capitalized as an intangible asset and will be amortized to cost of sales over a period of eight years. The BIAL License Agreement provides for potential future milestone payments totaling $22.5 million, depending on cumulative net sales of ONGENTYS®.
Knight Therapeutics International S.A. License Agreement
On January 24, 2024, the Company entered into a 15-year license, distribution and supply agreement with Knight Therapeutics International S.A. (“Knight”) granting Knight the exclusive rights to seek regulatory approval and commercialize IPX203 in Canada and Latin America (the “Knight License Agreement”). The Knight License Agreement will automatically renew for successive two-year periods unless either party provides notice declining such renewal at least one year in advance of any such renewal.
Knight will be responsible for the performance of all R&D activities, regulatory approval, commercialization, and marketing activities for the territories in the agreement to be conducted to obtain regulatory approval for each product. Upon achieving regulatory approval for products, Amneal will be responsible for manufacturing and supplying products to Knight.
On February 26, 2024, the Company received a nonrefundable license fee of $1.0 million from Knight, which was recorded as net revenue for the three months ended March 31, 2024. The Knight License Agreement provides for potential future milestone payments totaling $10.5 million, contingent upon regulatory approval, launch dates and cumulative net sales targets by Knight. The agreement also includes low-double digit royalty payments based on net sales of IPX203.
License Agreement with Zambon Biotech
On February 23, 2024, the Company entered into a license, distribution and supply agreement with Zambon Biotech S.A. (“Zambon”) granting Zambon the exclusive rights to seek regulatory approval and commercialize IPX203 in Europe (the “Zambon License Agreement”). The term for the Zambon License Agreement is 15 years commencing from the commercial launch of the product, which can automatically renew for successive two-year periods unless either party provides notice declining such renewal at least one year in advance of any such renewal. Zambon will be responsible for the performance of all R&D activities, regulatory approval, commercialization, and marketing activities for the territories in the agreement to be conducted to obtain regulatory approval for each product. Upon achieving regulatory approval for products, Amneal will be responsible for manufacturing and supplying products to Zambon.
In connection with the execution of the agreement, the Company was entitled to a non-refundable license fee of €5.0 million, or $5.4 million, which was received in April 2024. Of the license fee, the Company allocated €3.2 million, or $3.5 million, to the delivery of a functional license, which was recorded as net revenue during the three months ended March 31, 2024. In addition, the Company is eligible to receive future milestone payments totaling €71.5 million, or $77.2 million, from Zambon, contingent upon regulatory approval of the product, and achievement of certain annual net sales targets by Zambon. The Zambon License Agreement also includes single-digit to low-double digit royalty payments based on net sales of IPX203.
Biosimilar Licensing and Supply Agreement
Bevacizumab
On May 7, 2018, the Company entered into a licensing and supply agreement with MabxiencemAbxience S.L. (“mAbxience”), for its biosimilar candidate for Avastin® (bevacizumab). The supply agreement was subsequently amended on March 2, 2021 and the licensing agreement was amended on March 4, 2021. Pursuant to the agreement, the Company will be the exclusive partner in the U.S. market and will pay up-front, development and regulatory milestone payments as well as commercial milestone payments on reaching pre-agreed sales targets in the market to Mabxience,mAbxience, up to $78.3 million.
On April 13, 2022, the Food and Drug Administration (the “FDA”)FDA approved the Company’s biologics license application for bevacizumab-maly, a biosimilar referencing Avastin®. In connection with this regulatory approval and associated activity, the Company paid milestones of $26.5 million induring the year ended December 31, 2022, which were capitalized as product rights intangible assets and are being amortized to cost of sales over their estimated useful lives of 7seven years. During the three months ended March 31, 2024, the Company paid a sales-based milestone of $9.5 million, which was capitalized as a product rights intangible asset and is being amortized to cost of sales.
Denosumab
On October 12, 2023, the Company entered into a licensing and supply agreement with mAbxience to be the exclusive U.S. partner for two denosumab biosimilars referencing both Prolia® and XGEVA®. Denosumab is a monoclonal antibody drug that inhibits bone reabsorption. It is indicated for two major categories of therapy: bone metastasis from various forms of cancer and prevention of bone pain and fractures, including osteoporosis-related injuries. mAbxience is responsible for the clinical and regulatory approval for the two products and regulatory fees will be shared by the parties. Upon approval of each product, mAbxience will be responsible for supply and the Company will be responsible for commercialization.
During the year ended December 31, 2023, the Company recorded R&D expense for a $2.5 million payment made upon execution of the agreement and an additional $2.5 million for a developmental milestone. During the three months ended March 31, 2024, the Company recorded R&D expense for a $3.0 million payment made for a clinical milestone. The agreement provides for potential future milestone payments to mAbxience of up to $66.0 million as follows: (i) up to $3.5 million relating to clinical and developmental milestones; (ii) up to $15.0 million for regulatory approval and initial commercial launch milestones; and (iii) up to $47.5 million for the achievement of annual commercial milestones.
Agreements with Kashiv Biosciences, LLC
For details on the Company’s related party agreements with Kashiv Biosciences, LLC (“Kashiv”), refer to Note 21.19. Related Party Transactions in this Form 10-Q and Note 24. Related Party Transactions in the Company’s 20222023 Annual Report on Form 10-K.
6. Government Grants
In November 2021, Amneal Pharmaceuticals Private Limited, a subsidiary of the Company in India, was selected as one of 55 companies to participate in the India Production Linked Incentive Scheme for the Pharmaceutical Sector (“PLI Scheme”). The government of India established the PLI Scheme to make India’s domestic manufacturing more globally competitive and to create global champions within the pharmaceutical sector by encouraging investment and product diversification with a focus on manufacturing complex and high value goods.
Under the PLI Scheme, the Company is eligible to receive up to 10 billion Indian rupees, or approximately $121.9 million (based on the exchange rate as of June 30, 2023), over a maximum six-year period, starting in 2022. To be eligible to receive the cash incentives, Amneal must achieve (i) minimum cumulative expenditures towards developmental and/or capital investments and (ii) a minimum percentage growth in sales of eligible products.
The Company concluded the PLI Scheme is government assistance in the form of a grant and, in the absence of specific accounting guidance under U.S. GAAP, the Company has analogized to International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance. The Company evaluated the PLI Scheme to be a grant related to income and will recognize the cash incentives on a systematic basis in other operating income. For the six months ended June 30, 2023, the Company recognized $1.2 million of other operating income from the PLI Scheme (immaterial for the three months ended June 30, 2023). For the three and six months ended June 30, 2022, the Company recognized $1.2 million of other operating income from the PLI Scheme. As of June 30, 2023 and December 31, 2022, the Company recorded a corresponding receivable from the government of India of $5.2 million and $4.0 million, respectively, within prepaid expenses and other current assets.
7.5. Income Taxes
For the three months ended June 30, 2023, the Company’s benefit from income taxes and effective tax rate were both immaterial, as compared to a provision for income taxes and effective tax rate of $7.4 million and (3.2)%, respectively, for the three months ended June 30, 2022. For the six months ended June 30, 2023,March 31, 2024, the Company’s provision for income taxes and effective tax rate were $0.6$6.2 million and 3.2%(8.2)%, respectively, as compared to $3.9$0.7 million and (1.6)(7.1)%, respectively, for the sixthree months ended June 30, 2022. TheMarch 31, 2023. For the three months ended March 31, 2024, the period-over-period changeschange in the provision for income taxes was primarily related to a changechanges in the jurisdictional mix of incomeincome.
The Company recorded deferred tax assets for (i) its outside basis difference in its investment in Amneal on May 4, 2018, (ii) the net operating loss of Impax Laboratories, Inc., which was acquired by the Company in 2018, from January 1, 2018 through May 4, 2018, (iii) certain federal and state credits, and (iv) interest carryforwards of Impax that were attributable to the Company.
The Company records its valuation allowances against its deferred tax assets (“DTAs”) when it is more likely than not that all or a discrete benefit asportion of a resultDTA will not be realized. The Company routinely evaluates the realizability of its DTAs by assessing the completionlikelihood that its DTAs will be recovered based on all available positive and negative evidence, including scheduled reversals of an Internal Revenue Service examination and Joint Committee reviewdeferred tax liabilities, estimates of the 2012-2018 federalfuture taxable income, tax returns, which enabledplanning strategies and results of operations. Estimating future taxable income is inherently uncertain and requires judgment. In projecting future taxable income, the Company to recognize previously unrecognized tax benefits during the threeconsiders its historical results and six months ended June 30, 2022.incorporates certain assumptions, including projected new product launches, revenue growth, and operating margins, among others.
The Company established a valuation allowance on its deferred tax assets (“DTAs”)DTAs based upon all available objective and verifiable evidence, both positive and negative, including historical levels of pre-tax income (loss) both on a consolidated basis and tax reporting entity basis, legislative developments, expectations and risks associated with estimates of future pre-tax income, and prudent and feasible tax planning strategies. Since first establishing a valuation allowance, the Company has generated cumulative consolidated three-year pre-tax losses through June 30, 2023.March 31, 2024. As a result of the losses through June 30, 2023,March 31, 2024, the Company determined that it is more likely than not that it will not realize the benefits of its gross DTAs and therefore maintained its valuation allowance. As of June 30, 2023March 31, 2024 and December 31, 2022,2023, this valuation allowance was $435.4$566.0 million and $434.9$566.5 million, respectively, and it reduced the carrying value of these gross DTAs to zero.
TheIn 2018, the Company entered into a tax receivable agreement (“TRA”) for which it iswas generally required to pay the holders of Amneal Common Unitscommon units on a one-to-one basis, 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 Unitscommon 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 Unitscommon units for shares of classClass A common stock of the Company prior to the Reorganization (as defined in Note 1. Nature of Operations in our 2023 Annual Report on Form 10-K) and (ii) tax benefits attributable to payments made under the TRA. In conjunction with the valuation allowance recorded on the DTAs, the Company reversed the accrued TRA liability of $192.8 million during 2019.
The projection As part of future taxable income involves significant judgment. Actual taxable income may differ fromthe Reorganization, the TRA was amended to reduce the Company’s estimates, which could significantly impact the timingfuture obligation to pay 85% of the recognitiontax benefits subject to the TRA to 75% of such realized benefits. This agreement will not cause the contingent liabilityacceleration of payments under the TRA.
As noted above, the Company has determined it is more-likely-than-not it will be unable to utilize all of its DTAs subject to the TRA; therefore, as of June 30,March 31, 2024 and December 31, 2023, the Company has not recognized the contingent liability under the TRA related to the tax savings it may realize from common units sold or exchanged. If utilization of these DTAs becomes more likely than notmore-likely-than-not in the future, at such time, Amneal will recognize a liability under thethese TRA as a result of basis adjustments under Internal Revenue Code Section 754. As of both June 30, 2023liabilities (which amounted to approximately $185.0 million at March 31, 2024 and December 31, 2022,2023) will be recorded through charges in the contingent liability associated with the TRA was approximately $202.7 million, outCompany’s consolidated statements of which approximately $1.9 million was recorded.operations.
The timing and amount of any payments under the TRA may vary depending upon a number of factors, includingon the timing and number of Amneal Common Units sold or exchanged for the Company’s class A common stock, the price of the Company’s class A common stock on the date of sale or exchange, the timing and amount of the Company’s taxable income and the tax rate in effect at the time of realization of the Company’s taxable income (the TRA liability is determined based on a percentage of the corporate tax savings from the use of the TRA’s attributes). Further sales or exchanges occurring subsequent to June 30, 2023 could result in future Amneal tax deductions and obligations to pay 85% of such benefits to the holders of Amneal Common Units. These obligations could be incremental to and substantially larger than the approximate $202.7 millionincome. contingent liability as of June 30, 2023 described above. Under certain conditions, such as a change of control or other early termination event, the Company could be obligated to make TRA payments in advance of tax benefits being realized. Payments could also be in excess of the tax savings that the Company may ultimately realize.
Although the DTAs were not determined to be realizable as of March 31, 2024 and December 31, 2023, the Company assessed that a TRA liability of $5.7 million and $3.8 million at those dates, respectively, had become probable. For the three months ended March 31, 2024 and 2023, the Company recorded expenses associated with the TRA of $1.9 million and $0.8 million, respectively. In future periods, the Company will continue to evaluate whether any future TRA payments become probable and can be estimated and, if so, an estimate of payment will be accrued.
Any future recognition of these TRA liabilities will be recorded through charges in the Company’s consolidated statements of operations. However, if the tax attributes are not utilized in future years, it is reasonably possible no amounts would be paid under the TRA in excess of the $1.9$5.7 million accrued as of June 30, 2023March 31, 2024. Should the Company determine that a DTA with a
valuation allowance is realizable in a subsequent period, the related valuation allowance will be reversed and, if a resulting TRA payment is determined to be probable, a corresponding TRA liability will be recorded.
The Company continuously monitors government proposals to make changes to tax laws, including proposed legislation in certain foreign jurisdictions resulting from the adoption of the Organization for Economic Cooperation and Development (“OECD”) policies (refer to Note 7. Income Taxes in the Company’s 2023 Annual Report on Form 10-K). The OECD has issued a two-pillar approach to global taxation, focusing on global profit allocation and a global minimum tax rate of at least 15%. Legislation for the “Pillar Two” proposal, applying to the Company, has been enacted in Ireland, and it is effective with the financial year beginning on January 1, 2024. As the tax rates the other jurisdictions in which the Company operates exceed 15%, the Company does not believe there is any potential additional exposure besides in Ireland.
Since Pillar Two taxes are an alternative minimum tax, deferred taxes will not need to be recorded or remeasured as a result of Pillar Two taxes. Instead, Pillar Two taxes will be expensed as incurred. For interim tax provision purposes, the Pillar Two tax related to Ireland taxes is included in the calculation of the Company’s provision for income taxes.
8. Earnings (Loss)6. Loss per Share
Following the implementation of the Reorganization on November 7, 2023, all outstanding shares of Old PubCo Class A common stock and Old PubCo Class B common stock were exchanged for an equivalent number of shares of Class A common stock of the Company.
Basic earnings (loss)loss per share of the Company’s classClass A common stock is computed by dividing net income (loss)loss attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of classClass A common stock outstanding during the period. Diluted earnings (loss)loss per share of classClass A common stock is computed by dividing net income (loss)loss attributable to
Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of classClass A common stock outstanding, adjusted to give effect to potentially dilutive securities. The weighted-average number of shares of Class A common stock for all periods prior to the Reorganization includes shares of Old PubCo Class A common stock.
The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings (loss)loss per share of classClass A common stock (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Numerator: | | | | | | | |
Net income (loss) attributable to Amneal Pharmaceuticals, Inc. | $ | 11,917 | | | $ | (120,808) | | | $ | 4,974 | | | $ | (122,964) | |
Denominator: | | | | | | | |
Weighted-average shares outstanding - basic | 153,738 | | | 150,993 | | | 152,928 | | | 150,445 | |
Effect of dilutive securities: | | | | | | | |
Restricted stock units | 1,149 | | | — | | | 1,647 | | | — | |
Weighted-average shares outstanding - diluted | 154,887 | | | 150,993 | | | 154,575 | | | 150,445 | |
Net income (loss) per share attributable to Amneal Pharmaceuticals, Inc.’s class A common stockholders: | | | | | | | |
Basic | $ | 0.08 | | | $ | (0.80) | | | $ | 0.03 | | | $ | (0.82) | |
Diluted | $ | 0.08 | | | $ | (0.80) | | | $ | 0.03 | | | $ | (0.82) | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
Numerator: | | | |
Net loss attributable to Amneal Pharmaceuticals, Inc. | $ | (91,643) | | | $ | (6,943) | |
Denominator: | | | |
Weighted-average shares outstanding - basic and diluted | 307,279 | | | 152,109 | |
Net loss per share attributable to Amneal Pharmaceuticals, Inc.’s Class A common stockholders: | | | |
Basic and diluted | $ | (0.30) | | | $ | (0.05) | |
SharesPrior to the Reorganization, shares of the Company’s classOld PubCo Class B common stock dodid not share in the earnings or losses of the Company and, therefore, arewere not participating securities. As such, separate presentation of basic and diluted earnings (loss)loss per share of classOld PubCo Class B common stock under the two-class method haswas not been presented. Effective with the Reorganization, all outstanding shares of Old PubCo Class B common stock were surrendered and canceled.
The following table presents potentially dilutive securities excluded from the computations of diluted earnings (loss)loss per share of classClass A common stock (in thousands):
| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2023 | | 2022 | | 2023 | | 2022 | |
| Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
Stock options | |
Stock options | |
Stock options | Stock options | 2,629 | | (1) | 2,919 | | (2) | | 2,629 | | (1) | 2,919 | | (2) | 2,406 | | (1) | (1) | 2,632 | | (1) | (1) |
Restricted stock units | Restricted stock units | — | | | 10,989 | | (2) | | — | | | 10,989 | | (2) | Restricted stock units | 10,837 | | (1) | (1) | 11,576 | | (1) | (1) |
Performance stock units | Performance stock units | 7,012 | | (3) | 7,427 | | (2) | | 7,012 | | (3) | 7,427 | | (2) | Performance stock units | 7,827 | | (1) | (1) | 7,018 | | (1) | (1) |
Shares of class B common stock | 152,117 | | (4) | 152,117 | | (4) | | 152,117 | | (4) | 152,117 | | (4) |
Shares of Old PubCo Class B common stock | | Shares of Old PubCo Class B common stock | — | | | 152,117 | | (2) |
(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 class A common stock during the period (out-of-the-money).
(2)Excluded from the computation of diluted loss per share of classClass A common stock because the effect of their inclusion would have been anti-dilutive since there was a net loss attributable to the Company during the period.
(3)Excluded from the computation of diluted earnings per share of class A common stock because the performance vesting conditions were not met during the period.
(4)(2)Shares of classOld PubCo Class B common stock arewere considered potentially dilutive shares of classOld PubCo Class A common stock. Shares of classOld PubCo Class B common stock have beenwere excluded from the computations of diluted loss per share of Class A common stock for the three months ended March 31, 2023 because the effect of their inclusion would have been anti-dilutive under the if-converted method.
9.7. Trade Accounts Receivable, Net
Trade accounts receivable, net was comprised of the following (in thousands):
| | June 30, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Gross accounts receivable | Gross accounts receivable | $ | 1,133,348 | | | $ | 1,344,959 | |
Allowance for credit losses | Allowance for credit losses | (2,566) | | | (2,122) | |
Contract charge-backs and sales volume allowances | Contract charge-backs and sales volume allowances | (425,831) | | | (573,592) | |
Cash discount allowances | Cash discount allowances | (30,215) | | | (27,454) | |
Subtotal | Subtotal | (458,612) | | | (603,168) | |
Trade accounts receivable, net | Trade accounts receivable, net | $ | 674,736 | | | $ | 741,791 | |
Concentration of Receivables
Trade accounts receivable from customers representing 10% or more of the Company’s total trade accounts receivable were as follows:
| | June 30, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Customer A | Customer A | 36 | % | | 41 | % | Customer A | 32 | % | | 40 | % |
Customer B | Customer B | 26 | % | | 25 | % | Customer B | 29 | % | | 24 | % |
Customer C | Customer C | 22 | % | | 21 | % | Customer C | 23 | % | | 22 | % |
10.8. Inventories
Inventories were comprised of the following (in thousands):
| | June 30, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Raw materials | Raw materials | $ | 235,679 | | | $ | 224,607 | |
Work in process | Work in process | 55,253 | | | 58,522 | |
Finished goods | Finished goods | 259,626 | | | 247,606 | |
Total inventories | Total inventories | $ | 550,558 | | | $ | 530,735 | |
9. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets were comprised of the following (in thousands):
| | June 30, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Deposits and advances | Deposits and advances | $ | 3,360 | | | $ | 1,821 | |
Prepaid insurance | Prepaid insurance | 5,949 | | | 8,090 | |
Prepaid regulatory fees | Prepaid regulatory fees | 1,771 | | | 5,298 | |
Income and other tax receivables | Income and other tax receivables | 13,394 | | | 12,881 | |
Prepaid taxes | Prepaid taxes | 11,617 | | | 16,593 | |
Other current receivables (1) | 14,473 | | | 33,133 | |
Chargebacks receivable (2) | 10,987 | | | 8,605 | |
Other current receivables | |
Chargebacks receivable (1) | |
Other prepaid assets | Other prepaid assets | 20,213 | | | 17,144 | |
Total prepaid expenses and other current assets | Total prepaid expenses and other current assets | $ | 81,764 | | | $ | 103,565 | |
(1)Other current receivables as of December 31, 2022 include a $21.4 million receivable for an upfront payment associated with the Orion Agreement, which was collected in January 2023. Refer to Note 5. Alliance and Collaboration for additional information.
(2)When a sale occurs on a contract item in the Company’s AvKARE segment, 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.
12.10. Goodwill and Other Intangible Assets
The changes in goodwill for the sixthree months ended June 30, 2023March 31, 2024 and for the year ended December 31, 20222023 were as follows (in thousands):
| | June 30, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Balance, beginning of period | Balance, beginning of period | $ | 598,853 | | | $ | 593,017 | |
Goodwill acquired during the period | — | | | 7,553 | |
Adjustment during the period for the acquisition of Puniska Healthcare Pvt. Ltd. | — | | | 3,075 | |
Currency translation | Currency translation | 353 | | | (4,792) | |
Balance, end of period | Balance, end of period | $ | 599,206 | | | $ | 598,853 | |
As of June 30, 2023,March 31, 2024, $366.3 million, $163.4$162.7 million, and $69.5 million of goodwill was allocated to the Specialty, Generics, and AvKARE segments, respectively. As of December 31, 2022,2023, $366.3 million, $163.1$162.8 million, and $69.5 million of goodwill was allocated to the Specialty, Generics, and AvKARE segments, respectively. For the year ended December 31, 2022, goodwill acquired during the period was associated with the Saol Acquisition. Refer to Note 3. Acquisition for additional information.
Intangible assets as of June 30, 2023March 31, 2024 and December 31, 20222023 were comprised of the following (in thousands):
| | June 30, 2023 | | December 31, 2022 |
| Weighted-Average Amortization Period (in years) | | Cost | | Accumulated Amortization | | Net | | Cost | | Accumulated Amortization | | Net |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| Weighted-Average Amortization Period (in years) | | | Weighted-Average Amortization Period (in years) | | Cost | | Accumulated Amortization | | Net | | Cost | | Accumulated Amortization | | Net |
Amortizing intangible assets: | Amortizing intangible assets: | | | | | | | | | | | | | |
Product rights | |
Product rights | |
Product rights | Product rights | 7.2 | | $ | 1,221,412 | | | $ | (643,771) | | | $ | 577,641 | | | $ | 1,222,762 | | | $ | (573,281) | | | $ | 649,481 | |
Other intangible assets | Other intangible assets | 3.7 | | 133,800 | | | (86,420) | | | 47,380 | | | 133,800 | | | (77,943) | | | 55,857 | |
Subtotal | Subtotal | | $ | 1,355,212 | | | $ | (730,191) | | | $ | 625,021 | | | $ | 1,356,562 | | | $ | (651,224) | | | $ | 705,338 | |
In-process research and development | In-process research and development | | 390,355 | | | — | | | 390,355 | | | 390,755 | | | — | | | 390,755 | |
Total intangible assets | Total intangible assets | | $ | 1,745,567 | | | $ | (730,191) | | | $ | 1,015,376 | | | $ | 1,747,317 | | | $ | (651,224) | | | $ | 1,096,093 | |
Amortization expense related to intangible assets for the three months ended June 30,March 31, 2024 and 2023 and 2022, was $40.8$39.9 million and $42.0$41.1 million, respectively. Amortization expense related to intangible assets for the six months ended June 30, 2023 and 2022, was $81.9 million and $82.9 million, respectively.
The following table presents future amortization expense for the next five years and thereafter, excluding $390.4$355.8 million of in-process research and development (“IPR&D”) intangible assets (in thousands):
| | | | | |
| Future Amortization |
Remainder of 2023 | $ | 81,134 | |
2024 | 163,031 | |
2025 | 124,719 | |
2026 | 74,102 | |
2027 | 52,575 | |
2028 | 30,808 | |
Thereafter | 98,652 | |
Total | $ | 625,021 | |
| | | | | |
| Future Amortization |
Remainder of 2024 | $ | 119,432 | |
2025 | 121,638 | |
2026 | 73,115 | |
2027 | 52,606 | |
2028 | 33,263 | |
2029 | 26,484 | |
Thereafter | 76,889 | |
Total | $ | 503,427 | |
The Company reviews intangible assets with finite lives for recoverability whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. Indefinite-lived intangible assets, including IPR&D, are tested for impairment if impairment indicators arise and, at a minimum, annually.
Interim Goodwill and In-Process Research and Development Intangible Asset Impairment Testsasset impairments were immaterial for the three months ended March 31, 2024 (none for the three months ended March 31, 2023).
On June 30, 2023, the Company received a complete response letter (“CRL”) from the FDA regarding its new drug application (“NDA”) for IPX203 for the treatment of Parkinson’s disease. The CRL indicated that, although an adequate scientific bridge was established for the safety of one ingredient, levodopa, based on pharmacokinetic studies, it was not adequately established for the other ingredient, carbidopa, and the FDA has requested additional information. The CRL did not identify any issues with respect to the efficacy or manufacturing of IPX203. TheDuring October 2023, the Company will work closelymet with the FDA to address its comments and plans to meet with the agency in the third quarter of 2023 to align on the best path forward.to approval for IPX203. During the meeting, the FDA asked the Company to perform a QT study, a routine cardiac safety study that is required for new drugs. On February 7, 2024, the Company provided a complete response resubmission to the FDA for IPX203. IPX203 has a Prescription Drug User Fee Act (PDUFA) decision date of August 7, 2024.
Based on the Company’s evaluationNo indicators of the CRL and in connection with the preparationimpairment of the Company’s financial statements for the three and six months ended June 30, 2023, the Company updated its estimate of the fair value of the IPX203 IPR&D intangible asset as of June 30,were identified during 2024. Additionally, there was no impairment recorded during 2023. The Company’s estimate of fair value used a probability-weighted income approach that discounts expected future cash flows to present value using a discount rate of 12.5%. Other valuation inputs included the potential launch date, estimated revenue and operating margin, and the probability of technical and regulatory success. Because the estimated fair value of the IPX203 IPR&D intangible asset exceeded its carrying value by 49% as of June 30, 2023, the Company concluded that the asset was not impaired.
Additionally, in light of the significance of IPX203 to the Specialty reporting unit, the Company performed an interim goodwill impairment test for its Specialty reporting unit, which is the same as the Company’s Specialty reportable segment, as of June 30, 2023. The fair value of the Specialty reporting unit was determined by combining both the income and market approaches. In performing this test, the Company utilized a long-term growth rate of 1% and a discount rate of 11.5% in its estimation of fair value. Other Specialty reporting unit valuation inputs included expected potential launch dates, estimated revenue and operating margin, and the probability of technical and regulatory success of IPR&D assets, the most significant of which is IPX203. The assumptions used in evaluating goodwill for impairment are subject to change and are tracked against historical performance by management. Because the estimated fair value of the Specialty reporting unit exceeded its carrying value by 90% as of June 30, 2023, the Company concluded that its Specialty reporting unit goodwill was not impaired.
While management believes the assumptions used in the interimCompany’s 2023 annual impairment test of its IPX203 IPR&D intangible asset impairment test were reasonable and continue to be commensurate with the views of a market participant, changes in key assumptions, including increasing the discount rate, lowering forecasts for revenue and operating margin, delaying the potential launch date, and lowering the probability of technical and regulatory success, could result in material future impairments of the Company’s IPX203 IPR&D intangible asset. Refer to Note 13. Goodwill and Other Intangible Assets in the Company’s Annual Report on Form 10-K for additional information.
13.11. Other Assets
Other assets were comprised of the following (in thousands):
| | June 30, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Interest rate swap (1) | Interest rate swap (1) | $ | 79,628 | | | $ | 85,586 | |
Security deposits | Security deposits | 3,576 | | | 3,523 | |
Long-term prepaid expenses | Long-term prepaid expenses | 2,034 | | | 3,711 | |
Deferred revolving credit facility costs | Deferred revolving credit facility costs | 1,926 | | | 2,206 | |
Other long term assets | Other long term assets | 6,076 | | | 8,191 | |
Total | Total | $ | 93,240 | | | $ | 103,217 | |
(1)Refer to Note 17.15. Fair Value Measurements and Note 18.16. Financial Instruments for information about the Company’s interest rate swap.
14.12. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses were comprised of the following (in thousands):
| | June 30, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Accounts payable | Accounts payable | $ | 139,527 | | | $ | 165,980 | |
Accrued returns allowance (1) | Accrued returns allowance (1) | 132,932 | | | 145,060 | |
Accrued compensation | Accrued compensation | 45,650 | | | 54,038 | |
Accrued Medicaid and commercial rebates (1) | Accrued Medicaid and commercial rebates (1) | 97,540 | | | 86,030 | |
Accrued royalties | Accrued royalties | 27,172 | | | 19,309 | |
Commercial chargebacks and rebates | Commercial chargebacks and rebates | 10,226 | | | 10,226 | |
Accrued professional fees | Accrued professional fees | 15,201 | | | 11,386 | |
Accrued other | Accrued other | 44,471 | | | 46,170 | |
Total accounts payable and accrued expenses | Total accounts payable and accrued expenses | $ | 512,719 | | | $ | 538,199 | |
(1)Refer to Note 4.3. Revenue Recognition for a rollforward of the balance from December 31, 20222023 to June 30, 2023.March 31, 2024.
15.13. Debt
There have been no material changes in the Company’s long-term debt since December 31, 2023, except as disclosed below. Refer to Note 16. Debt in the Company’s 2023 Annual Report on Form 10-K for additional information and definitions of terms used in this note.
The following is a summary of the Company’s indebtedness under its term loans (in thousands):
| | June 30, 2023 | | December 31, 2022 |
Term Loan due May 2025 | $ | 2,550,376 | | | $ | 2,563,876 | |
Rondo Term Loan due January 2025 | 39,750 | | | 72,000 | |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Term Loan Due May 2025 | |
Term Loan Due May 2028 | |
Total debt | Total debt | 2,590,126 | | | 2,635,876 | |
Less: debt issuance costs | Less: debt issuance costs | (10,544) | | | (13,934) | |
Total debt, net of debt issuance costs | Total debt, net of debt issuance costs | 2,579,582 | | | 2,621,942 | |
Less: current portion of long-term debt | Less: current portion of long-term debt | (30,405) | | | (29,961) | |
Total long-term debt, net | Total long-term debt, net | $ | 2,549,177 | | | $ | 2,591,981 | |
There have been no material changes inDuring the Company’s long-term debt since Decemberthree months ended March 31, 2022, except as disclosed below. Refer to Note 16. Debt in the Company’s 2022 Annual Report on Form 10-K for additional information and definitions of terms used in this note.
In January 2023, 2024, the Company (i) borrowed $80.0and repaid $20.0 million under the Amended New Revolving Credit Facility to fund an $83.9and (ii) borrowed and repaid $28.0 million payment related to under the Opana ER® antitrust litigation settlement agreements (refer to Note 19. CommitmentsAmended Rondo Revolving Credit Facility. As of each of March 31, 2024 and Contingencies). In MarchDecember 31, 2023, the Company repaid $40.0$179.0 million of its borrowingswas outstanding on the Amended New Revolving Credit Facility from cash on hand. As of June 30, 2023, the Company had $100.0 million in borrowings and $245.9 million of available capacity under the New Revolving Credit Facility.
During the three and six months ended June 30, 2023, the Company repaid $7.3 million and $32.3 million, respectively, of principal outstanding on the Rondo Term Loan, of which $27.8 million was prepaid as of June 30, 2023. Additionally, the Company borrowed $20.0 million under the Rondo Revolving Credit Facility during the second quarter of 2023 for working capital purposes. As of June 30, 2023, $20.0 million was outstanding under the Rondo Revolving Credit Facility and there was $10.0 million of available capacity.
Reference Rate Reform
On May 31, 2023, the Company executed an amendment to the Term Loan (the “Amended Term Loan”), which changed the variable reference rate from the London interbank offered rate (“LIBOR”) to the one-month adjusted term secured overnight financing rate (“SOFR”), subject to a floor of (0.11448%) plus 3.5%.
The Company also executed an amendment to the related interest rate swap (the “Amended Swap ”) that: (i) set a new fixed rate equal to 1.366%, (ii) changed the referenced floating rate from LIBOR to the one-month SOFR and (iii) established a floating
rate floor of (0.11448%). After adopting ASC 848, Reference Rate Reform and electing certain applicable practical expedients, the Company determined that the amendments do not modify its existing accounting conclusions. As a result, the Company determined that the hedging relationship between the Amended Swap and the Amended Term Loan remained highly effective.
On April 20, 2023, the Company executed an amendment to the Rondo Revolving Credit Facility, which changed the variable reference rate in the Rondo Term Loan from LIBOR to the one-month adjusted term SOFR, subject to a floor of 0.1% plus 2.25%.
The amendments to the term loans and swap agreement did not have a material impact on the Company’s consolidated financial statements as of June 30, 2023 or for the three and six months then ended.
16.14. Other Long-Term Liabilities
Other long-term liabilities were comprised of the following (in thousands):
| | June 30, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Uncertain tax positions | Uncertain tax positions | $ | 473 | | | $ | 563 | |
Long-term portion of liabilities for legal matters (1) | 752 | | | 49,442 | |
Long-term compensation | Long-term compensation | 21,175 | | | 16,737 | |
Contingent consideration (2) | 10,110 | | | 11,997 | |
Contingent consideration (1) | |
Other long-term liabilities | Other long-term liabilities | 6,772 | | | 8,729 | |
Total other long-term liabilities | Total other long-term liabilities | $ | 39,282 | | | $ | 87,468 | |
(1) Refer to Note 19. Commitments and Contingencies for additional information.
(2) Refer to Note 17.15. Fair Value Measurements for additional information.
17.
15. Fair Value Measurements
Fair value is the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Value is determined using pricing models, discounted cash flow methodologies, or similar techniques and also includes instruments for which the determination of fair value requires significant judgment or estimation.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification for each reporting period. The following table sets forth the Company’s financial assets and liabilities that were measured at fair value on a recurring basis as of June 30, 2023March 31, 2024 and December 31, 20222023 (in thousands):
| | Fair Value Measurement Based on |
June 30, 2023 | | Total | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | | Fair Value Measurement Based on | | | | | | Fair Value Measurement Based on |
March 31, 2024 | | March 31, 2024 | | Total | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets | Assets | | | | | | | | |
Interest rate swap (1) | |
Interest rate swap (1) | |
Interest rate swap (1) | Interest rate swap (1) | | $ | 79,628 | | | $ | — | | | $ | 79,628 | | | $ | — | |
Liabilities | Liabilities | |
Deferred compensation plan liabilities (2) | Deferred compensation plan liabilities (2) | | $ | 9,940 | | | $ | — | | | $ | 9,940 | | | $ | — | |
Deferred compensation plan liabilities (2) | |
Deferred compensation plan liabilities (2) | |
Contingent consideration liabilities (3) | Contingent consideration liabilities (3) | | $ | 11,520 | | | $ | — | | | $ | — | | | $ | 11,520 | |
| December 31, 2022 | |
December 31, 2023 | |
December 31, 2023 | |
December 31, 2023 | |
Assets | Assets | | | | | | | | |
Assets | |
Assets | |
Interest rate swap (1) | |
Interest rate swap (1) | |
Interest rate swap (1) | Interest rate swap (1) | | $ | 85,586 | | | $ | — | | | $ | 85,586 | | | $ | — | |
Liabilities | Liabilities | |
Deferred compensation plan liabilities (2) | Deferred compensation plan liabilities (2) | | $ | 9,674 | | | $ | — | | | $ | 9,674 | | | $ | — | |
Deferred compensation plan liabilities (2) | |
Deferred compensation plan liabilities (2) | |
Contingent consideration liability (3) | Contingent consideration liability (3) | | $ | 15,427 | | | $ | — | | | $ | — | | | $ | 15,427 | |
(1)The fair value measurement of the Company’s interest rate swap classified within Level 2 of the fair value hierarchy is a model-derived valuation as of a given date in which all significant inputs are observable in active markets including certain financial information and certain assumptions regarding past, present, and future market conditions. Refer to Note 18.16. Financial Instruments for information on the Company's interest rate swap.
(2)These liabilities are recorded at the value of the amount owed to the plan participants, with changes in value recognized as compensation expense. The calculation of the deferred compensation plan obligation is derived from observable market data by reference to hypothetical investments selected by the participants.
(3)The fair value measurement of contingent consideration liabilities has been classified as Level 3 recurring liabilities as the valuations require judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for various inputs, the estimated fair values could be higher or lower than what the Company determined. As of June 30, 2023 and DecemberFor the three months ended March 31, 2022,2024, there was no material activity or payments related to the contingent consideration liability associated with the Saol Acquisition included $0.5 million and $0.1 million, respectively, recorded in accounts payable and accrued expenses and $10.1 million and $12.0 million, respectively, recorded in other-longer term liabilities. As of June 30, 2023 and December 31, 2022, the contingent consideration liability associated with the acquisition of Kashiv Specialty Pharmaceuticals, LLC (“KSP”) was valued at approximately $0.9 million and $3.3 million, respectively, and recorded within related party payables - long term.
There were no transfers between levels in the fair value hierarchy during the sixthree months ended June 30, 2023.
Contingent consideration
On April 2, 2021, the Company completed the acquisition of KSP, which provides for contingent milestone payments of up to an aggregate of $8.0 million (undiscounted) upon the achievement of certain regulatory milestones, as well as contingent royalty payments that are tiered depending on the aggregate annual net sales for certain future pharmaceutical products.
On February 9, 2022, the Company completed the Saol Acquisition, which provides for contingent royalty payments that are tiered depending on the aggregate annual net sales for certain pharmaceutical products, beginning in 2023.
There were no contingent royalty payments for the six months ended June 30, 2023.
The following table provides a reconciliation of the contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
| | | | | | | |
| | | |
| Six Months Ended June 30, 2023 | | |
Balance, beginning of period | $ | 15,427 | | | |
Change in fair value during the period | (3,907) | | | |
Balance, end of period | $ | 11,520 | | | |
The fair value measurement of the contingent consideration liabilities were determined based on significant unobservable inputs, including the discount rate, the cost of debt, estimated probabilities of success, timing of achieving specified regulatory milestones and the estimated amount of future sales of the acquired products. The contingent consideration liabilities were estimated by applying a probability-weighted expected payment model for contingent milestone payments and Monte Carlo simulation models for contingent royalty payments, which were then discounted to present value. Changes to the fair values of the contingent consideration liabilities can result from changes to one or a number of the aforementioned inputs. If different assumptions were used for various inputs, the estimated fair value could be higher or lower than what the Company determined.
The following table summarizes the significant unobservable inputs used in the fair value measurement of the Company’s material contingent consideration liabilities as of June 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contingent Consideration Liability | | Fair Value as of June 30, 2023 (in thousands) | | Unobservable input | | Range | | Weighted Average(1) |
Royalties (Saol Acquisition) | | $10,600 | | Discount rate | | 17.4% | - | 17.4% | | 17.4% |
| | Projected year of payment | | 2023 | - | 2033 | | 2027 |
| | | | | | | | | | |
| | | | | | | | | | |
(1) Unobservable inputs were weighted by the relative fair value of each product candidate acquired.March 31, 2024.
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 following is a summary of the Company’s indebtedness at fair value (in thousands):
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
Term Loan Due 2025 | | $ | 192,099 | | | $ | 190,779 | |
Term Loan Due 2028 | | $ | 2,339,870 | | | $ | 2,328,130 | |
Sellers Notes | | $ | 41,944 | | | $ | 41,033 | |
The Term Loan as defined in Note 16. Debt in the Company’s 2022 Annual Report on Form 10-K, is in the Level 2 category within the fair value level hierarchy. The fair value was determined using market data for valuation. The fair value of theDue 2025 and Term Loan at June 30, 2023 was approximately $2.5 billion as compared to approximately $2.3 billion at December 31, 2022.
The Rondo Term Loan, as defined in Note 16. Debt in the Company’s 2022 Annual Report on Form 10-K, is in the Level 2 category within the fair value level hierarchy. The fair value of the Rondo Term Loan at June 30, 2023 and December 31, 2022 was $39.6 million and $70.9 million, respectively.
The Sellers Notes, as defined in Note 16. Debt in the Company’s 2022 Annual Report on Form 10-K,Due 2028 are in the Level 2 category within the fair value level hierarchy. The fair value of thevalues were determined using market data for valuation. The Sellers Notes at June 30, 2023 and December 31, 2022 was $40.4 million and $39.1 million, respectively.are in the Level 2 category within the fair value level hierarchy.
Refer to Note 16. Debt in the Company’s 20222023 Annual Report on Form 10-K for detailed information about its indebtedness, including definitions of terms.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
There were no non-recurring fair value measurements during the sixthree months ended June 30, 2023March 31, 2024 and 2022.2023.
18.16. Financial Instruments
The Company uses an interest rate swap to manage its exposure to market risks for changes in interest rates.
Interest Rate Risk
Interest income earned on cash and cash equivalents may fluctuate as interest rates change; however, due to their relatively short maturities, the Company does not hedge these assets or their investment cash flows because the impact of interest rate risk is not material. The Company is exposed to interest rate risk on its debt obligations. The Company’s debt obligations consist of variable-rate and fixed-rate debt instruments. The Company’s primary objective is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. To achieve this objective, the Company hasinitially entered into an interest rate swap on the Term Loan.Loan Due 2025. On November 14, 2023, in connection with the refinancing of the Term Loan Due 2025, the Company novated its swap agreement to another counterparty and, in connection with such novation, amended the interest rate swap agreement. Refer to the section “Interest Rate Derivative - Cash Flow Hedge” below and in Note 20. Financial Instruments in the Company’s 2023 Annual Report on Form 10-K for additional information and the definition of certain terms.
Interest Rate Derivative – Cash Flow Hedge
The interestinterest 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 LIBORLondon interbank offered rate (“LIBOR”) associated with the Term Loan.Loan Due 2025 (the “October 2019 Swap”). On May 31, 2023, the Company executed an amendment to the AmendedOctober 2019 Swap Agreement that, among other things, changed the variable reference rate from LIBOR to the one-month secured overnight financing rate (“SOFR”) (the “Amended October 2019 Swap”). On November 14, 2023, in connection with the Company’s refinancing of the Term Loan Due 2025 and the New Credit Facility
(refer to Note 16. Debt in the Company’s 2023 Annual Report on Form 10-K for definitions and additional information), the Company novated the Amended October 2019 Swap to another counterparty and subsequently amended the interest rate agreement. Specifically, the amendments modified (i) the fixed rate payable by the counterparty from 1.3660% to a new fixed rate of 2.7877% and (ii) extended the termination date through May 4, 2027 (i.e., one year before the Term Loan Due 2028 matures) (the “November 2023 Swap”). The amendments did not change the notional amount of $1.3 billion. The purpose of the November 2023 Swap is to hedge part of the Company's interest rate exposure associated with the variability in future cash flows from changes in the one-month SOFR (referassociated with the Term Loan Due 2028.
The Company used a strategy commonly referred to as “blend and extend,” which allows the existing asset position of the swap agreement to be effectively blended into the new interest rate swap agreement. As a result of this transaction, on November 14, 2023, the Amended October 2019 Swap was de-designated and the unrealized gain of $66.7 million was recorded within accumulated other comprehensive (loss) income and will be amortized as a reduction of interest expense, net, over the original term of the of the Amended October 2019 Swap (until May 2025), as the hedged transactions affect earnings. Additionally, the November 2023 Swap had a fair value of $66.7 million at inception and will be ratably recorded to accumulated other comprehensive (loss) income and reclassified to interest expense, net, over the term of the November 2023 Swap, as the hedged transactions affect earnings.
During the three months Note 15. Debtended March 31, 2024, the Company reclassified a gain of ).$6.5 million from accumulated other comprehensive loss to interest expense, net. Approximately $26.1 million of net gains included in accumulated other comprehensive loss as of March 31, 2024 are expected to be reclassified into earnings within the next 12 months as interest payments are made on the Company’s Term Loan Due 2028 and amortization of the amounts included in accumulated other comprehensive loss occurs.
As of June 30, 2023,March 31, 2024, the total gain, net of income taxes, related to the Company’s cash flow hedge was $79.6of $42.8 million of which $39.7 million, was recognized in accumulated other comprehensive income and $39.9 million was recognized in non-controlling interests.loss.
A summary of the fair values of derivative instruments in the consolidated balance sheets was as follows (in thousands):
| | June 30, 2023 | | December 31, 2022 |
| | March 31, 2024 | | | | March 31, 2024 | | December 31, 2023 |
Derivatives Designated as Hedging Instruments | Derivatives Designated as Hedging Instruments | | Balance Sheet Classification | | Fair Value | | Balance Sheet Classification | | Fair Value | Derivatives Designated as Hedging Instruments | | Balance Sheet Classification | | Fair Value | | Balance Sheet Classification | | Fair Value |
Variable-to-fixed interest rate swap | Variable-to-fixed interest rate swap | | Other assets | | $ | 79,628 | | | Other assets | | $ | 85,586 | |
19.17. 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 with third parties. The Company has also licensed certain technologies or intellectual propertyIP from various third parties. The Company is generally required to make upfront payments as well as other payments upon successful completion of regulatory or sales milestones. The agreements generally permit the Company to terminate the agreement with no significant continuing obligation. The Company could be required to make significant payments pursuant to these arrangements. These payments are contingent upon the occurrence of certain future events and, given the nature of these events, it is unclear when, if ever, the Company may be required to pay such amounts. Further, the timing of any future payment is not reasonably estimable. Refer to Note 5.4. Alliance and Collaboration for additional information. Certain of these arrangements are with related parties. Refer to Note 21.19. Related Party Transactions for additional information.
Contingencies
Legal Proceedings
The Company's legal proceedings are complex, constantly evolving, and subject to uncertainty. As such, the Company cannot predict the outcome or impact of its significant legal proceedings which are set forth below. Additionally, the Company manufactures and derives a portion of its revenue from the sale of pharmaceutical products in the opioid class of drugs and may therefore face claims arising from the regulation and/or consumption of such products. While the Company believes it has meritorious claims and/or defenses to the matters described below (and intends to vigorously prosecute and defend them), the nature and cost of litigation is unpredictable, and an unfavorable outcome of such proceedings could include damages, fines, penalties and injunctive or administrative remedies.
For any proceedings where losses are probable and reasonably capable of estimation, the Company accrues a potential loss. When the Company has a probable loss for which a reasonable estimate of the liability is a range of losses and no amount within that range is a better estimate than any other amount, the Company records the loss at the low end of the range. While these accruals have been deemed reasonable by the Company’s management, the assessment process relies heavily on estimates and assumptions that may ultimately prove inaccurate or incomplete. Additionally, unforeseen circumstances or events may lead the Company to subsequently change its estimates and assumptions. Unless otherwise indicated below, the Company is unable at this time to estimate the possible loss or the range of loss, if any, associated with such legal proceedings and claims. Any such claims, proceedings, investigations or litigation, regardless of the merits, might result in substantial costs to defend or settle, borrowings under the Company’s debt agreements, restrictions on product use or sales, or otherwise harm the Company’s business. The ultimate resolution of any or all claims, legal proceedings or investigations are inherently uncertain and difficult to predict, could differ materially from the Company’s estimates and could have a material adverse effect on its results of operations and/or cash flows in any given accounting period, or on its overall financial condition. The Company currently intends to vigorously prosecute and/or defend these proceedings as appropriate. From time to time, however,however, the Company may settle or otherwise resolve these matters on terms and conditions that it believes to be in its best interest. An insurance recovery, if any, is recorded in the period in which it is probable the recovery will be realized.
For the three and six months ended June 30, 2023,March 31, 2024, charges related to legal matters, net of $94.4 million were $2.0 millionassociated with a settlement in principle on the primary financial terms for a nationwide resolution to the opioids cases that have been filed and $1.6 million, respectively.that might have been filed against the Company by states, counties, municipalities, and Native American tribes across the U.S. (refer to the section Civil Prescription Opioid Litigation below). For the three and six months ended June 30, 2022, chargesMarch 31, 2023, credit related to legal matters, net were $251.9of $0.4 million and $249.6 million, respectively, and primarily consistedwas comprised of a chargelitigation settlement gain, partially offset by charges for the settlement of the Opana ER® antitrust litigation of $262.8 million, net of insurance recoveries associated with a securities class action settled during 2022.legal proceedings.
Liabilities for legal matters were comprised of the following (in thousands):
| Matter | Matter | June 30, 2023 | | December 31, 2022 | Matter | March 31, 2024 | | December 31, 2023 |
Opana ER® antitrust litigation | Opana ER® antitrust litigation | $ | 50,000 | | | $ | 83,944 | |
Opana ER® antitrust litigation-accrued interest | Opana ER® antitrust litigation-accrued interest | 1,590 | | | 1,423 | |
Opana ER® antitrust litigation-imputed interest | (736) | | | — | |
Civil prescription opioid litigation | Civil prescription opioid litigation | 21,222 | | | 17,993 | |
Other | Other | 4,935 | | | 4,123 | |
Current portion of liabilities for legal matters | Current portion of liabilities for legal matters | $ | 77,011 | | | $ | 107,483 | |
| Opana ER® antitrust litigation | $ | — | | | $ | 50,000 | |
Opana ER ® antitrust litigation-accrued interest | — | | | 847 | |
Opana ER ® antitrust litigation-imputed interest | — | | | (1,405) | |
Prescription Opioid Litigation | 752 | | | — | |
Long-term portion of liabilities for legal matters (included in other long-term liabilities) | $ | 752 | | | $ | 49,442 | |
Civil prescription opioid litigation (Liabilities for legal matters - long term) | |
Civil prescription opioid litigation (Liabilities for legal matters - long term) | |
Civil prescription opioid litigation (Liabilities for legal matters - long term) | |
Refer to the respective discussions below for additional information onabout the significant matters in the tables above.
Refer to Note 21. Commitments and Contingencies in our Annual Report on Form 10-K for a general discussion of Medicaid Reimbursement and Price Reporting Matters and Patent Litigation.
Other Litigation Related to the Company���sCompany’s Business
Opana ER® FTC Matters
On July 12, 2019, the Company received a Civil Investigative Demand (“CID”) from the Federal Trade Commission (the “FTC”) concerning an August 2017 settlement agreement between Impax Laboratories, Inc. (“Impax”) and Endo Pharmaceuticals Inc. (“Endo”), which resolved a subsequent patent infringement and breach of contract dispute between the parties regarding the June 2010 settlement agreement related to Opana® ER. The Company cooperated with the FTC regarding the CID.On January 25, 2021, the FTC filed a complaint against Endo, Impax and Amneal in the U.S. District Court for the District of Columbia, alleging that the 2017 settlement violated antitrust laws. In April 2021, the Company filed a motion to dismiss the FTC’s complaint, which the District Court granted on March 24, 2022. The FTC appealed the District Court’s decision in May 2022, which appeal remains pending. The Company believes it has strong defenses to the FTC’s allegations and intends to vigorously defend the action, however, no assurance can be given as to the timing or outcome of the litigation.
Opana ER® Antitrust Litigation
From June 2014 to April 2015, a number of complaints styled as class actions on behalf of direct purchasers and indirect purchasers (or end-payors) and several separate individual complaints on behalf of certain direct purchasers (the “opt-out
plaintiffs”) of Opana ER® were filed against Endo Pharmaceuticals Inc. and Impax Laboratories, Inc. (“Impax”) and consolidated into multi-district litigation (“MDL”) in the U.S. District Court for the Northern District of Illinois.
Impax subsequently entered into settlement agreements with all of the Plaintiffsplaintiffs that were subsequently approved by the court. Pursuant to the settlement agreements, the Company agreed to pay a total of $265.0 million between 2022 and mid-January 2024 to resolve substantially all of the plaintiffs’ claims. The cumulative amount of payments made by the Company pursuant to the settlement agreements was $215.0 million as of June 30, 2023, of which $83.9 million was paid during January 2023, primarily using borrowings under the New Revolving Credit Facility (refer to Note 15. Debt). As of June 30,December 31, 2023, the liability for the remainingfinal settlement payment of $50.0 million, andplus 3% stated interest thereon, was included in the current portion of liabilities for legal matters. The remaining imputed interest of $0.7 million as of June 30, 2023 will be recognized to interest expense during the final payment period.matters and was paid in January 2024 with cash on hand. The settlement agreements are not an admission of liability or fault by Impax, the Company or its subsidiaries. Upon court approval of the final settlement agreements as discussed above, substantially all the claims and lawsuits in the litigation were resolved.
United States Department of Justice Investigations
On November 6, 2014, Impax disclosed that one of its sales representatives received a grand jury subpoena from the Antitrust Division of the United States Department of Justice (the “DOJ”). On March 13, 2015, Impax received a grand jury subpoena from the DOJ requesting the production of information and documents regarding the sales, marketing, and pricing of four generic prescription medications. Impax cooperated in the investigation and produced documents and information in response to the subpoenas from 2014 to 2016. However, no assurance can be given as to the timing or outcome of the investigation.
On April 30, 2018, Impax received a CID from the Civil Division of the DOJ (the “Civil Division”). The CID requests the production of information and documents regarding the pricing and sale of Impax’s pharmaceuticals and interactions with other generic pharmaceutical manufacturers regarding whether generic pharmaceutical manufacturers engaged in market allocation and price-fixing agreements, paid illegal remuneration, and caused false claims to be submitted to the federal government. Impax has cooperated with the Civil Division’s investigation. However, no assurance can be given as to the timing or outcome of the investigation.
On May 15, 2023, Amneal received a CID from the Civil Division requesting information and documents related to the manufacturing and shipping of diclofenac sodium 1% gel labeled as “prescription only.”only” after the reference listed drug’s label was converted to over-the-counter. The Company has cooperatedis cooperating with the Civil Division’s investigation. However, no assurance can be given as to the timing or outcome of the investigation.
In Re Generic Pharmaceuticals Pricing Antitrust Litigation
Since March 2016, multiple putative antitrust class action complaints have been filed on behalf of direct purchasers, indirect purchasers (or end-payors), and indirect resellers, as well as individual complaints on behalf of certain direct and indirect purchasers, and municipalities (the “opt-out plaintiffs”) against manufacturers of generic drugs, including Impax and the Company. The complaints allege a conspiracy to fix, maintain, stabilize, and/or raise prices, rig bids, and allocate markets or customers for various generic drugs in violation of federal and state antitrust and consumer protection laws. Plaintiffs seek unspecified monetary damages and equitable relief, including disgorgement and restitution. The lawsuits have been
consolidated in an MDL in the United States District Court for the Eastern District of Pennsylvania (In re Generic Pharmaceuticals Pricing Antitrust Litigation, No. 2724, (E.D. Pa.)) (“MDL No. 2724”).
On May 10, 2019, Attorneys General of 43 States and the Commonwealth of Puerto Rico filed a complaint in the United States District Court for the District of Connecticut against various manufacturers and individuals, including the Company, alleging a conspiracy to fix, maintain, stabilize, and/or raise prices, rig bids, and allocate markets or customers for multiple generic drugs. On November 1, 2019, the State Attorneys General filed an Amended Complaint on behalf of nine additional states and territories. On June 10, 2020, Attorneys General of 46 States, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Territory of Guam, the U.S. Virgin Islands, and the District of Columbia filed a new complaint against various manufacturers and individuals, including the Company, alleging a conspiracy to fix prices, rig bids, and allocate markets or customers for additional generic drugs. Plaintiff states seek unspecified monetary damages and penalties and equitable relief, including disgorgement and restitution. On September 9, 2021, the State Attorneys General filed an Amended Complaint on behalf of California in addition to the original plaintiff states.
Both the May 10, 2019 and June 10, 2020 lawsuits have beenseek unspecified monetary damages and penalties and equitable relief including disgorgement and restitution, and both were incorporated into MDL No. 2724, and the2724. The June 10, 2020 lawsuit has beenwas selected for bellwether status. The StateStates of Alabama, Hawaii and Arkansas, and the Territory of Guam have both voluntarily dismissed all of their claims in the two actions against all defendants, including the Company, without prejudice.Company. American Samoa voluntarily dismissed its claims in the May 10, 2019 action and was not named as a plaintiff in the June 10, 2020 action. On February 27, 2023, the Court addressed defendants’ motions to dismiss the June 10, 2020 bellwether action, holding that the states may not pursue certain federal remedies, and otherwise denying Amneal’s joint and individual motion to dismiss. On November 1, 2023, the Attorneys
General filed a Motion to Remand their cases to the State of Connecticut. On January 21, 2024, the Joint Panel on Multidistrict Litigation (“JPML”) granted the motion, and these cases were formally remanded in April 2024. See Connecticut, et al. v. Teva Pharmaceuticals USA, Inc., et al., 3:19-cv-00710-MPS and Connecticut, et al. v. Sandoz, Inc. et al., 3:20-cv-00803-MPS.
Fact and document discovery in MDL No. 2724 are proceeding.is proceeding as to both bellwether and non-bellwether cases, and expert discovery as to bellwether cases is also underway. No trial date has been set.
On July 1, 2023, 152 hospital systems, health care centers, and retail pharmacies filed a complaint No schedule has yet been issued in the United States District Court forMay 10, 2019 and June 10, 2020 actions brought by the NorthernState Attorneys General, which have now been remanded to the District of California against manufacturers of generic drugs, including Impax and the Company. Like the complaints that were previously consolidated in MDL No. 2724, the complaint claims that defendants engaged in an unlawful conspiracy to fix, maintain and/or stabilize the prices, rig bids, and allocate markets or customers for various generic drugs in violation of federal and state antitrust and consumer protection laws, and seeks unspecified monetary damages and equitable relief, including disgorgement and restitution. Plaintiffs also filed a notice that they are asserting claims based on the same alleged conspiracy as plaintiffs in MDL No. 2724, and that they believe transfer and coordination of their case with the MDL may be appropriate.Connecticut.
On June 3, 2020, the Company and Impax were also named in a putative class action complaint filed in the Federal Court of Canada in Toronto, Ontario against numerous generic pharmaceutical manufacturers, on behalf of a putative class of individuals who purchased generic drugs in the private sector from 2012 to the present (Kathryn Eaton v. Teva Canada Limited, et. al., No. T-607-20). The complaint alleges price fixing, among other claims. On August 23, 2022, the plaintiff filed a second amended complaint. On May 30, 2023, the plaintiff served materials for their motion to certify the action as a class proceeding, define the class and certify the common questions to be decided, among other things. The Court has not setcertification hearing date is scheduled for December 2024, but subject to court approval, the hearing date may be rescheduled on consent to May 2025. The Company is preparing a date forresponse to the returnmotion to certify in advance of the plaintiff’s motion.that date.
Civil Prescription Opioid Litigation
The Company and certain of its affiliates have beenare named as defendants in over 900 cases filed in state and federal courts relating to the sale of prescription opioid pain relievers. Plaintiffs in these actions include state Attorneys General, county and municipal governments, hospitals, Native American tribes, pension funds, third-party payors, and individuals. Plaintiffs seek unspecified monetary damages and other forms of relief based on various causes of action, including negligence, public nuisance, unjust enrichment, and civil conspiracy, as well as alleged violations of the Racketeer Influenced and Corrupt Organizations Act, (“RICO”), state and federal controlled substances laws and other statutes. All cases involving the Company also name other manufacturers, distributors, and retail pharmacies as defendants, and there arehave been numerous other cases involving allegations relating to prescription opioid pain relievers against other manufacturers, distributors, and retail pharmacies in which the Company and its affiliates are not named. Nearly all cases pending in federal district courts have been consolidated for pre-trial proceedings in an MDL in the United States District Court for the Northern District of Ohio (In re: National Prescription Opiate Litigation, Case No. 17-mdl-2804) (the “Opioid MDL”). The Company is also named in various state court cases pending in nineseven states. No firm trial dates have been set except in Texas (May 20, 2024(January 31, 2025, trial-ready date (Dallas County) and September 30, 2024 (Bexar County)).
The Company reached a settlement agreement with the New Mexico Attorney General to resolve its claims against the Company, which was finalized on April 24, 2023. A Consent Judgment dismissing the case was entered on May 15, 2023.
The Company reached a settlement agreement to resolve all pending litigation brought by West Virginia political subdivisions, which was signed on May 25, 2023. The two neonatal abstinence syndrome cases in West Virginia state court were dismissed on May 31, 2023 and were subsequently appealed by the plaintiffs. These appeals remain pending. The hospital cases pending in West Virginia state court were dismissed on May 2, 2023.
The Company reached a preliminary settlement with a group of private hospitals in Alabama (the “Alabama Hospitals”) in June 2023 to resolve the hospitals’ claims against the Company. The Company anticipates a final determination approving the settlement in 2023.by the end of the second quarter of 2024. On February 7, 2024, the Company was dismissed from the Mobile County Board of Health case. The Company previously reported an August 12, 2024 trial date for that case.
On January 13, 2023, Amneal Pharmaceuticals, Inc., Amneal, and Amneal Pharmaceuticals of New York, LLC (“Amneal New York”), receivedthe Company received a subpoena from the New York Attorney General, seeking information regarding its business concerning opioid-containing products. The Company is cooperating with the request and providing responsive information. On January 4, 2024, the Company received a CID issued by the Alaska Attorney General seeking information regarding its business concerning opioid-containing products. The Company is evaluating the CID.
BasedIn late April 2024, the Company reached a settlement in principle on the primary financial terms, with no admission of wrongdoing, for a nationwide resolution to the opioids cases that have been filed and that might have been filed against the Company by states, counties, municipalities, and Native American tribes across the U.S. The settlement agreements within principle is subject to the statesnegotiation and execution of New Mexicoa definitive settlement agreement between the parties. The settlement would be payable over ten years. Under the settlement in principle, the Company would agree to pay $92.5 million in cash and West Virginia and an assessmentprovide $180.0 million (valued at $125/ twin pack) in naloxone nasal spray to help treat opioid overdoses. In lieu of receiving product, the settling parties can opt to receive 25% of the information available,naloxone nasal spray’s value (up to $45.0 million) in cash during the last four years of the ten years payment term, which could increase the total amount of cash the Company would agree to pay up to $137.5 million.
As of March 31, 2024, the Company concluded the loss related to the opioid litigation was probable, and the related loss was reasonably estimable considering the settlement in principle. As a result, the Company recorded an $18.0a charge of $94.4 million charge forassociated with the yearsettlement in principle during the three months ended March 31, 2024 to increase the liability as of March 31, 2024, to $115.6 million, of which $85.5 million was classified as long-term. While this liability has been deemed reasonable by the Company’s management, it could significantly change as the definitive settlement agreement is finalized. As of December 31, 2022,2023, the Company had a liability of $21.5 million related to the majorityits prescription opioid litigation, of the MDL and state court cases. Based on an increase in the number of political subdivision cases and the preliminary settlement with the Alabama Hospitals, the Company recorded charges of $2.0which $0.3 million and $4.0 million for the three and six months ended June 30, 2023, respectively.was classified as long-term. For the remaining cases not covered by the settlement in principle, primarily brought by other hospitals, pension funds, third-party payorsschools and individuals, the Company has not recorded a liability as of June 30, 2023 andMarch 31, 2024 or December 31, 2022,2023, because it concluded that a loss was not probable and estimable.
United States Department of Justice / Drug Enforcement Administration Subpoenas
On July 7, 2017, Amneal Pharmaceuticals of New York, LLC received an administrative subpoena issued by the Long Island, NY District Office of the Drug Enforcement Administration (the “DEA”) requesting information related to compliance with certain recordkeeping and reporting requirements. On or about April 12, 2019 and May 28, 2019, the Company received grand jury subpoenas from the U.S. Attorney’s Office for the Eastern District of New York (the “USAO”) relating to similar topics concerning the Company’s suspicious order monitoring program and its compliance with the Controlled Substances Act. The Company is cooperating with the USAO in responding to the subpoenas and has entered civil and criminal tolling agreements with the USAO through approximately NovemberMay 15, 2023.2024. It is not possible to determine the exact outcome of these investigations.
On March 14, 2019, Amneal received a subpoena from an Assistant U.S. Attorney (“AUSA”) for the Southern District of Florida.Florida (the “AUSA”). The subpoena requested information and documents generally related to the marketing, sale, and distribution of oxymorphone. The Company intends 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 October 7, 2019, Amneal received a subpoena from the New York State Department of Financial Services seeking documents and information related to sales of opioid products in the state of New York. The Company is cooperating with the request and providing responsive information. It is not possible to determine the exact outcome of this investigation.
Ranitidine Litigation
The Company and its affiliates have beenwere named as defendants, along with numerous other brand and generic pharmaceutical manufacturers, wholesale distributors, retail pharmacy chains, and repackagers of ranitidine-containing products, in In In re Zantac/Ranitidine NDMA Litigation(MDL (MDL No. 2924), pending in the Southern District of Florida. Plaintiffs allege that defendants failed to disclose and/or concealed the alleged inherent presence of N-Nitrosodimethylamine (or “NDMA”) in brand-name Zantac® or generic ranitidine and the alleged associated risk of cancer. On July 8, 2021, the MDL courtCourt dismissed all claims by all plaintiffs against the generic drug manufacturers, including the Company, and its affiliates, without leave to file further amended complaints.complaints, holding all claims were preempted. Plaintiffs appealed the MDL court’sCourt’s dismissals to the 11th Circuit Court of Appeals. On November 7, 2022, the 11th Circuit affirmed the MDL court’sCourt’s dismissal of cases brought by third-party payors. The 11th Circuit has not established a briefing schedule yetraised questions in the appeals of the other cases.cases about the finality of the MDL Court’s judgments, which were resolved in September 2023. Plaintiffs filed their merits brief on April 10, 2024.
The Company and its affiliates have also been named as defendants in various state lawsuits in five states in which the Company has already filed motions to dismiss or plans to file motions to dismiss in the future. Three of thoseOn August 17, 2023, the judge in the consolidated Illinois state court cases brought by individualsgranted a motion to dismiss all such cases in which the Company and pending in Cook County, Illinois have trial dates: Gross (June 5, 2024), Snider (October 23, 2024), and Tucker (January 16, 2025). Another case in New Mexico has a September 15, 2025, trial date.affiliates had been named, holding all claims preempted. There are no trial dates involving the Company in any of the otherstate court cases.
Metformin Litigation
Amneal and AvKARE, LLC (improperly named as AvKARE, Inc.) were named as defendants, along with numerous other manufacturers, retail pharmacies, and wholesalers, in several putative class action lawsuits pending in the United States District Court for the District of New Jersey,
(“D.N.J.”), consolidated as In Re Metformin Marketing and Sales Practices Litigation (No. 2:20-cv-02324-MCA-MAH) (“In re Metformin”). The lawsuits either 1) allege economic loss in connection with their purchase or reimbursements due to the alleged contamination of generic metformin products with NDMA or 2) areNDMA. Plaintiffs have voluntarily dismissed their claims seeking medical monitoring or evaluation due to alleged “cellular damage, genetic harm, and/or are at an increased risktheir consummation of developing cancer” from consuming allegedly contaminated metformin. The parties are currently engaged in discovery. On October 17, 2023, co-defendant Rite-Aid filed a suggestion of bankruptcy and automatic stay of proceeding. AvKARE, LLC has been dismissed from this action. Three additional similar putative class action lawsuits filed against Amneal and AvKARE, LLC have been consolidated for discovery and pretrial purposes only, Marcia E. Brice v. Amneal Pharmaceuticals, Inc., No. 2:20-cv-13728 (D.N.J.), Michael Hann v. Amneal
Pharmaceuticals of New York, LLC et al., No. 2:23-cv-22902 (D.N.J.), and In re Metformin:County of Monmouth, et al. v. Apotex Inc., et al., No. 2:23-cv-21001-MAC-MAH (D.N.J.) (“County of Monmouth”).
Pursuant to a Stipulation and Order entered on the docket on May 2, 2024, plaintiffs will file a third amended complaint in In re Metformin which includes the claims and parties in County of Monmouth. The third amended complaint must be filed within three days of entry of the Stipulation and Order. Immediately preceding the filing of the third amended complaint, the County of Monmouth First Amended Complaint will be voluntarily dismissed without prejudice. Defendants may file a motion to dismiss the third amended complaint within thirty days of the filing of the third amended complaint.
On March 29, 2021, a plaintiff filed a complaint in the United States District Court for the Middle District of Alabama asserting claims against manufacturers of Valsartan, Losartan,valsartan, losartan, and Metforminmetformin based on the alleged presence of nitrosamines in those products. The only allegations against the Company concern Metforminmetformin (Davis v. Camber Pharmaceuticals, Inc., et al., C.A. No. 2:21-00254 (M.D. Ala.) (the “Davis Action”)). On May 5, 2021, the United States Judicial Panel on Multidistrict Litigation (the “JPML”) transferred the Davis Action into the In re: Valsartan, Losartan, and Irbesartan Products Liability Litigation multi-district litigation for pretrial proceedings.
Xyrem® (Sodium Oxybate) Antitrust Litigation
Amneal has beenwas named as a defendant, along with Jazz Pharmaceuticals, Inc. (“Jazz”) and numerous other manufacturers of generic versions of Jazz’s Xyrem® (sodium oxybate), in several class action lawsuits filed in the United States District Court for the Northern District of California and the United States District Court for the Southern District of New York, alleging that the generic manufacturers entered into anticompetitive agreements with Jazz in connection with the settlement of patent litigation related to Xyrem®. The actions have beenwere consolidated in the United States District Court for the Northern District of California for pretrial proceedings (In re Xyrem (Sodium Oxybate) Antitrust Litigation, No. 5:20-md-02966-LHK (N.D. Cal.)).
On January 9, 2023, Amneal reachedwas also named as a settlementdefendant in principle with the class plaintiffs and executed a settlement agreement on February 28, 2023. The remaining opt-out plaintiffs in the federal case are United Healthcare Services,similar action filed by Aetna Inc., Humana Inc., Molina Healthcare Inc., and Health Care Services Corporation.
In a separate action (“Aetna”) in California state court filed by (Aetna Inc. v. Jazz Pharms., another opt-out plaintiff, theInc. et. al, No. 22CV010951 (Cal. Super. Ct.). The California state court held that it lacks jurisdiction over several defendants, including Amneal, on December 27, 2022, and later issued an order dismissing Amneal without prejudice. On January 27,August 25, 2023, Aetna filed ana motion seeking leave to file a second amended complaint identifying several parties, includingadding Amneal as alleged non-party co-conspirators.a defendant, which the Court tentatively granted on October 20, 2023. Aetna filed a second amended complaint naming Amneal on November 17, 2023.
Value DrugOn February 28, 2023, Amneal executed a $1.9 million settlement agreement with class plaintiffs in the federal litigation. Class plaintiffs filed a motion for final approval of the settlement on November 10, 2023, and entered an order granting final approval, certifying settlement class, and dismissing class plaintiffs’ against Amneal with prejudice on April 17, 2024. On December 18, 2023, Amneal executed a $4.0 million settlement with Aetna, United Healthcare Services, Inc. (“United”), Humana Inc. (“Humana”), Molina Healthcare Inc. (“Molina”), and Health Care Service Corporation (“HCSC”). Pursuant to that settlement, the federal court dismissed United, Humana, Molina and HCSC’s claims against Amneal, with prejudice, on February 26, 2024, and the California state court dismissed Aetna’s claims against Amneal, with prejudice, on February 29, 2024. Thus, all claims against Amneal in the federal and state court have been voluntarily dismissed with prejudice pursuant to settlements. In December 2023, the Company recorded $3.0 million for the settlement of claims associated with Xyrem® antitrust litigation. As of December 31, 2023, the Company had a liability of $2.0 million associated with this settlement, which was paid in January 2024.
UFCW Local 1500 Welfare Fund v. Takeda Pharmaceuticals U.S.A., Inc.
On August 5, 2021, Value Drug CompanyNovember 14, 2023, UFCW Local 1500 Welfare Fund and other health plans filed a purported class action lawsuit in the United States District Court for the EasternSouthern District of PennsylvaniaNew York against Takeda Pharmaceuticals U.S.A., Inc. (“Takeda”) and numerous other manufacturers of generic versions of Takeda’s Colcrys® (colchicine), including Amneal (UFCW Local 1500 Welfare Fund et al. v. Takeda Pharma. U.S.A., Inc. et al, No. 1:23-cv-10030 (S.D.N.Y.). The plaintiff health plans seek to represent a class of third party payers and alleging that the generic manufacturers conspired with Takeda to restrict output of generic Colcrys® in order to maintain higher prices, in violation of the antitrust laws. On April 10, 2023, plaintiffFebruary 28, 2024, Takeda filed a motion to transfer the case to the United States District Court for leavethe Eastern District of Pennsylvania. On March 13, 2024 and March 27, 2024, Amneal submitted a letter and brief, respectively, informing the Court of its position that the Eastern District of Pennsylvania lacks personal jurisdiction over Amneal. The deadline for defendants to amend itsrespond to the complaint to add 18 former absent class members as plaintiffs,is 45 days after the date on which the Court subsequently granted. Plaintiffs’ second amended complaint did not add any new legal theories or allegations. On April 14, 2023, the Court entered a scheduling order requiring the new plaintiffsmotion to provide discovery on their claims by May 1, 2023, and setting a 22-day jury trial to begin on September 5, 2023.transfer is resolved.
Russell Thiele, et al. v. Kashiv Biosciences, LLC, et.al.
On March 22, 2022, two purported Amneal Pharmaceuticals, Inc. stockholders filed a stockholder derivative lawsuit in the Court of Chancery of the State of Delaware against Kashiv and certain members of the Company’s Board of Directors. The Company is named as a nominal defendant. For additional details of the claim, refer to Note 21. Commitments and Contingencies of our 2022 Annual Report on Form 10-K. On May 2, 2023, the parties entered into a final settlement agreement that, if approved by the court, would fully resolve this matter. Pursuant to the settlement, the Company has agreed to amend the January 11, 2021 Membership Interest Purchase Agreement with Kashiv to reduce certain royalties on future sales payable by Kashiv, adopt certain governance changes, and pay to plaintiffs’ counsel a court-ordered attorneys’ fees and expense award in an amount of $1.9 million. The Court of Chancery approved the final settlement agreement on July 27, 2023.
Indian Tax Authority Matters
Amneal Pharmaceuticals Pvt. Ltd. (“Amneal Pvt.”), RAKS Pharmaceuticals Pvt. Ltd., and Puniska Healthcare Pvt. Ltd. (“Puniska”), which are subsidiaries of the Company, are currently involved in litigations with Indian tax authorities concerning Central Excise Tax, Service Tax, Goods & Services Tax, and Value Added Tax for various periods of time between 2014 and 2017. These subsidiaries have contested certain of these assessments, which are at various stages of the administrative process. The Company strongly believes its Indian subsidiaries have meritorious defenses in the matter.
20.18. Stockholders’ Equity and Redeemable Non-Controlling Interests
On May 9,Effective with the Reorganization on November 7, 2023, the stockholdersCompany holds 100% of the Amneal Common Units.
In connection with the Reorganization, the Company amended and restated its certificate of incorporation. The voting rights, dividend rights and participation rights of holders of Class A common stock of the Company approved an amendment and restatementdid not materially change as a result of the Amneal Pharmaceuticals, Inc. 2018 Incentive Award Plan (the “Stock Plan”), which authorizes an additional 20 millionamendment. There were no shares of class AClass B common stock available for issuance under the Stock Plan, resulting in a total shares reserved under the Stock Plan of 57 million shares, and extends the term of the Stock Plan until May 9, 2033.Company outstanding as of December 31, 2023.
Non-Controlling Interests
The Company consolidates theconsolidated financial statements of the Company include the accounts of all entities controlled by the Company, including Amneal and its subsidiaries, andthrough the Company’s direct or indirect ownership of a majority voting interest. The Company records non-controlling interests for the portion of Amneal’sits subsidiaries’ economic interests that isit does not held byhold. Prior to the Company. Non-controllingReorganization, non-controlling interests arewere adjusted for capital transactions that impact the non-publicly held economic interests in Amneal.
UnderPrior to the terms of Amneal’s limited liability company agreement, as amended, Reorganization, Amneal iswas obligated to make tax distributions to its members.the group, together with their affiliates and certain assignees, who owned Amneal when it was a private company (the “Members”). During the three and six months ended June 30,March 31, 2023, the Company recorded net tax distributions to the Members of $21.20$26.8 million and $48.01 million, respectively, as a reduction of non-controlling interests. DuringSubsequent to the three and six months ended June 30, 2022,Reorganization, the Company recorded net is no longer obligated to make tax distributions of $2.89 million and $7.33 million, respectively, as a reduction of non-controlling interests.to the Members.
The Company acquired a 98% interest in KSP on April 2, 2021. The sellers of KSP, a related party, hold the remaining interests. The Company attributes 2% of the net income or loss of KSP to the non-controlling interests.
Redeemable Non-Controlling Interests
The Company 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”), in 2020. The sellers of AvKARE, LLC and R&S hold the remaining 34.9% interest (“Rondo Class B Units”) in the holding company that directly owns the acquired companies (“Rondo”). Beginning on January 1, 2026, the holders of the Rondo Class B Units have the right (“Put Right”) to require the Company to acquire the Rondo Class B Units for a purchase price that is based on a multiple of Rondo’s earnings before income taxes, depreciation, and amortization (EBITDA) if certain financial targets and other conditions are met. Additionally, beginning on January 31, 2020, the Company has the right to acquire the Rondo Class B Units based on the same value and conditions as the Put Right. The Rondo Class B Units are also redeemable by the holders upon a change in control. Because the redemption of the Rondo Class B Units is outside of the Company’s control, the units have been presented outside of stockholders’ equity as redeemable non-controlling interests.
The Company attributes 34.9% of the net income or loss associated with Rondo to redeemable non-controlling interests. The Company will also accrete the redeemable non-controlling interests to redemption value upon an event that makes redemption probable. For the three and six months ended June 30, 2023March 31, 2024 and ,2023, the Company recorded tax distributions of $2.87$4.4 million and $5.83$3.0 million, as a reduction of redeemable non-controlling interests, respectively. For the three and six months ended June 30, 2022, the Company recorded tax distributions of $0.58 million and $2.59 millionrespectively, as a reduction of redeemable non-controlling interests, respectively.
Redeemable Non-Controlling Interests - Puniska
The Company acquired 74% of the equity interests in Puniska on November 2, 2021. Amneal was required pursuant to the purchase agreement to acquire the remaining 26% of Puniska upon approval of the transaction by the government of India. Because approval of the government of India was outside of the Company’s control, upon closing of the acquisition of Puniska, the equity interests of Puniska that the Company did not own were presented outside of stockholders’ equity as redeemable non-controlling interests. The Company attributed 26% of the net losses of Puniska to the redeemable non-controlling interests.
Upon approval of the transaction by the government of India in March 2022, the Company paid the $1.7 million redemption value for the remaining 26% of the equity interests of Puniska. For the six months ended June 30, 2022, the Company recorded accretion of $0.9 million to increase the redeemable non-controlling interests to redemption value.
Changes in Accumulated Other Comprehensive (Loss) Income by Component (in thousands):
| | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustments | | Unrealized (loss) gain on cash flow hedge, net of tax | | Accumulated other comprehensive (loss) income |
Balance December 31, 2021 | $ | (18,845) | | | $ | (5,982) | | | $ | (24,827) | |
Other comprehensive loss before reclassification | (13,394) | | | 48,270 | | | 34,876 | |
Reallocation of ownership interests | (143) | | | 33 | | | (110) | |
Balance December 31, 2022 | (32,382) | | | 42,321 | | | 9,939 | |
Other comprehensive loss before reclassification | 1,029 | | | (2,957) | | | (1,928) | |
Reallocation of ownership interests | (270) | | | 342 | | | 72 | |
Balance June 30, 2023 | $ | (31,623) | | | $ | 39,706 | | | $ | 8,083 | |
Refer to Note 22. Stockholders’ Equity in the Company’s 2022 Annual Report on Form 10-K for additional information.
| | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustments | | Unrealized gain (loss) on cash flow hedge, net of tax | | Accumulated other comprehensive (loss) income |
Balance December 31, 2023 | $ | (66,072) | | | $ | 33,723 | | | $ | (32,349) | |
Other comprehensive loss before reclassification | (390) | | | 15,543 | | | 15,153 | |
Reclassification of cash flow hedge to earnings, net of tax of $0 | — | | | (6,515) | | | (6,515) | |
Balance March 31, 2024 | $ | (66,462) | | | $ | 42,751 | | | $ | (23,711) | |
| | | | | |
Balance December 31, 2022 | $ | (32,382) | | | $ | 42,321 | | | $ | 9,939 | |
Other comprehensive loss before reclassification | 898 | | | (7,135) | | | (6,237) | |
Reallocation of ownership interests | (195) | | | 257 | | | 62 | |
Balance March 31, 2023 | $ | (31,679) | | | $ | 35,443 | | | $ | 3,764 | |
21.19. Related Party Transactions
The Company has various business agreements with certain parties in which there is some common ownership. However, the Company does not directly own or manage any of such related parties. Except as disclosed below, as of and for the three and six months ended June 30, 2023,March 31, 2024, there were no material changes to our related party agreements or relationships as described in Note 24. Related Party Transactions and Note 22. Stockholders’ Equity in our 20222023 Annual Report on Form 10-K.
The following table summarizes the Company’s related party transactions (in thousands):
| | Three months ended June 30, | | Six months ended June 30, |
| | | Three Months Ended March 31, | | | | | Three Months Ended March 31, |
Related Party and Nature of Transaction | Related Party and Nature of Transaction | Caption in Balance Sheet and Statement of Operations | | 2023 | | 2022 | | 2023 | | 2022 | Related Party and Nature of Transaction | Caption in Balance Sheet and Statement of Operations | | 2024 | | 2023 |
Kashiv Biosciences LLC | Kashiv Biosciences LLC | | | | | | | | | |
Parking space lease | Parking space lease | Research and development | | $ | 33 | | | $ | 25 | | | $ | 50 | | | $ | 50 | |
License and commercialization agreement - Filgrastim and Pegfilgrastim - regulatory approval milestone for Filgrastim | Selling, general and administrative | | — | | | — | | | — | | | 5,000 | |
Parking space lease | |
Parking space lease | |
Development and commercialization agreement - Ganirelix Acetate and Cetrorelix Acetate | Development and commercialization agreement - Ganirelix Acetate and Cetrorelix Acetate | Research and development | | — | | | 1,706 | | | 50 | | | 1,723 | |
License and commercialization agreement - Filgrastim and Pegfilgrastim - regulatory approval milestone for Pegfilgrastim | Intangible asset | | — | | | 15,000 | | | — | | | 15,000 | |
Development and commercialization agreement - Filgrastim and Pegfilgrastim - Royalty expense (Releuko) | Cost of goods sold | | — | | | — | | | 144 | | | — | |
Development and commercialization agreement - Filgrastim and Pegfilgrastim - Royalty expense (Releuko and Fylnetra) | |
Storage agreement | Storage agreement | Research and development | | (34) | | | — | | | (82) | | | — | |
Inventory purchases under development and commercialization agreement - Filgrastim and Pegfilgrastim (Releuko) | Inventory and cost of goods sold | | 499 | | | — | | | 499 | | | — | |
Total | | $ | 498 | | | $ | 16,731 | | | $ | 661 | | | $ | 21,773 | |
Inventory purchases under development and commercialization agreement - Filgrastim and Pegfilgrastim (Releuko and Fylnetra) | |
Generic development supply agreement - research and development material | |
Generic development supply agreement - development activity deferred income | |
Development and commercialization agreement - Long-acting injectable | |
| Other Related Parties | Other Related Parties | |
Other Related Parties | |
Other Related Parties | |
Kanan, LLC - operating lease | |
Kanan, LLC - operating lease | |
Kanan, LLC - operating lease | Kanan, LLC - operating lease | Inventory and cost of goods sold | | $ | 592 | | | $ | 526 | | | $ | 1,158 | | | $ | 1,052 | |
Sutaria Family Realty, LLC - operating lease | Sutaria Family Realty, LLC - operating lease | Inventory and cost of goods sold | | $ | 314 | | | $ | 305 | | | $ | 619 | | | $ | 601 | |
PharmaSophia, LLC - research and development services income | Research and development | | $ | — | | | $ | (15) | | | $ | — | | | $ | (30) | |
Apace KY, LLC d/b/a Apace Packaging LLC - packaging agreement | Apace KY, LLC d/b/a Apace Packaging LLC - packaging agreement | Inventory and cost of goods sold | | $ | 3,731 | | | $ | 964 | | | $ | 5,567 | | | $ | 1,422 | |
Tracy Properties LLC - operating lease | Tracy Properties LLC - operating lease | Selling, general and administrative | | $ | 94 | | | $ | 136 | | | $ | 263 | | | $ | 271 | |
AzaTech Pharma LLC - supply agreement | AzaTech Pharma LLC - supply agreement | Inventory and cost of goods sold | | $ | 1,969 | | | $ | 1,431 | | | $ | 2,544 | | | $ | 2,652 | |
AvPROP, LLC - operating lease | AvPROP, LLC - operating lease | Selling, general and administrative | | $ | 43 | | | $ | 50 | | | $ | 90 | | | $ | 90 | |
Avtar Investments, LLC - consulting services | Avtar Investments, LLC - consulting services | Research and development | | $ | 9 | | | $ | 85 | | | $ | 197 | | | $ | 169 | |
TPG Operations, LLC - consulting services | Selling, general and administrative | | $ | — | | | $ | — | | | $ | — | | | $ | 19 | |
Alkermes | Alkermes | Inventory and cost of goods sold | | $ | 88 | | | $ | 77 | | | $ | 90 | | | $ | 107 | |
R&S Solutions - logistics services | R&S Solutions - logistics services | Selling, general and administrative | | $ | 20 | | | $ | 20 | | | $ | 40 | | | $ | 39 | |
Members - tax receivable agreement (TRA liability) | Members - tax receivable agreement (TRA liability) | Other expense | | $ | 405 | | | $ | — | | | $ | 1,231 | | | $ | — | |
The following table summarizes the amounts due to or from the Company for related party transactionstransactions (in thousands):
| | June 30, 2023 | | December 31, 2022 |
Sellers of AvKARE LLC and R&S - state tax indemnification | $ | — | | | $ | 486 | |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Kashiv - various agreements | Kashiv - various agreements | 28 | | | 12 | |
Asana BioSciences, LLC | 2 | | | 2 | |
Apace KY, LLC d/b/a Apace Packaging LLC - packaging agreement | 119 | | | — | |
Apace Packaging, LLC - packaging agreement | |
Alkermes | |
AzaTech Pharma LLC | |
Related party receivables - short term | Related party receivables - short term | $ | 149 | | | $ | 500 | |
| Kashiv - various agreements | |
Kashiv - various agreements | |
Kashiv - various agreements | Kashiv - various agreements | $ | 100 | | | $ | 110 | |
Apace Packaging, LLC - packaging agreement | Apace Packaging, LLC - packaging agreement | 1,070 | | | 756 | |
AzaTech Pharma LLC - supply agreement | AzaTech Pharma LLC - supply agreement | 1,113 | | | 863 | |
Avtar Investments LLC - consulting services | Avtar Investments LLC - consulting services | 89 | | | 72 | |
Sellers of AvKARE LLC and R&S - accrued interest on Sellers Notes | Sellers of AvKARE LLC and R&S - accrued interest on Sellers Notes | 442 | | | 442 | |
Members - tax receivable agreement | Members - tax receivable agreement | 631 | | | 201 | |
R&S Solutions LLC - logistics services | 7 | | | 7 | |
Rondo Class B unit holders - tax distributions | |
Alkermes Plc | Alkermes Plc | 36 | | | 28 | |
Members - tax distributions | 17,655 | | | — | |
Related party payables - short term | Related party payables - short term | $ | 21,143 | | | $ | 2,479 | |
| Kashiv - contingent consideration (1) | $ | 860 | | | $ | 3,290 | |
Kashiv - contingent consideration | |
Kashiv - contingent consideration | |
Kashiv - contingent consideration | |
Sellers of AvKARE LLC and R&S - accrued interest on Sellers Notes | Sellers of AvKARE LLC and R&S - accrued interest on Sellers Notes | 7,034 | | | 5,929 | |
Members - tax receivable agreement | Members - tax receivable agreement | 1,229 | | | 430 | |
Related party payables - long term | Related party payables - long term | $ | 9,123 | | | $ | 9,649 | |
Kashiv Biosciences
Amendment to Biosimilar License Agreement
(1)In March 2024, the Company amended the Kashiv Biosimilar Agreement (as defined in Note 24. Related Party Transactions The contingent consideration liability was associatedin the Company’s 2023 Annual Report on Form 10-K) to include two additional in-development products, a pre-filled auto-injector delivery system for peg-filgrastim and a pre-filled on-body injector (OBI) delivery system for peg-filgrastim. Consistent with the acquisitionexisting terms, Kashiv is responsible for development, regulatory filings, obtaining FDA approval, and manufacturing, and Amneal is responsible for marketing, selling, and pricing activities of KSP. these product candidates. The amendment did not change the contractual terms related to existing commercialized biosimilar products.
The amendment provides an incremental $14.5 million in potential future milestone payments specific to these in-development products, including $7.0 million for clinical and developmental milestones and $7.5 million for regulatory approval and first commercial-sales milestones. In addition, the amendment clarifies that future net sales milestones payments of up to $37.5 million, which did not change, shall be contingent upon reaching certain commercial sales volume objectives for the aggregate of all products under the amended agreement. The agreement provides for Amneal to pay a profit share equal to 50% of net profits, after considering manufacturing and marketing costs.
No amounts were paid or recognized during the three months ended March 31, 2024 pursuant to this amendment.
Long-Acting Injectable License and Supply Agreement
In December 2022, Amneal and Kashiv entered into a development supply agreement specific to four generic product candidates. Amneal is responsible for manufacturing batch products and performing certain developmental activities on behalf of Kashiv. Kashiv, as owner of the IP, is responsible for regulatory filings, obtaining FDA approval, marketing, selling, and pricing activities. Pursuant to the terms of the development supply agreement, Amneal is eligible to earn up to $2.4 million related to the aforementioned services.
Pursuant to the development supply agreement, Amneal maintained a right of first offer and negotiation to the licensing of each generic product candidate. In March 2024, Amneal and Kashiv entered into a license and supply agreement for the development and commercialization of a long-acting injectable (the “Injectable License and Supply Agreement"). The existing development supply agreement remains effective for the remaining three generic product candidates.
Subject to the terms of the Injectable License and Supply Agreement, Amneal is responsible for development, regulatory approval, and commercialization of the product candidate in the U.S., whereas Kashiv is responsible for development and regulatory approval of the product candidate for all other territories outside the U.S. Contingent upon Kashiv obtaining regulatory approval outside the U.S., Amneal shall manufacture the commercial supply for Kashiv at a stated price. The term of the agreement is 10 years from the respective product’s launch date in the U.S.
During the three months ended March 31, 2024, the Company recorded R&D expense for a $0.5 million payment made upon execution of the license and supply agreement. The agreement provides for potential future milestone payments to Kashiv of up to $35.0 million as follows: (i) up to $10.0 million relating to developmental milestones; (ii) up to $20.0 million for U.S. regulatory approval and initial commercial launch milestones; and (iii) up to $5.0 million for the achievement of annual commercial milestones. In addition, the agreement provides for Amneal to pay a profit share equal to 50% of net profits, after considering manufacturing and marketing costs.
Refer to Note 17. Fair Value Measurements 3. Acquisitionsfor additional information. and
TPG is a significant stockholder of the Company. A Managing Director of TPG is an observer ofNote 24. Related Party Transactions in the Company’s Board. TPG Capital BD, LLC (“TPG Capital”) has been providing the Company with advice and assistance with respect to the planned refinancing or replacement of certain indebtedness of the Company and will receive a customary fee, in an amount to be negotiated, contingent2023 Annual Report on Form 10-K for information on the closing of a transaction. For the three and six months ended June 30, 2023, the Company did not incur any costs related to services provided by TPG Capital.Company’s agreements with Kashiv.
22.20. Segment Information
The Company has three reportable segments: Generics, Specialty, and AvKARE.
Generics
The Company’s Generics segment includes a retail and institutional portfolio of approximately 260over 270 product families covering an extensive range of dosage forms and delivery systems, including both immediate and extended releaseextended-release oral solids, powders, liquids, sterile injectables, nasal sprays, inhalation and respiratory products, biosimilar products, ophthalmics, films, transdermal patches and topicals.
Specialty
The Company’s 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 disorders, including Parkinson’s disease, and endocrine disorders.
AvKARE
The Company’s AvKARE segment provides pharmaceuticals, medical and surgical products and services primarily to governmental agencies, primarilypredominantly focused on serving the U.S. Department of Defense and the U.S. Department of Veterans Affairs.
AvKARE is also a wholesale distributorre-packager of bottle and unit dose pharmaceuticals under the registered names of AvKARE and AvPAK, and medical and surgical products.AvPAK. AvKARE is also a packager and wholesale distributor of pharmaceuticals, over the counter drugs and vitaminsmedical supplies to its retail and institutional customers whothat are located throughout the U.S. focused primarily on offering 340b-qualified entities products to provide consistency in care and pricing.
Chief Operating Decision Makers
The Company’s chief operating decision makers evaluate the financial performance of the Company’s segments based upon segment operating income (loss). Items below operating income (loss) are not reported by segment, because 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 because it is not reviewed by the Company’s chief operating decision makers.
The tables below present segment information reconciled to total Company financial results, with segment operating income or loss, including gross profit less direct selling expenses, R&Dresearch and development expenses, and other operating expenses to the extent specifically identified by segment (in thousands):
| Three Months Ended June 30, 2023 | | Generics (1) | | Specialty | | AvKARE (1) | | Corporate and Other | | Total Company |
Three Months Ended March 31, 2024 | | Three Months Ended March 31, 2024 | | Generics (1) | | Specialty | | AvKARE (1) | | Corporate and Other | | Total Company |
Net revenue | Net revenue | | $ | 373,701 | | | $ | 96,994 | | | $ | 128,351 | | | $ | — | | | $ | 599,046 | |
Cost of goods sold | Cost of goods sold | | 225,189 | | | 46,512 | | | 107,324 | | | — | | | 379,025 | |
Gross profit | Gross profit | | 148,512 | | | 50,482 | | | 21,027 | | | — | | | 220,021 | |
Selling, general and administrative | Selling, general and administrative | | 28,040 | | | 22,759 | | | 14,015 | | | 40,756 | | | 105,570 | |
Research and development | Research and development | | 31,108 | | | 6,691 | | | — | | | — | | | 37,799 | |
Intellectual property legal development expenses | Intellectual property legal development expenses | | 801 | | | 19 | | | — | | | — | | | 820 | |
Restructuring and other charges | Restructuring and other charges | | — | | | 82 | | | — | | | — | | | 82 | |
Change in fair value of contingent consideration | Change in fair value of contingent consideration | | — | | | (6,364) | | | — | | | — | | | (6,364) | |
Charges related to legal matters, net | Charges related to legal matters, net | | 2,017 | | | — | | | — | | | — | | | 2,017 | |
Other operating expense | | 13 | | | — | | | — | | | — | | | 13 | |
Operating income (loss) | | $ | 86,533 | | | $ | 27,295 | | | $ | 7,012 | | | $ | (40,756) | | | $ | 80,084 | |
Operating (loss) income | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2023 | | Generics (1) | | Specialty | | AvKARE (1) | | Corporate and Other | | Total Company |
Net revenue | | $ | 717,507 | | | $ | 188,672 | | | $ | 250,407 | | | $ | — | | | $ | 1,156,586 | |
Cost of goods sold | | 455,740 | | | 89,703 | | | 212,936 | | | — | | | 758,379 | |
Gross profit | | 261,767 | | | 98,969 | | | 37,471 | | | — | | | 398,207 | |
Selling, general and administrative | | 55,640 | | | 45,138 | | | 26,955 | | | 79,933 | | | 207,666 | |
Research and development | | 63,467 | | | 13,022 | | | — | | | — | | | 76,489 | |
Intellectual property legal development expenses | | 2,425 | | | 39 | | | — | | | — | | | 2,464 | |
Restructuring and other charges | | 99 | | | 82 | | | — | | | 411 | | | 592 | |
Change in fair value of contingent consideration | | — | | | (3,907) | | | — | | | — | | | (3,907) | |
(Credit) charges related to legal matters, net | | (427) | | | — | | | — | | | 2,008 | | | 1,581 | |
Other operating income | | (1,211) | | | — | | | — | | | — | | | (1,211) | |
Operating income (loss) | | $ | 141,774 | | | $ | 44,595 | | | $ | 10,516 | | | $ | (82,352) | | | $ | 114,533 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2022 | | Generics (1) | | Specialty | | AvKARE (1) | | Corporate and Other | | Total Company |
Net revenue | | $ | 364,895 | | | $ | 97,001 | | | $ | 97,459 | | | $ | — | | | $ | 559,355 | |
Cost of goods sold | | 228,535 | | | 42,791 | | | 87,510 | | | — | | | 358,836 | |
Gross profit | | 136,360 | | | 54,210 | | | 9,949 | | | — | | | 200,519 | |
Selling, general and administrative | | 26,558 | | | 23,171 | | | 12,735 | | | 36,342 | | | 98,806 | |
Research and development | | 44,174 | | | 6,574 | | | — | | | — | | | 50,748 | |
Intellectual property legal development expenses | | 778 | | | 43 | | | — | | | — | | | 821 | |
Acquisition, transaction-related and integration expenses | | 8 | | | 32 | | | — | | | 201 | | | 241 | |
Change in fair value of contingent consideration | | — | | | (270) | | | — | | | — | | | (270) | |
Insurance recoveries for property losses and associated expenses | | (1,911) | | | — | | | — | | | — | | | (1,911) | |
Charges related to legal matters, net | | 483 | | | — | | | — | | | 251,394 | | | 251,877 | |
Other operating income | | (1,175) | | | — | | | — | | | — | | | (1,175) | |
Operating income (loss) | | $ | 67,445 | | | $ | 24,660 | | | $ | (2,786) | | | $ | (287,937) | | | $ | (198,618) | |
| Six Months Ended June 30, 2022 | | Generics (1) | | Specialty | | AvKARE (1) | | Corporate and Other | | Total Company |
Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2023 | | Generics (1) | | Specialty | | AvKARE (1) | | Corporate and Other | | Total Company |
Net revenue | Net revenue | | $ | 682,642 | | | $ | 182,087 | | | $ | 192,259 | | | $ | — | | | $ | 1,056,988 | |
Cost of goods sold | Cost of goods sold | | 427,565 | | | 86,644 | | | 167,689 | | | — | | | 681,898 | |
Gross profit | Gross profit | | 255,077 | | | 95,443 | | | 24,570 | | | — | | | 375,090 | |
Selling, general and administrative | Selling, general and administrative | | 54,151 | | | 47,571 | | | 26,145 | | | 69,604 | | | 197,471 | |
Research and development | Research and development | | 87,395 | | | 16,151 | | | — | | | — | | | 103,546 | |
Intellectual property legal development expenses | Intellectual property legal development expenses | | 1,550 | | | 35 | | | — | | | — | | | 1,585 | |
Acquisition, transaction-related and integration expenses | | 8 | | | 32 | | | — | | | 635 | | | 675 | |
Restructuring and other charges | Restructuring and other charges | | 206 | | | — | | | — | | | 525 | | | 731 | |
Change in fair value of contingent consideration | Change in fair value of contingent consideration | | — | | | (70) | | | — | | | — | | | (70) | |
Insurance recoveries for property losses and associated expenses | | (1,911) | | | — | | | — | | | — | | | (1,911) | |
Charges related to legal matters, net | | 2,157 | | | — | | | — | | | 247,394 | | | 249,551 | |
(Credit) charges related to legal matters, net | |
Other operating income | Other operating income | | (1,175) | | | — | | | — | | | — | | | (1,175) | |
Operating income (loss) | Operating income (loss) | | $ | 112,696 | | | $ | 31,724 | | | $ | (1,575) | | | $ | (318,158) | | | $ | (175,313) | |
(1)Operating results for the sale of Amneal products by AvKARE are included in Generics.
23. Insurance Recoveries for Property Losses and Associated Expenses21. Subsequent Event
On September 1, 2021, Tropical Storm Ida brought extreme rainfallApril 30, 2024, Amneal closed on the sale of a wholly owned subsidiary in India to Kashiv for total consideration of ₹1 billion, or approximately $12 million. Total consideration consisted of a ₹416 million, or approximately $5 million, cash payment at closing and flash floodingthe assumption of a loan payable of approximately ₹600 million, or approximately $7 million, payable to New Jersey that caused damageanother subsidiary of Amneal in India. The loan payable bears interest of 11% on the unpaid principal and is due on or before December 31, 2024. The Company is permitted to twooffset royalties or other amounts payable to Kashiv with any overdue principal on the loan payable. The subsidiary’s assets and liabilities were primarily comprised of a building under construction and a note payable, respectively. The subsidiary had no business activity, other than the construction of the Company’s facilities. Operations at these facilities were closed for the majority of September 2021 in order to assess the damage, make repairs and restore operations.
The Company concluded that all inventory on-hand at the time of the flooding was damaged and unsellable and that a majority of the equipment was damaged beyond repair. In addition, the Company incurred significant costs to repair both facilities. The Company has insurance policies for property damage, inventory losses and business interruption. Insurance recoveries are recorded in the periods when it is probable they will be realized. During each of the three and six months ended June 30, 2022, insurance recoveries of $1.9 million associated with property damage and inventory losses were received and recorded in insurance recoveries for property losses and associated expenses.
building.
24. Subsequent Events
During July 2023, the Company repaid $30.0 million of borrowings on the New Revolving Credit Facility from cash on hand and borrowed an additional $10.0 million under the Rondo Revolving Credit Facility for working capital purposes.
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 global pharmaceutical company that develops, manufactures, markets, and distributes a diverse portfolio of essential medicines, including complexretail generics, injectables, biosimilars and specialty branded pharmaceuticals.pharmaceuticals. We operate principally in the United States (the “U.S.(“U.S.”), India, and Ireland, and sell to wholesalers, distributors, hospitals, governmental agencies, chain pharmacies and individual pharmacies, either directly or indirectly. We are a holding company, whose principal assets are common units (“Amneal Common Units”) of Amneal Pharmaceuticals, LLC (“Amneal”).
The Company held 50.3% of Amneal Common Units and the group, together with their affiliates and certain assignees, who owned Amneal when it was a private company, held the remaining 49.7% as of June 30, 2023. The Company is Amneal’s sole managing member, having the sole voting power to make all of Amneal’s business decisions and control its management. Therefore, the Company consolidates the financial statements of Amneal and its subsidiaries. The Company records non-controlling interests for the portion of Amneal’s economic interests that it does not hold.
The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under Item 1A. Risk Factors in our 20222023 Annual Report on Form 10-K and under the heading Cautionary Note Regarding Forward-Looking Statements included elsewhere in this Quarterly Report on Form 10-Q.
The following discussion and analysis for the three and six months ended June 30, 2023March 31, 2024 should also be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements for the year ended December 31, 20222023 included in our 20222023 Annual Report on Form 10-K.
Overview
We have three reportable segments: Generics, Specialty, and AvKARE.
Generics
Our Generics segment includes approximately 260270 product families covering an extensive range of dosage forms and delivery systems, including both immediate and extended release oral solids, powders, liquids, sterile injectables, nasal sprays, inhalation and respiratory products, ophthalmics, films, transdermal patches and topicals. We focus on developing products with substantial barriers-to-entry resulting fromdue to 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’sour financial results. The entrance into the market of additional competition generally has a negative impact on the volume and/or pricing of the affected products. Additionally, pricing is determined by market place dynamics and is often affected by factors outside of the Company’sour control.
Specialty
Our Specialty segment is engaged in the development, promotion, sale and distribution of proprietary branded pharmaceutical products, with a focus on products addressing CNScentral nervous system (“CNS”) disorders, including Parkinson’s disease, and endocrine disorders. Our portfolio of products includes Rytary®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®RYTARY®, our promoted Specialty portfolio also includes Unithroid®UNITHROID® (levothyroxine sodium), for the treatment of hypothyroidism, which is sold under a license and distribution agreement with Jerome Stevens Pharmaceuticals, Inc., and Lyvispah® (baclofen)ONGENTYS® (opicapone), an add-on treatment to carbidopa/levodopa in patients with Parkinson’s disease experiencing “Off” episodes, which we commenced selling in early 2024 under a unique dissolvable granule formulation usedlicense agreement with BIAL-Portela & Ca., S.A.
On June 30, 2023, we received a complete response letter (“CRL”) from the FDA regarding our new drug application (“NDA”) for IPX203 for the treatment of Parkinson’s disease. The CRL indicated that, although an adequate scientific bridge was established for the safety of one ingredient, levodopa, based on pharmacokinetic studies, it was not adequately established for the other ingredient, carbidopa, and the FDA requested additional information. The CRL did not identify any issues with respect to treat muscle stiffness, spasmsthe efficacy or manufacturing of IPX203. During October 2023, we met with the FDA to align on the path to approval for IPX203. During the meeting, the FDA asked us to complete a QT study, a routine cardiac safety study that is required for new drugs. We completed the QT study and pain from multiple sclerosis.resubmitted our NDA for IPX203 on February 7, 2024. IPX203 has a Prescription Drug User Fee Act (PDUFA) decision date of August 7, 2024. However, we can provide no assurance that the FDA will approve our NDA for IPX203 timely or at all.
Our 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. Our Specialty segment also has a number of product candidates that are in varying stages of development.
For Specialty products, the majority of the product’s commercial value is usually realized during the period in which the product has market exclusivity. In the U.S., when market exclusivity expires and generic versions of a product are approved and marketed, there can often be very substantial and rapid declines in the branded product’s sales.
On June 30, 2023, we received a complete response letter (“CRL”) from the Food and Drug Administration regarding our new drug application for IPX203 for the treatment of Parkinson’s disease. Refer to Note 12. Goodwill and Other Intangible Assets for further information on the CRL and our interim goodwill and in-process research and development intangible asset impairment tests. Refer to the information under the heading “If we are unable to successfully develop or commercialize new products, our operating results will suffer.” in the Operational and Competitive Risks section of Item 1A. Risk Factors in our 2022 Annual Report on Form 10-K for additional information associated with the risk related to FDA approval of IPX203.
AvKARE
Our AvKARE segment provides pharmaceuticals, medical and surgical products and services primarily to governmental agencies.agencies, predominantly focused on the U.S. Department of Defense and the U.S. Department of Veterans Affairs. AvKARE is a re-packager of bottle and unit dose pharmaceuticals under the registered names of AvKARE and AvPAK, which service the Department of Defense and Department of Veteran Affairs as well as institutional customers.AvPAK. AvKARE is also a wholesale distributor of pharmaceuticals, over the counter productsdrugs and medical supplies to its retail and institutional customers whichthat are located throughout the U.S. focused primarily on offering 340b-qualified entities products to provide consistency in care and pricing.
The Pharmaceutical Industry
The pharmaceutical industry is highly competitive and highly regulated. As a result, we face a number of industry-specific factors and challenges, which can significantly impact our results. For a more detailed explanation of our business and its risks, refer to our 20222023 Annual Report on Form 10-K, as supplemented by Part II, Item 1A “Risk Factors” of our subsequent Quarterly Reports on Form 10-Q.
Inflation
While it is difficult to accurately measure the impact of inflation, we estimate our business will experience an increase in costs due to inflation of approximately $15.0 million to $20.0 million for the year ending December 31, 2023,2024, excluding the impact of rising interest rates. However,Notwithstanding our estimates, rising inflationary pressures due to higher input costs, including higher material, transportation, labor and other costs, could exceed our expectations, which would further adversely impact our operating results in future periods.
Uncertainties in Financial Markets
In March 2023, certain U.S. and international government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on our operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, our ability to access cash or enter into new financing arrangements on favorable terms, or at all, may be threatened, which could have a material adverse effect on our business, financial condition and results of operations.
Results of Operations
Comparison of Three Months Ended June 30, 2023 to Three Months Ended June 30, 2022
Consolidated Results
The following table sets forth our summarized, consolidated results of operations for the three months ended June 30,March 31, 2024 and 2023 and 2022 (in thousands):
| | Three Months Ended June 30, | | Increase (Decrease) |
| 2023 | | 2022 | | $ | | % |
| Three Months Ended March 31, | | | Three Months Ended March 31, | | Increase (Decrease) |
| 2024 | | | 2024 | | 2023 | | $ | | % |
Net revenue | Net revenue | $ | 599,046 | | | $ | 559,355 | | | $ | 39,691 | | | 7.1 | % | Net revenue | $ | 659,191 | | | $ | | $ | 557,540 | | | $ | | $ | 101,651 | | | 18.2 | | 18.2 | % |
Cost of goods sold | Cost of goods sold | 379,025 | | | 358,836 | | | 20,189 | | | 5.6 | % | Cost of goods sold | 421,131 | | | 379,354 | | 379,354 | | | 41,777 | | 41,777 | | | 11.0 | | 11.0 | % |
Gross profit | Gross profit | 220,021 | | | 200,519 | | | 19,502 | | | 9.7 | % | Gross profit | 238,060 | | | 178,186 | | 178,186 | | | 59,874 | | 59,874 | | | 33.6 | | 33.6 | % |
Selling, general and administrative | Selling, general and administrative | 105,570 | | | 98,806 | | | 6,764 | | | 6.8 | % | Selling, general and administrative | 112,595 | | | 102,096 | | 102,096 | | | 10,499 | | 10,499 | | | 10.3 | | 10.3 | % |
Research and development | Research and development | 37,799 | | | 50,748 | | | (12,949) | | | (25.5) | % | Research and development | 39,298 | | | 38,690 | | 38,690 | | | 608 | | 608 | | | 1.6 | | 1.6 | % |
Intellectual property legal development expenses | Intellectual property legal development expenses | 820 | | | 821 | | | (1) | | | (0.1) | % | Intellectual property legal development expenses | 984 | | | 1,644 | | 1,644 | | | (660) | | (660) | | | (40.1) | | (40.1) | % |
Acquisition, transaction-related and integration expenses | — | | | 241 | | | (241) | | | (100.0) | % |
Restructuring and other charges | Restructuring and other charges | 82 | | | — | | | 82 | | | nm | Restructuring and other charges | 1,470 | | | 510 | | 510 | | | 960 | | 960 | | | 188.2 | | 188.2 | % |
Change in fair value of contingent consideration | Change in fair value of contingent consideration | (6,364) | | | (270) | | | (6,094) | | | nm | Change in fair value of contingent consideration | 100 | | | 2,457 | | 2,457 | | | (2,357) | | (2,357) | | | (95.9) | | (95.9) | % |
Insurance recoveries for property losses and associated expenses | — | | | (1,911) | | | 1,911 | | | (100.0) | % |
Charges related to legal matters, net | 2,017 | | | 251,877 | | | (249,860) | | | (99.2) | % |
Other operating expense (income) | 13 | | | (1,175) | | | 1,188 | | | nm |
Operating income (loss) | 80,084 | | | (198,618) | | | 278,702 | | | (140.3) | % |
Charges (credit) related to legal matters, net | | Charges (credit) related to legal matters, net | 94,359 | | | (436) | | | 94,795 | | | nm |
Other operating income | | Other operating income | — | | | (1,224) | | | 1,224 | | | (100.0) | % |
Operating (loss) income | | Operating (loss) income | (10,746) | | | 34,449 | | | (45,195) | | | nm |
Total other expense, net | Total other expense, net | (50,424) | | | (34,113) | | | (16,311) | | | 47.8 | % | Total other expense, net | (64,776) | | | (43,875) | | (43,875) | | | (20,901) | | (20,901) | | | 47.6 | | 47.6 | % |
Income (loss) before income taxes | 29,660 | | | (232,731) | | | 262,391 | | | (112.7) | % |
(Benefit from) provision for income taxes | (23) | | | 7,350 | | | (7,373) | | | (100.3) | % |
Net income (loss) | $ | 29,683 | | | $ | (240,081) | | | $ | 269,764 | | | (112.4) | % |
Loss before income taxes | | Loss before income taxes | (75,522) | | | (9,426) | | | (66,096) | | | nm |
Provision for income taxes | | Provision for income taxes | 6,156 | | | 668 | | | 5,488 | | | nm |
Net loss | | Net loss | $ | (81,678) | | | $ | (10,094) | | | $ | (71,584) | | | nm |
nm - not meaningful
Net Revenue
Net revenue for the three months ended June 30, 2023March 31, 2024 increased 7.1%18.2% from the prior year period primarily due to:
•Growth in our Generics segment net revenue of $8.8$47.5 million primarily due to new genericsgeneric products launched in 2024 and 2023, and 2022which include biosimilars that contributed revenue$24.6 million and other new generic products that contributed $19.2 million of year-over-year growth of $11.2 million, the launch of biosimilars and strong volume growth, partially offset by continued price erosion. Net revenue for the three months ended March 31, 2023 included a non-recurring customer order of $21.0 million.
•Growth in our AvKARE segment net revenue of $30.9$40.6 million, due to primarily driven by growth in our distribution and government label channels driven byresulting from growth in new product introductions.
•Growth in our Specialty segment net revenue of $97.0$13.6 million primarily driven by a $9.4 million increase in our promoted neurology portfolio, of which $4.0 million was flat compared tocomprised of sales of ONGENTYS®, which launched during the prior year period asfirst quarter of 2024, and growth in Unithroid®our promoted endocrinology portfolio of 23.6% was$4.6 million, partially offset by a 4.2% decline in Rytary® due to timing of shipments as we continue to experience strong total prescription growth and a declinedeclines in our non-promoted products.
Cost of Goods Sold and Gross Profit
Cost of goods sold increased 11.0% 5.6% for the three months ended June 30, 2023March 31, 2024 as compared to the prior year period. The increase in cost of goods sold was primarily due to increased AvKARE and Generics volume acrossand increased plant costs, partially offset by efficiencies in our supply costs. Cost of goods sold for the three months ended March 31, 2023 included $11.0 million associated with the non-recurring customer order in our Generics and AvKARE segments and product mix.segment discussed above.
Gross profit as a percentage of net revenue increased to 36.7%36.1% for the three months ended June 30, 2023March 31, 2024 from 35.8%32.0% in the prior year period primarily as a result of the factors noted above.
Selling, General, and Administrative
Selling, general, and administrative (“SG&A”) expenses for the three months ended June 30, 2023March 31, 2024 increased 6.8% from10.3% as compared to the prior year period primarily due to increases in employee compensation, promotion associated with
ONGENTYS® and higher freight charges driven by increased sales volume.our planned launch of IPX203, and annual fees assessed on branded prescription drug manufacturers, which are also applicable to certain of our generic products.
Research and Development
Research and development (“R&D”) expenses for the three months ended June 30, 2023 decreased 25.5%March 31, 2024 increased 1.6% as compared to the prior year period primarily due to an increase in in-licensing and upfront milestone payments of $3.5 million, partially offset by lower project spend of $8.8$1.4 million partially resulting from timing of regulatory filing fees and operating efficiencies in our infrastructure.
Change in Fair Value of Contingent Consideration
Refer to Note 17. 15. Fair Value Measurements for information about the estimation of our contingent consideration liabilities. The $6.1 million decreasechange in the change in fair value of contingent consideration for the three months ended June 30,March 31, 2024 was immaterial. The $2.5 million change in the fair value of contingent consideration for the three months ended March 31, 2023 as compared to the prior year period was primarily driven by a decrease in our cost of debt and the associated forecasted revenues.passage of time.
Insurance Recoveries for Property Losses and Associated Expenses
During the three months ended June 30, 2022, insurance recoveries of $1.9 million associated with property damage and inventory losses were received and recorded in insurance recoveries for property losses and associated expenses.
Charges (Credit) Related to Legal Matters, Net
For the three months ended June 30,March 31, 2024, we recorded a charge for Generics civil prescription opioid litigation of $94.4 million. For the three months ended March 31, 2023, we recorded a chargenet credit of $2.0$0.4 million for civil prescription opioid litigation. For the three months ended June 30, 2022, we recorded a net charge of $251.9 million primarily consisting of a chargelitigation settlement gain, partially offset by charges for the settlement of Opana® ER antitrust litigation of $262.8 million, net of insurance recoveries associated with a securities class action settled during 2022.legal proceedings. Refer to Note 17. Commitments and Contingencies for additional information.
Total Other Expense, Net
Total other expense, net for the three months ended June 30, 2023March 31, 2024 increased 47.8%47.6% as compared to the prior year period. ThisThe increase was primarily driven by a $15.2$16.4 million increase in interest expense as a result of higher rates on our variable rate debt and increased amounts outstanding on our revolving credit facilities.variable-rate debt.
(Benefit From) Provision For Income Taxes
For the three months ended June 30, 2023, the Company’s benefit fromMarch 31, 2024, our provision for income taxes and effective tax rate were both immaterial,$6.2 million and (8.2)%, respectively, as compared to a provision for income taxes of $0.7 million and an effective tax rate of $7.4 million and (3.2)(7.1)%, respectively, for the three months ended June 30, 2022. TheMarch 31, 2023. The period-over-period changechanges in the provision for income taxes wasand effective tax rate were primarily related to a changechanges in the jurisdictional mix of income and a discrete benefit as a result of the completion of an Internal Revenue Service examination and Joint Committee review of the 2012-2018 federal income tax returns, which enabled the Company to recognize previously unrecognized tax benefits during the three months ended June 30, 2022.
Generics
The following table sets forth results of operations for our Generics segment for the three months ended June 30,March 31, 2024 and 2023 and 2022 (in thousands):
| | Three Months Ended June 30, | | Increase (Decrease) |
| 2023 | | 2022 | | $ | | % |
| Three Months Ended March 31, | | | Three Months Ended March 31, | | Increase (Decrease) |
| 2024 | | | 2024 | | 2023 | | $ | | % |
Net revenue | Net revenue | $ | 373,701 | | | $ | 364,895 | | | $ | 8,806 | | | 2.4 | % | Net revenue | $ | 391,294 | | | $ | | $ | 343,806 | | | $ | | $ | 47,488 | | | 13.8 | | 13.8 | % |
Cost of goods sold | Cost of goods sold | 225,189 | | | 228,535 | | | (3,346) | | | (1.5) | % | Cost of goods sold | 239,922 | | | 230,551 | | 230,551 | | | 9,371 | | 9,371 | | | 4.1 | | 4.1 | % |
Gross profit | Gross profit | 148,512 | | | 136,360 | | | 12,152 | | | 8.9 | % | Gross profit | 151,372 | | | 113,255 | | 113,255 | | | 38,117 | | 38,117 | | | 33.7 | | 33.7 | % |
Selling, general and administrative | Selling, general and administrative | 28,040 | | | 26,558 | | | 1,482 | | | 5.6 | % | Selling, general and administrative | 33,085 | | | 27,600 | | 27,600 | | | 5,485 | | 5,485 | | | 19.9 | | 19.9 | % |
Research and development | Research and development | 31,108 | | | 44,174 | | | (13,066) | | | (29.6) | % | Research and development | 34,371 | | | 32,359 | | 32,359 | | | 2,012 | | 2,012 | | | 6.2 | | 6.2 | % |
Intellectual property legal development expenses | Intellectual property legal development expenses | 801 | | | 778 | | | 23 | | | 3.0 | % | Intellectual property legal development expenses | 960 | | | 1,624 | | 1,624 | | | (664) | | (664) | | | (40.9) | | (40.9) | % |
Acquisition, transaction-related and integration expenses | — | | | 8 | | | (8) | | | nm |
Insurance recoveries for property losses and associated expenses | — | | | (1,911) | | | 1,911 | | | (100.0) | % |
Charges related to legal matters, net | 2,017 | | | 483 | | | 1,534 | | | 317.6 | % |
Other operating expense (income) | 13 | | | (1,175) | | | 1,188 | | | nm |
Operating income | $ | 86,533 | | | $ | 67,445 | | | $ | 19,088 | | | 28.3 | % |
Restructuring and other charges | | Restructuring and other charges | — | | | 99 | | | (99) | | | (100.0) | % |
Charges (credit) related to legal matters, net | | Charges (credit) related to legal matters, net | 94,359 | | | (2,444) | | | 96,803 | | | nm |
Other operating income | | Other operating income | — | | | (1,224) | | | 1,224 | | | (100.0) | % |
Operating (loss) income | | Operating (loss) income | $ | (11,403) | | | $ | 55,241 | | | $ | (66,644) | | | (120.6) | % |
nm - not meaningful
Net Revenue
Generics net revenue for the three months ended June 30, 2023March 31, 2024 increased 2.4%13.8% as compared to the prior year period primarily due to new genericsgeneric products launched in 2024 and 2023, and 2022which include biosimilars that contributed revenue$24.6 million and other new generic products that contributed $19.2 million of year-over-year growth of $11.2 million, the launch of biosimilars and strong volume growth, partially offset by continued price erosion. Net revenue for the
three months ended March 31, 2023 included a non-recurring customer order of $21.0 million.
Cost of Goods Sold and Gross Profit
Generics cost of goods sold for the three months ended June 30, 2023 decreased 1.5%March 31, 2024 increased 4.1% as compared to the prior year period primarily due to lower intangible asset impairment charges and favorable product mix, partially offset by the costs associated with increased sales volume and an increased inventory provision.plant costs, partially offset by efficiencies in our supply costs.Cost of goods sold for the three months ended March 31, 2023 included $11.0 million associated with the non-recurring customer order discussed above.
Generics gross profit as a percentage of net revenue increased to 39.7%38.7% for the three months ended June 30, 2023March 31, 2024 from 37.4%32.9% in the prior year period primarily as a result of the factors noted above.
Selling, General, and Administrative
Generics SG&A expense for the three months ended June 30, 2023March 31, 2024 increased 5.6%19.9% as compared to the prior year period primarily due to an increaseincreases in employee compensation, promotion associated with our biosimilars, and higher freight charges due to increased sales volume, partially offset by lower legal fees.the annual fees assessed on branded prescription drug manufacturers.
Research and Development
Generics R&D expenses for the three months ended June 30, 2023 decreased 29.6%March 31, 2024 increased 6.2% as compared to the prior year period primarily due to a decreasean increase in in-licensing and upfront milestone payments of $3.5 million, partially offset by reduced project spend of $7.9$0.8 million partially due to timing of regulatory filing fees and operating efficiencies in our infrastructure.
Insurance Recoveries for Property Losses and Associated Expenses
During the three months ended June 30, 2022, insurance recoveries of $1.9 million associated with property damage and inventory losses were received and recorded in insurance recoveries for property losses and associated expenses.
Charges (Credit) Related to Legal Matters, Net
For the three months ended June 30, 2023,March 31, 2024, we recorded a charge of $2.0 million for Generics civil prescription opioid litigation. Charges related to legal matters, net forlitigation of $94.4 million. For the three months ended June 30, 2022 were immaterial.
March 31, 2023, a litigation settlement gain was partially offset by charges for legal proceedings. Refer to
Note 17. Commitments and Contingencies
for additional information.
Specialty
The following table sets forth results of operations for our Specialty segment for the three months ended June 30,March 31, 2024 and 2023 and 2022 (in thousands):
| | Three Months Ended June 30, | | Increase (Decrease) |
| 2023 | | 2022 | | $ | | % |
| Three Months Ended March 31, | | | Three Months Ended March 31, | | Increase (Decrease) |
| 2024 | | | 2024 | | 2023 | | $ | | % |
Net revenue | Net revenue | $ | 96,994 | | | $ | 97,001 | | | $ | (7) | | | nm | Net revenue | $ | 105,234 | | | $ | | $ | 91,678 | | | $ | | $ | 13,556 | | | 14.8 | | 14.8 | % |
Cost of goods sold | Cost of goods sold | 46,512 | | | 42,791 | | | 3,721 | | | 8.7 | % | Cost of goods sold | 44,800 | | | 43,191 | | 43,191 | | | 1,609 | | 1,609 | | | 3.7 | | 3.7 | % |
Gross profit | Gross profit | 50,482 | | | 54,210 | | | (3,728) | | | (6.9) | % | Gross profit | 60,434 | | | 48,487 | | 48,487 | | | 11,947 | | 11,947 | | | 24.6 | | 24.6 | % |
Selling, general and administrative | Selling, general and administrative | 22,759 | | | 23,171 | | | (412) | | | (1.8) | % | Selling, general and administrative | 25,196 | | | 22,379 | | 22,379 | | | 2,817 | | 2,817 | | | 12.6 | | 12.6 | % |
Research and development | Research and development | 6,691 | | | 6,574 | | | 117 | | | 1.8 | % | Research and development | 4,927 | | | 6,331 | | 6,331 | | | (1,404) | | (1,404) | | | (22.2) | | (22.2) | % |
Intellectual property legal development expenses | Intellectual property legal development expenses | 19 | | | 43 | | | (24) | | | (55.8) | % | Intellectual property legal development expenses | 24 | | | 20 | | 20 | | | 4 | | 4 | | | 20.0 | | 20.0 | % |
Acquisition, transaction-related and integration expenses | — | | | 32 | | | (32) | | | (100.0) | % |
Restructuring and other charges | Restructuring and other charges | 82 | | | — | | | 82 | | | nm | Restructuring and other charges | 946 | | | — | | — | | | 946 | | 946 | | | nm | | nm |
Change in fair value of contingent consideration | Change in fair value of contingent consideration | (6,364) | | | (270) | | | (6,094) | | | nm | Change in fair value of contingent consideration | 100 | | | 2,457 | | 2,457 | | | (2,357) | | (2,357) | | | (95.9) | | (95.9) | % |
Operating income | Operating income | $ | 27,295 | | | $ | 24,660 | | | $ | 2,635 | | | 10.7 | % | Operating income | $ | 29,241 | | | $ | | $ | 17,300 | | | $ | | $ | 11,941 | | | 69.0 | | 69.0 | % |
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Net Revenue
Specialty net revenue for the three months ended June 30, 2023 was flatMarch 31, 2024 increased 14.8% compared to the prior year period, asprimarily driven by a $9.4 million increase in our promoted neurology portfolio, of which $4.0 million was comprised of sales of ONGENTYS®, which launched during the first quarter of 2024, and growth in Unithroid®our promoted endocrinology portfolio of 23.6% was$4.6 million, partially offset by a 4.2% decline in Rytary® due to timing of shipments as we continue to experience strong total prescription growth and a declinedeclines in our non-promoted products.
Cost of Goods Sold and Gross Profit
Specialty cost of goods sold for the three months ended June 30, 2023March 31, 2024 increased 8.7%3.7% as compared to the prior year period.period, primarily due to an increase in volumes, partially offset by favorable product mix. Specialty gross profit as a percentage of net revenue decreasedincreased to 52.0%57.4% for the three months ended June 30, 2023 from 55.9%March 31, 2024 as compared to 52.9% in the prior year period primarily due to unfavorable product mix.growth in our higher margin promoted products.
Selling, General, and Administrative
Specialty SG&A expense for the three months ended June 30, 2023 decreased 1.8%March 31, 2024 increased 12.6% as compared to the prior year period primarily due to a decreaseincreases in third party marketing spend forpromotional costs associated with ONGENTYS® and our promoted products, partially offset by increased compensation costs.planned launch of IPX203 and an increase in the annual fees assessed on branded prescription drug manufacturers.
Research and Development
Specialty R&D expenses for the three months ended June 30, 2023 increased 1.8%March 31, 2024 decreased 22.2% as compared to the prior year period primarily due to higher employee compensation and overhead costs, partially offset by reduced project spend.spend of $0.6 million and reduced infrastructure costs.
Change in Fair Value of Contingent Consideration
Refer to Note 17. 15. Fair Value Measurements for information about the estimation of our contingent consideration liabilities. The $6.1 million increasechange in the change in fair value of contingent consideration for the three months ended June 30,March 31, 2024 was immaterial. The $2.5 million change in the fair value of contingent consideration for the three months ended March 31, 2023 as compared to the prior year period was primarily driven by a decrease in our cost of debt and the related liability as a resultpassage of a decrease in the associated forecasted revenues.time.
AvKARE
The following table sets forth results of operations for our AvKARE segment for the three months ended June 30,March 31, 2024 and 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Increase (Decrease) |
| 2023 | | 2022 | | $ | | % |
Net revenue | $ | 128,351 | | | $ | 97,459 | | | $ | 30,892 | | | 31.7 | % |
Cost of goods sold | 107,324 | | | 87,510 | | | 19,814 | | | 22.6 | % |
Gross profit | 21,027 | | | 9,949 | | | 11,078 | | | 111.3 | % |
Selling, general and administrative | 14,015 | | | 12,735 | | | 1,280 | | | 10.1 | % |
Operating income (loss) | $ | 7,012 | | | $ | (2,786) | | | $ | 9,798 | | | (351.7) | % |
Net Revenue
AvKARE net revenue for the three months ended June 30, 2023 increased 31.7% as compared to the prior year period primarily due to growth in our distribution and government channels driven by new product introductions.
Cost of Goods Sold and Gross Profit
AvKARE cost of goods sold for the three months ended June 30, 2023 increased 22.6% as compared to the prior year period, and gross profit as a percentage of net revenue increased to 16.4% for the three months ended June 30, 2023 from 10.2% in the prior year period primarily due to the increase in sales through our higher margin government channel and a lower inventory provision.
Selling, General and Administrative
AvKARE SG&A expense for the three months ended June 30, 2023 increased 10.1% as compared to the prior year period primarily due to higher employee compensation.
Comparison of Six Months Ended June 30, 2023 to Six Months Ended June 30, 2022
Consolidated Results
The following table sets forth our summarized, consolidated results of operations for the six months ended June 30, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Increase (Decrease) |
| 2023 | | 2022 | | $ | | % |
Net revenue | $ | 1,156,586 | | | $ | 1,056,988 | | | $ | 99,598 | | | 9.4 | % |
Cost of goods sold | 758,379 | | | 681,898 | | | 76,481 | | | 11.2 | % |
Gross profit | 398,207 | | | 375,090 | | | 23,117 | | | 6.2 | % |
Selling, general and administrative | 207,666 | | | 197,471 | | | 10,195 | | | 5.2 | % |
Research and development | 76,489 | | | 103,546 | | | (27,057) | | | (26.1) | % |
Intellectual property legal development expenses | 2,464 | | | 1,585 | | | 879 | | | 55.5 | % |
Acquisition, transaction-related and integration expenses | — | | | 675 | | | (675) | | | (100.0) | % |
Restructuring and other charges | 592 | | | 731 | | | (139) | | | (19.0) | % |
Change in fair value of contingent consideration | (3,907) | | | (70) | | | (3,837) | | | nm |
Insurance recoveries for property losses and associated expenses | — | | | (1,911) | | | 1,911 | | | (100.0) | % |
Charges related to legal matters, net | 1,581 | | | 249,551 | | | (247,970) | | | (99.4) | % |
Other operating income | (1,211) | | | (1,175) | | | (36) | | | 3.1 | % |
Operating income (loss) | 114,533 | | | (175,313) | | | 289,846 | | | (165.3) | % |
Total other expense, net | (94,299) | | | (67,339) | | | (26,960) | | | 40.0 | % |
Income (loss) before income taxes | 20,234 | | | (242,652) | | | 262,886 | | | (108.3) | % |
Provision for income taxes | 645 | | | 3,889 | | | (3,244) | | | (83.4) | % |
Net income (loss) | $ | 19,589 | | | $ | (246,541) | | | $ | 266,130 | | | (107.9) | % |
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Net Revenue
Net revenue for the six months ended June 30, 2023 increased 9.4% from the prior year period primarily due to:
•Growth in our Generics segment of $34.9 million primarily due to new generics products launched in 2023 and 2022 that contributed net revenue growth of $20.7 million, the launch of biosimilars and volume growth, partially offset by continued price erosion. Net revenue for the six months ended June 30, 2023 included a non-recurring customer order of $21.0 million.
•Growth in Specialty segment net revenue of $6.6 million primarily driven by increases in net revenue of 30.0% and 4.2% in our promoted products Unithroid® and Rytary®, respectively, resulting from continued strong prescription growth and favorable pricing.
•Growth in our AvKARE segment net revenue of $58.1 million primarily driven by growth in our distribution, government label and institutional channels driven by growth in new product introductions.
Cost of Goods Sold and Gross Profit
Cost of goods sold increased 11.2%for the six months ended June 30, 2023 as compared to the prior year period. The increase in cost of goods sold was primarily due to increased AvKARE volume and an increase in the inventory provision. Cost of goods sold for the six months ended June 30, 2023 included $11.0 million associated with the non-recurring customer order in our Generics segment discussed above.
Gross profit as a percentage of net revenue decreased to 34.4% for the six months ended June 30, 2023 from 35.5% in the prior year period primarily as a result of the factors noted above.
Selling, General, and Administrative
SG&A expenses for the six months ended June 30, 2023 increased 5.2% from the prior year period primarily due to increases in employee compensation, higher freight charges driven by increased sales volume and higher costs associated with our biosimilar launches, partially offset by a decrease of $5.0 million associated with a regulatory approval in the prior year period.
Research and Development
R&D expenses for the six months ended June 30, 2023 decreased 26.1% compared to the prior year period primarily due to reduced project spend of $12.5 million, a decrease in in-licensing and upfront milestone payments of $5.6 million, and operating efficiencies in our infrastructure.
Intellectual Property Legal Development Expense
Intellectual property legal development expenses include, but are not limited to, costs associated with formulation assessments, patent challenge opinions and strategy, and litigation expenses to defend our intellectual property. Intellectual property legal development expenses for the six months ended June 30, 2023 and 2022 were $2.5 million and $1.6 million, respectively. Expenses may vary based on the number of individual cases and corresponding litigation outstanding in a particular period.
Change in Fair Value of Contingent Consideration
Refer to Note 17. Fair Value Measurements for information about the estimation of our contingent consideration liabilities. The $3.8 million decrease in the change in fair value of contingent consideration (income) for the six months ended June 30, 2023 as compared to the prior year period was primarily driven by a decrease in the related liability as a result of a decrease in the associated forecasted revenues.
Insurance Recoveries for Property Losses and Associated Expenses
During the six months ended June 30, 2022, insurance recoveries of $1.9 million associated with property damage and inventory losses were received and recorded in insurance recoveries for property losses and associated expenses.
Charges Related to Legal Matters, Net
For the six months ended June 30, 2023, charges related to legal matters, net was $1.6 million, primarily comprised of $4.1 million in charges associated with prescription opioid litigation, offset by a litigation settlement gain. For the six months ended June 30, 2022, we recorded a net charge of $249.6 million primarily comprised of charges associated with Opana® ER antitrust litigation, net of insurance recoveries associated with a securities class action.
Other Operating Income
Other operating income for the six months ended June 30, 2023 and 2022 was comprised of income earned from the India Production Linked Incentive Scheme for the Pharmaceutical Sector. Refer to Note 6. Government Grants for additional information.
Total Other Expense, Net
Total other expense, net for the six months ended June 30, 2023 increased 40.0% as compared to the prior year period. The increase was primarily driven by a $31.2 million increase in interest expense as a result of higher rates on our variable rate debt and increased amounts outstanding on our revolving credit facilities.
Provision For Income Taxes
For the six months ended June 30, 2023 and 2022, our provision for income taxes and effective tax rates were $0.6 million and 3.2% and $3.9 million and (1.6)%, respectively. The period-over-period change was primarily related to a change in the jurisdictional mix of income and a discrete benefit resulting from of the completion of an Internal Revenue Service examination and Joint Committee review of the 2012-2018 federal income tax returns, which enabled the Company to recognize previously unrecognized tax benefits in the six months ended June 30, 2022.
Generics
The following table sets forth results of operations for our Generics segment for the six months ended June 30, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Increase (Decrease) |
| 2023 | | 2022 | | $ | | % |
Net revenue | $ | 717,507 | | | $ | 682,642 | | | $ | 34,865 | | | 5.1 | % |
Cost of goods sold | 455,740 | | | 427,565 | | | 28,175 | | | 6.6 | % |
Gross profit | 261,767 | | | 255,077 | | | 6,690 | | | 2.6 | % |
Selling, general and administrative | 55,640 | | | 54,151 | | | 1,489 | | | 2.7 | % |
Research and development | 63,467 | | | 87,395 | | | (23,928) | | | (27.4) | % |
Intellectual property legal development expenses | 2,425 | | | 1,550 | | | 875 | | | 56.5 | % |
Acquisition, transaction-related and integration expenses | — | | | 8 | | | (8) | | | (100.0) | % |
Restructuring and other charges | 99 | | | 206 | | | (107) | | | nm |
Insurance recoveries for property losses and associated expenses | — | | | (1,911) | | | 1,911 | | | (100.0) | % |
(Credit) charges related to legal matters, net | (427) | | | 2,157 | | | (2,584) | | | (119.8) | % |
Other operating income | (1,211) | | | (1,175) | | | (36) | | | 3.1 | % |
Operating income | $ | 141,774 | | | $ | 112,696 | | | $ | 29,078 | | | 25.8 | % |
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Net Revenue
Generics net revenue for the six months ended June 30, 2023 increased 5.1% compared to the prior year period primarily due to favorable timing of new generics products launched in 2023 and 2022 that contributed net revenue growth of $20.7 million, the launch of biosimilars and volume growth, partially offset by continued price erosion. Net revenue for the six months ended June 30, 2023 included a non-recurring customer order of $21.0 million.
Cost of Goods Sold and Gross Profit
Generics cost of goods sold for the six months ended June 30, 2023 increased 6.6% as compared to the prior year period primarily due to the costs associated with increased sales volume and an increased inventory provision. Cost of goods sold for the six months ended June 30, 2023 included $11.0 million associated with the non-recurring customer order discussed above.
Generics gross profit as a percentage of net revenue decreased to 36.5% for the six months ended June 30, 2023 from 37.4% in the prior year period primarily as a result of the factors noted above.
Selling, General, and Administrative
Generics SG&A expense for the six months ended June 30, 2023 increased 2.7% compared to the prior year period primarily due to an increase in employee compensation, higher freight charges driven by increased sales volume and costs associated with our biosimilar launches, partially offset by a decrease of $5.0 million associated with a biosimilar regulatory approval in the prior year period.
Research and Development
Generics R&D expenses for the six months ended June 30, 2023 decreased 27.4% compared to the prior year period primarily due to reduced project spend of $10.3 million, decreased in-licensing and upfront milestone payments of $3.1 million and operating efficiencies in our infrastructure, including reduced employee compensation costs.
Intellectual Property Legal Development Expenses
Intellectual property legal development expenses include, but are not limited to, costs associated with formulation assessments, patent challenge opinions and strategy, and litigation expenses to defend our intellectual property. Intellectual property legal development expenses for the six months ended June 30, 2023 and 2022 were $2.4 million and $1.6 million, respectively. Expenses may vary based on the number of individual cases and corresponding litigation outstanding in a particular period.
Insurance Recoveries for Property Losses and Associated Expenses
During the six months ended June 30, 2022, insurance recoveries of $1.9 million associated with property damage and inventory losses were received and recorded in insurance recoveries for property losses and associated expenses.
(Credit) Charges Related to Legal Matters, Net
For the six months ended June 30, 2023, a litigation settlement gain was partially offset by $4.1 million of charges associated with prescription opioid litigation. For the six months ended June 30, 2022, we recorded charges of $2.2 million for employment and other legal proceedings.
Other Operating Income
Other operating income for the six months periods ended June 30, 2023 and 2022 was comprised of income earned from the India Production Linked Incentive Scheme for the Pharmaceutical Sector. Refer to Note 6. Government Grants for additional information.
Specialty
The following table sets forth results of operations for our Specialty segment for the six months ended June 30, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Increase (Decrease) |
| 2023 | | 2022 | | $ | | % |
Net revenue | $ | 188,672 | | | $ | 182,087 | | | $ | 6,585 | | | 3.6 | % |
Cost of goods sold | 89,703 | | | 86,644 | | | 3,059 | | | 3.5 | % |
Gross profit | 98,969 | | | 95,443 | | | 3,526 | | | 3.7 | % |
Selling, general and administrative | 45,138 | | | 47,571 | | | (2,433) | | | (5.1) | % |
Research and development | 13,022 | | | 16,151 | | | (3,129) | | | (19.4) | % |
Intellectual property legal development expenses | 39 | | | 35 | | | 4 | | | 11.4 | % |
Acquisition, transaction-related and integration expenses | — | | | 32 | | | (32) | | | (100.0) | % |
Restructuring and other charges | 82 | | | — | | | 82 | | | nm |
Change in fair value of contingent consideration | (3,907) | | | (70) | | | (3,837) | | | nm |
Operating income | $ | 44,595 | | | $ | 31,724 | | | $ | 12,871 | | | 40.6 | % |
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Net Revenue
Specialty net revenue for the six months ended June 30, 2023 increased 3.6% compared to the prior year period, primarily driven by increases in net revenue of 30.0% and 4.2% in our promoted products Unithroid® and Rytary®, respectively, resulting from continued strong prescription growth and favorable pricing.
Cost of Goods Sold and Gross Profit
Specialty cost of goods sold for the six months ended June 30, 2023 increased 3.5% as compared to the prior year period, primarily due to an increase in net revenue. Specialty gross profit as a percentage of net revenue was flat at 52.5% for the six months ended June 30, 2023 as compared to 52.4% in the prior year period.
Selling, General, and Administrative
Specialty SG&A expense for the six months ended June 30, 2023 decreased 5.1% as compared to the prior year period primarily due to a decrease in third party marketing spend for our promoted products.
Research and Development
Specialty R&D expenses for the six months ended June 30, 2023 decreased 19.4% as compared to the prior year period primarily due to a decrease in in-licensing and upfront milestone payments of $2.5 million.
Change in Fair Value of Contingent Consideration
Refer to Note 17. Fair Value Measurements for information about the estimation of our contingent consideration liabilities. The $3.8 million decrease in the change in fair value of contingent consideration (income) for the six months ended June 30, 2023 as compared to the prior year period was primarily driven by a decrease in the related liability as a result of a decrease in the corresponding forecasted revenues.
AvKARE
The following table sets forth results of operations for our AvKARE segment for the six months ended June 30, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Increase (Decrease) |
| 2023 | | 2022 | | $ | | % |
Net revenue | $ | 250,407 | | | $ | 192,259 | | | $ | 58,148 | | | 30.2 | % |
Cost of goods sold | 212,936 | | | 167,689 | | | 45,247 | | | 27.0 | % |
Gross profit | 37,471 | | | 24,570 | | | 12,901 | | | 52.5 | % |
Selling, general and administrative | 26,955 | | | 26,145 | | | 810 | | | 3.1 | % |
Operating income (loss) | $ | 10,516 | | | $ | (1,575) | | | $ | 12,091 | | | nm |
nm - not meaningful | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Increase (Decrease) |
| 2024 | | 2023 | | $ | | % |
Net revenue | $ | 162,663 | | | $ | 122,056 | | | $ | 40,607 | | | 33.3 | % |
Cost of goods sold | 136,409 | | | 105,612 | | | 30,797 | | | 29.2 | % |
Gross profit | 26,254 | | | 16,444 | | | 9,810 | | | 59.7 | % |
Selling, general and administrative | 14,907 | | | 12,940 | | | 1,967 | | | 15.2 | % |
Operating income | $ | 11,347 | | | $ | 3,504 | | | $ | 7,843 | | | 223.8 | % |
Net Revenue
AvKARE net revenue for the sixthree months ended June 30, 2023March 31, 2024 increased 30.2%33.3% as compared to the prior year period primarily driven by growth in our distribution and government label and institutional channels resulting from growth in new product introductions.
Cost of Goods Sold and Gross Profit
AvKARE cost of goods sold for the sixthree months ended June 30, 2023March 31, 2024 increased 27.0%29.2% as compared to the prior year period, and gross profit as a percentage of net revenue increased to 15.0%16.1% for the sixthree months ended June 30, 2023March 31, 2024 from 12.8%13.5% in the prior year period, primarily due to the increase in sales through our higher margin government channel.channel, including higher margin new product introductions.
Selling, General and Administrative
AvKARE SG&A expense for the sixthree months ended June 30, 2023March 31, 2024 increased 3.1%15.2% as compared to the prior year period primarily due to higher employee compensation.compensation and sales-related expenses.
Liquidity and Capital Resources
Our primary source of liquidity is cash generated from operations, available cash on hand, and borrowings under debt financing arrangements including $245.9 million of available capacity, as of June 30, 2023, on our New Revolving Credit Facility, as(as defined and discussed in Note 16. Debt in our 20222023 Annual Report on Form 10-K. Refer10-K). We have access to Note 16. Debt in our 2022 Annual Report on Form 10-K for additional information on our debt.$397.7 million of available capacity under the Amended New Revolving Credit Facility and As of June 30, 2023, there was $10.0$28.0 million of available capacity under the Amended Rondo Revolving Credit Facility.Facility as of March 31, 2024. We believe these sources are sufficient to fund our planned operations, meet our interest and contractual obligations, including acquisitions, and provide sufficient liquidity over the next 12 months from the date of filing of this Form 10-Q. However, our ability to satisfy our working capital requirements and debt obligations will depend upon economic conditions, our ability to negotiate and maintain satisfactory terms under our borrowing and debt facilities in the future, 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 R&D expenses associated with new product filings, and pharmaceutical product manufacturing expenses, license payments, spending on production facility expansions, capital equipment, acquisitions, and legal settlements.
We estimate that we will invest approximately $50.0$60.0 million to $60.0$70.0 million during 20232024 for capital expenditures to support and grow our existing operations, primarily related to investments in manufacturing equipment, information technology and facilities.
During the six months ended June 30, 2023, we prepaid $27.8 million of principal outstanding on the Rondo Term Loan. Debt Instruments
Over the next 12 months, we expect to make substantial payments, including a $50.0 million payment associated with the Opana ER® antitrust litigation settlement agreements, monthly interest and quarterly principal amounts due for our debt instruments, includingTerm Loan Due 2028, monthly interest on our Term Loan Due 2025 and Rondo Term Loan, as well asAmended New Credit Facility, and contractual payments for leased premises. Refer to Note 16. Debt
and, Note 18. Leases,and Commitments and Contractual Obligations under Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 20222023 Annual Report on Form 10-K and Note 15. Debt in this Form 10-Q for additional information on our indebtedness and leases, respectively.
Settlement in Principle on Nationwide Civil Prescription Opioid Litigation
We are partyIn late April 2024, we reached a settlement in principle on the primary financial terms, with no admission of wrongdoing, for a nationwide resolution to the opioids cases that have been filed and that might have been filed against us by states, counties, municipalities, and Native American tribes across the U.S. Refer to Note 17. Commitments and Contingencies for additional information.
Tax Receivable Agreement
In 2018, we entered into a tax receivablereceivable agreement (“TRA”) that requires usfor which we were generally required to make cash payments topay the Members other thanholders of Amneal Common Units 85% of the Company,applicable tax savings, if any, in respect of certainU.S. federal and state income tax benefits that we may realize or may bewere deemed to realize as a result of sales or exchangescertain tax attributes of their Amneal Common Units bysold to us (or exchanged in a taxable sale) and that are created as a result of (i) the Members. sales of their Amneal Common Units for shares of Class A common stock and (ii) tax benefits attributable to payments made under the TRA. As part of the Reorganization (as defined in Note 1. Nature of Operations in our 2023 Annual Report on Form 10-K), the TRA was amended to reduce our future obligation to pay 85% of the realized tax benefits subject to the TRA to 75% of such realized benefits. As of December 31, 2023, the contingent TRA liability, including the impact of the amendment, was approximately $185.0 million.
The timing and amount of any payments under the TRA will alsomay vary, depending upon a number of factors including the timing and number of Amneal Common Units sold or exchanged for our class A common stock, the price of our class A common stock on the date of sale or exchange, the timing and amount of our taxable income, and the corporate tax rate in effect at the time of realization of our taxable income. Theincome (the TRA also requires that we make an accelerated paymentliability is determined based on a percentage of the corporate tax savings from the use of the TRA’s attributes). Because the Amneal Group (as defined in Item 1. Business in the Company’s 2023 Annual Report on Form 10-K) has exchanged all of its Amneal Common Units pursuant to the Members equalReorganization, the primary remaining factor that could increase the contingent TRA liability is an increase in the effective tax rate. Since the combined rate for federal and state and local income taxes, as of March 31, 2024, has not changed significantly since December 31, 2023, the contingent TRA liability has not changed significantly from the year end amount described above. In addition, any future payments under the TRA may create additional basis adjustments, which may result in an additional layer of depreciation and amortization allocable to the present valueCompany, resulting in additional TRA payments. The timing and amount of all future payments duemay also be accelerated under the agreement upon certain conditions, such as a change of control and similar transactions. Further sales or exchanges occurring subsequentother early termination event, which could give rise to June 30, 2023 could resultour obligation to make TRA payments in future Amneal advance of
tax deductions and obligations to pay 85% of such benefits to the holders of Amneal Common Units. These obligations could be incremental to and substantially larger than the approximate $202.7 million contingent liability as of June 30, 2023 (refer to Note 7.Income Taxes). As a result of the foregoing, our obligations under the TRA could have a substantial negative impact on our liquidity.being realized. For further details,information, refer to Item 1A. Risk Factors in our 20222023 Annual Report on Form 10-K.10-K and Note 5. Income Taxes in this Form 10-Q.
In addition, pursuant
Tax-Related Distributions
Prior to the limited liability operating agreement of Reorganization, Amneal as amended, in connection with any tax period, we will be requiredwas obligated to make tax distributions to Amneal's members, onthe group, together with their affiliates and certain assignees, who owned Amneal when it was a pro rata basis in proportionprivate company (the “Members”). During the three months ended March 31, 2023, the Company recorded net tax distributions to the numberMembers of Amneal Common Units held by each member,$26.8 million as a reduction of cash until each member (other than Amneal) has received an amount at least equal to its assumed tax liability and Amneal has received an amount sufficient to enable it to timely satisfy all of its U.S. federal, state and local and non-U.S. tax liabilities, and meet its obligations pursuantnon-controlling interests. Subsequent to the TRA. DuringReorganization, the six months ended June 30, 2023 and 2022, we made cashCompany is no longer obligated to make tax distributions of $29.73 million and $7.33 million (net), respectively, to the Members. During July 2023, we made cash tax distributions of $17.7 million.
In 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”). The sellers of AvKARE, LLC and R&S (the “AvKARE Sellers”) hold the remaining 34.9% interest in the holding company that directly owns the acquired companies (“Rondo”). We attribute 34.9% of the net income or loss associated with Rondo to redeemable non-controlling interests. During the sixthree months ended June 30,March 31, 2024 and 2023, and 2022, we made cash tax distributions of $5.83$0.6 million and $2.59$0.2 million, respectively, to the AvKARE Sellers. During April 2024, we made cash tax distributions of $3.7 million to the AvKARE Sellers.
Cash Balances
As of June 30, 2023,March 31, 2024, our cash and cash equivalents consist of cash on deposit and highly liquid investments. A portion of our cash flows are derived outside the U.S. 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 U.S. 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
The following table sets forth our summarized, consolidated cash flows for the sixthree months ended June 30,March 31, 2024 and 2023 and 2022 (in thousands):
| | Six Months Ended June 30, | | Increase (Decrease) |
| 2023 | | 2022 | | $ | | % |
Cash provided by (used in): | | | | | | | |
| Three Months Ended March 31, | | | Three Months Ended March 31, | | Increase (Decrease) |
| 2024 | | | 2024 | | 2023 | | $ | | % |
Net cash (used in) provided by: | |
Operating activities | |
Operating activities | |
Operating activities | Operating activities | $ | 128,367 | | | $ | (5,178) | | | $ | 133,545 | | | nm | $ | (4,410) | | | $ | | $ | 139,712 | | | $ | | $ | (144,122) | | | (103.2) | | (103.2) | % |
Investing activities | Investing activities | (24,021) | | | (113,511) | | | 89,490 | | | (78.8) | % | Investing activities | (19,760) | | | (11,737) | | (11,737) | | | (8,023) | | (8,023) | | | 68.4 | | 68.4 | % |
Financing activities | Financing activities | (25,156) | | | (38,321) | | | 13,165 | | | (34.4) | % | Financing activities | (23,155) | | | (12,900) | | (12,900) | | | (10,255) | | (10,255) | | | 79.5 | | 79.5 | % |
Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | 165 | | | (1,547) | | | 1,712 | | | (110.7) | % | Effect of exchange rate changes on cash | (165) | | | 767 | | 767 | | | (932) | | (932) | | | (121.5) | | (121.5) | % |
Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 79,355 | | | $ | (158,557) | | | $ | 237,912 | | | (150.0) | % |
Net (decrease) increase in cash, cash equivalents, and restricted cash | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $ | (47,490) | | | $ | 115,842 | | | $ | (163,332) | | | nm |
nm - not meaningful
Cash Flows from Operating Activities
Net cash used in operating activities was $4.4 million for the three months ended March 31, 2024 as compared to net cash provided by operating activities was $128.4of $139.7 million for the six months ended June 30, 2023 as compared to $5.2 million used in operating activities for the prior year period. The increasedecrease in net operating cash flows fromin the three months ended March 31, 2024 as compared to the prior year period was primarily driven by increased profitability adjusted for non-cash items, favorable(i) lower collections of outstanding accounts receivable due to timing of sales in the quarter ended December 31, 2022, which benefited the three months ended March 31, 2023 and (ii) receipt of a $14.5$21.4 million decreaseupfront payment associated with the license agreement with Orion Corporation in cashthe three months ended March 31, 2023, partially offset by (i) lower period over period payments related toassociated with the Opana ER® antitrust litigation settlement agreements.and (ii) favorable working capital movements.
Cash Flows from Investing Activities
Net cash used in investing activities for the sixthree months ended June 30, 2023March 31, 2024 was $24.0$19.8 million as compared to $113.5$11.7 million forin the prior year period. The decreaseperiod over period increase in net cash used in investing activities from the prior year period was primarily due to $84.7 millionthe
payment of cash paida sales-based milestone related to acquire the baclofen franchise from entities affiliatedlicensing and supply agreement with Saol International Limited during the prior year period.mAbxience S.L. for its biosimilar candidate for Avastin® (bevacizumab).
Cash Flows from Financing Activities
Net cash used in financing activities was $25.2$23.2 million for the sixthree months ended June 30, 2023March 31, 2024 as compared to $38.3$12.9 million forin the prior year period. The decreaseperiod over period increase in net cash used in financing activities from the prior year period was primarily due to a $44.0 million payment for deferred consideration associated with(i) net payments of principal on debt and other financing liabilities in the acquisitions of Kashiv Specialty Pharmaceuticals, LLC and Puniska Healthcare Pvt. Ltd.three months ended March 31, 2024 as compared to net borrowings in the prior year period lower prepayments on the Rondo Term Loan, and (ii) an increase in net borrowings under our revolving credit facilities,employee payroll tax withholding on restricted stock unit vesting, partially offset by a $25.6 million increaseperiod over period decrease in tax distributions to non-controlling interests. Refer to Note 15. Debt in this Form 10-Q and Note 16. Debt in our 2022 Annual Report on Form 10-K for details of our debt, including defined terms.
Commitments and Contractual Obligations
TheOur contractual obligations of the Company are set forth in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s 2022our 2023 Annual Report on Form 10-K. As of June 30, 2023,March 31, 2024, there have been no material changes to the disclosure presented in our 20222023 Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2023.March 31, 2024.
Critical Accounting Policies and Estimates
For a discussion of the Company’sour critical accounting policies and estimates, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 20222023 Annual Report on Form 10-K. There have been no material changes to the disclosures presented in our 20222023 Annual Report on Form 10-K.
Recently Issued Accounting Standards
Recently issued accounting standards are discussed in Note 2. Summary of Significant Accounting Policies.Policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has not been any material change in our assessment of market risk as set forth in Item 7A. Quantitative and Qualitative Disclosures About Market Risk, in our 20222023 Annual Report on Form 10-K.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our Co-Chief Executive Officers and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Co-Chief Executive Officers and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2023.March 31, 2024.
Changes in Internal Control over Financial Reporting
During the quarter ended June 30, 2023,March 31, 2024, there were no changes in our internal control over financial reporting which materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Management, including our Co-Chief Executive Officers and Chief Financial Officer, does not expect that our disclosure controls and procedures or our system of internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can provide only reasonable, but not absolute, assurance that the objectives of the system of internal control are met. The design of our control system reflects the fact that there are resource constraints, and that the benefits of such control system must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control failures and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the intentional acts of individuals, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part on certain assumptions about the likelihood of future events, and there can be no assurance that the design of any particular control will always succeed in achieving its objective under all potential future conditions.
Part II – OTHER INFORMATION
Item 1. Legal Proceedings
Information pertaining to legal proceedings can be found in Note 19.17. Commitments and Contingencies and is incorporated by reference herein.
Item 1A. Risk Factors
There have been no material changes to the disclosures presented in our 20222023 Annual Report on Form 10-K under Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
On May 9, 2023, the stockholders of the Company approved an amendment and restatement of the Amneal Pharmaceuticals, Inc. 2018 Incentive Award Plan (the “Stock Plan”), which (1) authorizes an additional 20 million shares of Class A common stock available for issuance under the Stock Plan, resulting in a new Share (as defined in the Stock Plan) reserve under the Stock Plan of 57 million shares, (2) extends the term of the Stock Plan until May 9, 2033, and (3) contains certain other technical modifications to the predecessor plan. The material terms of the Stock Plan are summarized in the Company’s Proxy Statement for the 2023 Annual Meeting of Stockholders of the Company as filed with the Securities and Exchange Commission on March 24, 2023 (the “2023 Proxy Statement”) under the heading “Proposal 4 Approval of Amended and Restated Incentive
Award Plan”. The foregoing description of the Stock Plan is qualified in its entirety by reference to the actual terms of the Stock Plan, as amended, which is filed hereto as Exhibit 10.1.None.
Item 6. Exhibits
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101 | | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023March 31, 2024 formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for each of the three and six months ended June 30,March 31, 2024 and 2023, and 2022, (ii) Consolidated Statements of Comprehensive Income (Loss)Loss for each of the three and six months ended June 30,March 31, 2024 and 2023, and 2022, (iii) Consolidated Balance Sheets as of June 30, 2023March 31, 2024 and December 31, 2022,2023, (iv) Consolidated Statements of Cash Flows for the sixthree months ended June 30,March 31, 2024 and 2023, and 2022, (v) Consolidated Statements of Changes in Stockholders' Equity (Deficiency) for each of the three and six months ended June 30,March 31, 2024 and 2023 and 2022 and (vi) Notes to Consolidated Financial Statements.* |
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104 | | Cover Page Interactive Data File – The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023March 31, 2024 is formatted in Inline XBRL (included as Exhibit 101). |
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* | Filed herewith | |
** | This certificate is being furnished solely to accompany the report pursuant to 18 U.S.C. 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. | |
† | Denotes management compensatory plan or arrangement. | |
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.
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Date: AugustMay 8, 20232024 | Amneal Pharmaceuticals, Inc. |
| | (Registrant) |
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| By: | /s/ Anastasios Konidaris |
| | Anastasios Konidaris |
| | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |