Amphastar Pharmaceuticals (AMPH) 10-Q 2021 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

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 001-36509

AMPHASTAR PHARMACEUTICALS, INC.

(Exact name of Registrant as specified in its charter)

Delaware	33-0702205
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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

(909) 980-9484

(Registrant’s telephone number, including area code)

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 (§ 232.405 of this chapter) 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  ⌧

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

T
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	AMPH	The NASDAQ Stock Market LLC

The number of shares outstanding of the registrant’s only class of common stock as of November 2, 2021 was 47,849,145.

AMPHASTAR PHARMACEUTICALS, INC.

TABLE OF CONTENTS

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

Part I. FINANCIAL INFORMATION
	PAGE
Item 1. Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	1
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020	2
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2021 and 2020	3
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020	4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3. Quantitative and Qualitative Disclosure about Market Risk	43
Item 4. Controls and Procedures	43
Part II. OTHER INFORMATION
Item 1. Legal Proceedings	44
Item 1A. Risk Factors	44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3. Defaults Upon Senior Securities	48
Item 4. Mine Safety Disclosures	48
Item 5. Other Information	48
Item 6. Exhibits	49
Signatures	50

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

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

● our expectations regarding the sales and marketing of our products;

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

● the impact of the COVID-19 pandemic and related responses of business and governments to the pandemic on our operations and personnel, and on commercial activity and demand across our business operations and results of operations;

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

● global, national and local economic and market conditions, specifically with respect to geopolitical uncertainty, and the COVID-19 pandemic;

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

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

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

● our expectations regarding the business expansion plans for our Chinese subsidiary, Amphastar Nanjing Pharmaceuticals, Inc., or ANP, including its restructuring;

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

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

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

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

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

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

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

● the potential for exposure to product liability claims;

● future acquisitions, divestitures or investments, including the anticipated benefits of such acquisitions, divestitures or investments;

● our ability to expand internationally;

● economic and industry trends and trend analysis;

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

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

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

● the impact of global and domestic tax reforms, including the Tax Cuts and Jobs Act of 2017, or the Tax Act, as amended by the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act;

● the timing for completion and the validation of the new construction at our ANP and Amphastar facilities;

● the timing and extent of share buybacks; and

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

You should read this Quarterly Report and the documents that we reference elsewhere in this Quarterly Report completely and with the understanding that our actual results may differ materially from what we expect as expressed or implied by our forward-looking statements. In light of the significant risks and uncertainties to which our forward-looking statements are subject, you should not place

undue reliance on or regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. In particular, the extent of COVID-19’s impact on our business will depend on several factors, including the severity, duration and extent of the pandemic, all of which continue to evolve and remain uncertain at this time. We discuss many of these risks and uncertainties in greater detail in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2020, particularly in Item 1A. “Risk Factors.” These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report regardless of the time of delivery of this Quarterly Report, and such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report.

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

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	September 30,		December 31,
	2021		2020
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	106,610	$	92,642
Restricted cash		235		1,865
Short-term investments		8,021		12,977
Restricted short-term investments		2,200		2,200
Accounts receivable, net		78,090		66,005
Inventories		100,240		96,831
Income tax refunds and deposits		520		385
Prepaid expenses and other assets		7,755		6,777
Total current assets		303,671		279,682
Property, plant, and equipment, net		242,924		260,055
Finance lease right-of-use assets		428		612
Operating lease right-of-use assets		27,663		20,042
Equity method investment		4,193		—
Goodwill and intangible assets, net		39,192		40,615
Other assets		11,610		5,250
Deferred tax assets		21,996		24,980
Total assets	$	651,677	$	631,236
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	88,911	$	95,504
Income taxes payable		3,960		1,077
Current portion of long-term debt		2,256		12,263
Current portion of operating lease liabilities		2,862		3,357
Total current liabilities		97,989		112,201
Long-term reserve for income tax liabilities		4,709		4,709
Long-term debt, net of current portion and unamortized debt issuance costs		75,552		34,186
Long-term operating lease liabilities, net of current portion		25,466		17,464
Deferred tax liabilities		2,901		741
Other long-term liabilities		14,884		13,212
Total liabilities		221,501		182,513
Commitments and contingencies
Stockholders’ equity:
Preferred stock: par value $0.0001; 20,000,000 shares authorized; no shares issued and outstanding		—		—
Common stock: par value $0.0001; 300,000,000 shares authorized; 56,051,662 and 47,982,690 shares issued and outstanding as of September 30, 2021 and 54,760,922 and 47,495,439 shares issued and outstanding as of December 31, 2020, respectively		6		5
Additional paid-in capital		412,917		410,061
Retained earnings		160,577		117,773
Accumulated other comprehensive loss		(6,277)		(3,721)
Treasury stock		(137,047)		(121,812)
Total Amphastar Pharmaceuticals, Inc. stockholders’ equity		430,176		402,306
Non-controlling interests		—		46,417
Total equity		430,176		448,723
Total liabilities and stockholders’ equity	$	651,677	$	631,236

See Accompanying Notes to Condensed Consolidated Financial Statements.

-1-

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share data)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net revenues	$	112,198	$	83,431	$	316,881	$	253,925
Cost of revenues		61,015		46,923		173,376		147,417
Gross profit		51,183		36,508		143,505		106,508
Operating expenses:
Selling, distribution, and marketing		4,745		3,673		13,411		10,993
General and administrative		10,910		11,674		40,813		38,344
Research and development		10,759		17,644		43,646		49,096
Total operating expenses		26,414		32,991		97,870		98,433
Income from operations		24,769		3,517		45,635		8,075
Non-operating income:
Interest income		141		161		444		512
Interest expense		(527)		(175)		(717)		(286)
Other income, net		13,263		3,575		11,615		3,078
Total non-operating income, net		12,877		3,561		11,342		3,304
Income before income taxes		37,646		7,078		56,977		11,379
Income tax provision		6,686		2,285		13,436		4,490
Net income	$	30,960	$	4,793	$	43,541	$	6,889
Net income (loss) attributable to non-controlling interests	$	1,412	$	874	$	1,185	$	(787)
Net income attributable to Amphastar Pharmaceuticals, Inc.	$	29,548	$	3,919	$	42,356	$	7,676
Net income per share attributable to Amphastar Pharmaceuticals, Inc. stockholders:
Basic	$	0.62	$	0.08	$	0.89	$	0.16
Diluted	$	0.59	$	0.08	$	0.85	$	0.16
Weighted-average shares used to compute net income per share attributable to Amphastar Pharmaceuticals, Inc. stockholders:
Basic		48,022		47,496		47,758		46,886
Diluted		50,009		49,848		49,693		48,922

See Accompanying Notes to Condensed Consolidated Financial Statements.

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AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; in thousands)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net income attributable to Amphastar Pharmaceuticals, Inc.	$	29,548	$	3,919	$	42,356	$	7,676
Other comprehensive income (loss) attributable to Amphastar Pharmaceuticals, Inc., net of income taxes
Reclassification of adjustment for amounts included in net income		(362)		—		(362)		—
Foreign currency translation adjustment		(984)		695		(2,194)		209
Total other comprehensive income (loss) attributable to Amphastar Pharmaceuticals, Inc.		(1,346)		695		(2,556)		209
Total comprehensive income attributable to Amphastar Pharmaceuticals, Inc.	$	28,202	$	4,614	$	39,800	$	7,885

See Accompanying Notes to Condensed Consolidated Financial Statements.

-3-

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited; in thousands, except share data)

	Common Stock							Accumulated		Treasury Stock			Total
				Additional				Other					Amphastar		Non-
				Paid-in		Retained		Comprehensive					Stockholders'		controlling
	Shares	Amount		Capital		Earnings		loss		Shares	Amount		Equity		Interest		Total
Balance as of December 31, 2020	54,760,922	$	5	$	410,061	$	117,773	$	(3,721)	(7,265,483)	$	(121,812)	$	402,306	$	46,417	$	448,723
Net income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		5,041		—	—		—		5,041		—		5,041
Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		—		(1,921)	—		—		(1,921)		—		(1,921)
Net loss attributable to non-controlling interest	—		—		—		—		—	—		—		—		(1,082)		(1,082)
Purchase of treasury stock	—		—		—		—		—	(204,698)		(3,783)		(3,783)		—		(3,783)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(49)		—		—	4,184		49		—		—		—
Issuance of common stock in connection with the Company's equity plans	423,078		1		(853)		—		—	—		—		(852)		—		(852)
Share-based compensation expense	—		—		4,767		—		—	—		—		4,767		67		4,834
Balance as of March 31, 2021	55,184,000	$	6	$	413,926	$	122,814	$	(5,642)	(7,465,997)	$	(125,546)	$	405,558	$	45,402	$	450,960
Net income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		7,767		—	—		—		7,767		—		7,767
Other comprehensive income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		—		711	—		—		711		—		711
Net income attributable to non-controlling interest	—		—		—		—		—	—		—		—		855		855
Purchase of treasury stock	—		—		—		—		—	(298,727)		(5,560)		(5,560)		—		(5,560)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(142)		—		—	12,064		142		—		—		—
Issuance of common stock in connection with the Company's equity plans	552,209		—		7,247		—		—	—		—		7,247		—		7,247
Share-based compensation expense	—		—		6,270		—		—	—		—		6,270		(1,027)		5,243
Balance as of June 30, 2021	55,736,209	$	6	$	427,301	$	130,581	$	(4,931)	(7,752,660)	$	(130,964)	$	421,993	$	45,230	$	467,223
Net income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		29,548		—	—		—		29,548		—		29,548
Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		—		(984)	—		—		(984)		—		(984)
ANP restructuring (see Note 3)	—		—		(22,162)		448		(362)	—		—		(22,076)		(46,642)		(68,718)
Net income attributable to non-controlling interest	—		—		—		—		—	—		—		—		1,412		1,412
Purchase of treasury stock	—		—		—		—		—	(317,212)		(6,094)		(6,094)		—		(6,094)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(11)		—		—	900		11		—		—		—
Issuance of common stock in connection with the Company's equity plans	315,413		—		3,869		—		—	—		—		3,869		—		3,869
Share-based compensation expense	—		—		3,920		—		—	—		—		3,920		—		3,920
Balance as of September 30, 2021	56,051,622	$	6	$	412,917	$	160,577	$	(6,277)	(8,068,972)	$	(137,047)	$	430,176	$	—	$	430,176

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AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited; in thousands, except share data)

	Common Stock							Accumulated		Treasury Stock			Total
				Additional				Other					Amphastar		Non-
				Paid-in		Retained		Comprehensive					Stockholders'		controlling
	Shares	Amount		Capital		Earnings		loss		Shares	Amount		Equity		Interest		Total
Balance as of December 31, 2019	52,495,483	$	5	$	367,305	$	116,370	$	(4,687)	(5,918,515)	$	(97,627)	$	381,366	$	46,162	$	427,528
Net income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		3,949		—	—		—		3,949		—		3,949
Other comprehensive loss attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		—		(774)	—		—		(774)		—		(774)
Net loss attributable to non-controlling interest	—		—		—		—		—	—		—		—		(424)		(424)
Purchase of treasury stock	—		—		—		—		—	(647,246)		(10,950)		(10,950)		—		(10,950)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(84)		—		—	6,873		84		—		—		—
Issuance of common stock in connection with the Company's equity plans	369,508		—		(1,238)		—		—	—		—		(1,238)		—		(1,238)
Share-based compensation expense	—		—		5,161		—		—	—		—		5,161		121		5,282
Balance as of March 31, 2020	52,864,991	$	5	$	371,144	$	120,319	$	(5,461)	(6,558,888)	$	(108,493)	$	377,514	$	45,859	$	423,373
Net loss attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		(192)		—	—		—		(192)		—		(192)
Other comprehensive income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		—		288	—		—		288		—		288
Net loss attributable to non-controlling interest	—		—		—		—		—	—		—		—		(1,237)		(1,237)
Purchase of treasury stock	—		—		—		—		—	(329,391)		(5,756)		(5,756)		—		(5,756)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(130)		—		—	10,913		130		—		—		—
Issuance of common stock in connection with the Company's equity plans	1,507,284		—		19,448		—		—	—		—		19,448		—		19,448
Share-based compensation expense	—		—		6,379		—		—	—		—		6,379		134		6,513
Balance as of June 30, 2020	54,372,275	$	5	$	396,841	$	120,127	$	(5,173)	(6,877,366)	$	(114,119)	$	397,681	$	44,756	$	442,437
Net income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		3,919		—	—		—		3,919		—		3,919
Other comprehensive income attributable to Amphastar Pharmaceuticals, Inc.	—		—		—		—		695	—		—		695		—		695
Acquisition of additional ownership interest in ANP	—		—		—		—		—	—		—		—		(106)		(106)
Net income attributable to non-controlling interest	—		—		—		—		—	—		—		—		874		874
Purchase of treasury stock	—		—		—		—		—	(214,256)		(4,329)		(4,329)		—		(4,329)
Issuance of treasury stock in connection with the Company's equity plans	—		—		(23)		—		—	2,000		23		—		—		—
Issuance of common stock in connection with the Company's equity plans	251,562		—		3,102		—		—	—		—		3,102		—		3,102
Share-based compensation expense	—		—		4,164		—		—	—		—		4,164		206		4,370
Balance as of September 30, 2020	54,623,837	$	5	$	404,084	$	124,046	$	(4,478)	(7,089,622)	$	(118,425)	$	405,232	$	45,730	$	450,962

See Accompanying Notes to Condensed Consolidated Financial Statements.

-5-

AMPHASTAR PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)

	Nine Months Ended
	September 30,
	2021		2020
Cash Flows From Operating Activities:
Net income	$	43,541	$	6,889
Reconciliation to net cash provided by operating activities:
Loss on disposal of assets		338		161
Gain on deconsolidation of subsidiary		(13,587)		—
Depreciation of property, plant, and equipment		16,800		14,946
Amortization of product rights, trademarks, and patents		930		771
Operating lease right-of-use asset amortization		2,471		2,693
Share-based compensation expense		14,837		16,165
Changes in deferred taxes, net		5,170		3,638
Changes in operating assets and liabilities:
Accounts receivable, net		(14,166)		(6,706)
Inventories		(5,768)		2,351
Prepaid expenses and other assets		2,463		(3,755)
Income tax refunds, deposits, and payable, net		2,832		(1,973)
Operating lease liabilities		(2,529)		(2,478)
Accounts payable and accrued liabilities		4,221		7,671
Net cash provided by operating activities		57,553		40,373
Cash Flows From Investing Activities:
Purchases and construction of property, plant, and equipment		(20,578)		(24,526)
Purchase of short-term investments		(12,459)		(10,930)
Maturity of short-term investments		17,423		11,891
Payment of deposits and other assets		(1,104)		(674)
Net cash used in investing activities		(16,718)		(24,239)
Cash Flows From Financing Activities:
Acquisition of additional ownership interest in ANP		—		(106)
ANP restructuring (see Note 3)		(53,592)		—
Proceeds from equity plans, net of withholding tax payments		10,264		21,312
Purchase of treasury stock		(15,437)		(21,035)
Settlement of ANP equity awards		(839)		—
Debt issuance costs		(1,430)		—
Proceeds from borrowing under lines of credit		—		1,072
Repayments under lines of credit		(1,161)		—
Proceeds from issuance of long-term debt		70,000		3,067
Principal payments on long-term debt		(36,127)		(6,329)
Net cash used in financing activities		(28,322)		(2,019)
Effect of exchange rate changes on cash		(175)		110
Net increase in cash, cash equivalents, and restricted cash		12,338		14,225
Cash, cash equivalents, and restricted cash at beginning of period		94,507		75,550
Cash, cash equivalents, and restricted cash at end of period	$	106,845	$	89,775
Noncash Investing and Financing Activities:
Capital expenditure included in accounts payable	$	6,246	$	6,477
Operating lease right-of-use assets	$	11,015	$	4,119
Equipment acquired under finance leases	$	107	$	61
Supplemental Disclosures of Cash Flow Information:
Interest paid, net of capitalized interest	$	1,868	$	1,678
Income taxes paid	$	5,480	$	2,807

See Accompanying Notes to Condensed Consolidated Financial Statements.

-6-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. General

Amphastar Pharmaceuticals, Inc., a Delaware corporation (together with its subsidiaries, hereinafter referred to as the “Company”) is a bio-pharmaceutical company that develops, manufactures, markets, and sells generic and proprietary injectable, inhalation, and intranasal products, including products with high technical barriers to market entry. Additionally, the Company sells insulin active pharmaceutical ingredient, or API, products. Most of the Company’s products are used in hospital or urgent care clinical settings and are primarily contracted and distributed through group purchasing organizations and drug wholesalers. The Company’s insulin API products are sold to other pharmaceutical companies for use in their own products and are being used by the Company in the development of injectable finished pharmaceutical products. The Company’s inhalation product, Primatene Mist^®, is primarily distributed through drug retailers.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2020 and the notes thereto as filed with the Securities and Exchange Commission, or SEC, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles, or GAAP, have been condensed or omitted from the accompanying condensed consolidated financial statements. The accompanying year-end condensed consolidated balance sheet was derived from the audited financial statements. The accompanying interim financial statements are unaudited, but reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the Company’s consolidated financial position, results of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the periods presented. Unless otherwise noted, all such adjustments are of a normal, recurring nature. The Company’s results of operations, comprehensive income (loss) and cash flows for the interim periods are not necessarily indicative of the results of operations and cash flows that it may achieve in future periods.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries, and are prepared in accordance with United States generally accepted accounting principles, or GAAP. Certain prior period amounts have been reclassified within the investing activities of the statement of cash flows to conform to the current period presentation. All intercompany activity has been eliminated in the preparation of the condensed consolidated financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly the consolidated financial position, results of operations, and cash flows of the Company.

The Company’s subsidiaries include: (1) International Medication Systems, Limited, or IMS, (2) Armstrong Pharmaceuticals, Inc., or Armstrong, (3) Amphastar Nanjing Pharmaceuticals Inc., or ANP, (4) Amphastar France Pharmaceuticals, S.A.S., or AFP, (5) Amphastar UK Ltd., or AUK, and (6) International Medication Systems (UK) Limited, or IMS UK.

COVID-19 Pandemic

The Company is subject to risks and uncertainties as a result of the ongoing novel coronavirus pandemic, or COVID-19. The complete extent of the impact of the COVID-19 pandemic on the Company’s business is highly uncertain and difficult to predict, as the information is constantly evolving. The Company considered the impact of COVID-19 on the assumptions and estimates used to determine the results reported and asset valuations as of September 30, 2021.

-7-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

All of the Company’s production facilities continued to operate during the quarter as they had prior to the COVID-19 pandemic with very little change, other than for enhanced safety measures intended to prevent the spread of the virus.

It is not possible at this time to estimate the complete impact that COVID-19 could have on the Company’s business, including its customers and suppliers, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. The Company will continue to monitor the impact of COVID-19 on all aspects of its business.

Investments in Unconsolidated Affiliates

The Company applies the equity method of accounting for investments when it has significant influence, but not controlling interest in the investee. Judgment regarding the level of influence over each equity method investment includes key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company’s proportionate share of the earnings or losses resulting from these investments is reported as “Equity in earnings of unconsolidated affiliates” in the consolidated statements of operations. Investments accounted for using the equity method may be reported on a lag of up to three months if financial statements of the investee are not available in sufficient time for the investor to apply the equity method as of the current reporting date. The determination of whether an investee’s results are recorded on a lag is made on an investment-by-investment basis.

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

The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. If the decline in value is considered to be other than temporary, the investment is written down to its estimated fair value, which establishes a new cost basis in the investment. The Company did not record any such impairment charges for all periods presented.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The principal accounting estimates include: determination of allowances for credit losses, fair value of financial instruments, allowance for discounts, provision for chargebacks and rebates, provision for product returns, adjustment of inventory to its net realizable values, impairment of long-lived and intangible assets and goodwill, workers’ compensation liabilities, litigation reserves, stock price volatilities for share-based compensation expense, valuation allowances for deferred tax assets, and liabilities for uncertain income tax positions.

Foreign Currency

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

The Company’s French subsidiary, AFP, maintains its book of record in euros. AUK’s subsidiary, IMS UK, maintains its book of record in British pounds. These local currencies have been determined to be the subsidiaries’ respective

-8-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

functional currencies. These books of record are translated into USD using average exchange rates during the period. Assets and liabilities are translated at the rate of exchange prevailing on the balance sheet date. Equity is translated at the prevailing rate of exchange at the date of the equity transactions. Translation adjustments are reflected in stockholders’ equity and are included as a component of other accumulated comprehensive income (loss). The unrealized gains or losses of intercompany foreign currency transactions that are of a long-term investment nature are reported in other accumulated comprehensive income (loss).

The unrealized gains or losses on intercompany foreign currency transactions that are of a long-term investment nature were a $0.9 million loss and a $1.9 million loss for the three and nine months ended September 30, 2021, respectively. For the three and nine months ended September 30, 2020, the unrealized gains on intercompany foreign currency transactions that are of a long-term investment nature were a $1.4 million.

Comprehensive Income (Loss)

For the three and nine months ended September 30, 2021 and 2020, the Company included its foreign currency translation gain or loss as part of its comprehensive income (loss). There was no material income tax expense (benefit) allocated to other comprehensive income (loss) for the three and nine months ended September 30, 2021. Income tax expense of $0.4 million was allocated to other comprehensive income for both the three and nine months ended September 30, 2020.

Advertising Expense

Advertising expenses, primarily associated with Primatene Mist^®, are recorded as they are incurred, except for expenses related to the development of a major commercial or media campaign, which are expensed in the period in which the commercial or campaign is first presented, and are reflected as a component of selling, distribution and marketing in the Company’s condensed consolidated statement of operations. For the three and nine months ended September 30, 2021, advertising expenses were $2.3 million and $6.4 million, respectively. For the three and nine months ended September 30, 2020, advertising expenses were $1.5 million and $3.9 million, respectively.

Financial Instruments

The carrying amounts of cash and cash equivalents, short-term investments, restricted cash and short-term investments, accounts receivable, accounts payable, accrued expenses, and short-term borrowings approximate fair value due to the short maturity of these items. The majority of the Company’s long-term obligations consist of variable rate debt, and their carrying value approximates fair value as the stated borrowing rates are comparable to rates currently offered to the Company for instruments with similar maturities. The Company at times enters into fixed interest rate swap contracts to exchange the variable interest rates for fixed interest rates without the exchange of the underlying notional debt amounts. Such interest rate swap contracts are recorded at their fair values.

Cash and Cash Equivalents

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

Short-Term Investments

Short-term investments as of September 30, 2021 and December 31, 2020 consisted of certificates of deposit and investment grade debt securities with original expiration dates within 12 months.

-9-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Restricted Cash

Restricted cash is collateral required for the Company to guarantee certain vendor payments in France. As of September 30, 2021 and December 31, 2020, the restricted cash balances were $0.2 million and $1.9 million, respectively.

Restricted Short-Term Investments

Restricted short-term investments consist of certificates of deposit that are collateral for standby letters of credit to qualify for workers’ compensation self-insurance. The certificates of deposit have original maturities greater than three months but less than one year. As of September 30, 2021 and December 31, 2020, the balance of restricted short-term investments was $2.2 million.

Deferred Income Taxes

The Company utilizes the liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statements and the tax basis of assets and liabilities using enacted tax rates. A valuation allowance is recorded when it is more likely than not that the deferred tax assets will not be realized.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended September 30, 2021 that are of significance or potential significance to the Company as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2021.

Note 3. ANP Restructuring

In July 2018, the Company’s Chinese subsidiary, ANP, completed a private placement of its common equity interest to accredited investors and received approximately $56.3 million of cash proceeds. The Company retained approximately 58% of the equity interest in ANP following the private placement and continues to consolidate the financial results of ANP with the Company’s results of operations.

In May 2021, the Company’s Board of Directors approved a plan for the restructuring of the equity ownership of ANP, whereby the Company purchased an additional ownership interest in ANP from certain equity holders of ANP, or the Sellers, and split-off certain subsidiaries of ANP. Under the terms of the restructuring plan, the Company entered into a Share Purchase Agreement, or SPA, with certain of the Sellers to acquire an approximately 18% additional ownership interest in ANP for approximately $29.4 million in cash. The Company also entered into a Share Repurchase Agreement, or SRA, with certain of the Sellers, whereby the Company contributed 80% of its ownership interest in Hanxin and Hanxin’s existing subsidiaries, Baixin and Letop, to the Sellers in exchange for an approximately 10% additional ownership interest in ANP. Following completion of these transactions, the Company ownership increased to approximately 85% of the equity interest in ANP.

In August 2021, the Company entered into a second Share Purchase Agreement, or Second SPA, with the sole remaining equity holder of ANP to acquire the remaining approximately 15% of ownership interest in ANP. The total cash payment by the Company for this transaction was approximately $22.5 million. Following completion of the transaction, the Company’s ownership of ANP increased to 100%.

-10-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Certain of the Sellers are the Company’s executive officers, directors and other related parties. The Sellers who participated in the SPA included executives of the Company William J. Peters, Rong Zhou, and Jacob Liawatidewi; directors of the Company Howard Lee and Richard Koo; relatives of Dr. Jack Zhang and Dr. Mary Luo, Henry Zhang, Qingqing Chen, Chongqing Zhang, Lu Zhang, and James Luo, or entities related to such persons.

The Sellers who participated in the SRA included Dr. Mary Luo and Dr. Jack Zhang through an affiliated party, and their family members Henry Zhang, Qingqing Chen, Chongqing Zhang, Bill Zhang, and Lu Zhang. Sellers who participated in the Second SPA include Dr. Mary Luo, Dr. Jack Zhang, through an affiliated party, and their family members Chongqing Zhang and Bill Zhang.

The restructuring of ANP was completed in the third quarter of 2021. As a result of the restructuring activities, the Company’s ownership interest in ANP was increased to 100%, and ANP’s ownership interest in Hanxin and its subsidiaries was reduced to approximately 20%.

The reduction of the Company’s ownership in Hanxin to 20%, resulted in ANP experiencing a “loss of control” of a subsidiary as defined by GAAP. Loss of control is deemed to have occurred when, among other things, a parent company owns less than a majority of the outstanding common stock in the subsidiary, lacks a controlling financial interest in the subsidiary and, is unable to unilaterally control the subsidiary through other means such as having, or being able to obtain, the power to elect a majority of the subsidiary's board of directors based solely on contractual rights or ownership of shares holding a majority of the voting power of the subsidiary's voting securities. These loss-of-control factors were met with respect to ANP’s ownership interest in Hanxin after the restructuring.

Accordingly, on completion of the SRA in the third quarter, the Company deconsolidated Hanxin and recorded a $13.6 million gain on deconsolidation, which is recognized in other income (expenses), net, in the consolidated statement of operations for the three and nine months ended September 30, 2021. Of the $13.6 million gain recorded, approximately $2.7 million related to the remeasurement of the retained noncontrolling investment in Hanxin. The remainder of the gain relates to the excess of the fair value the consideration received, over the book value of Hanxin’s net assets.

Hanxin continues to be a related party after the deconsolidation.

In addition to the retained noncontrolling investment in Hanxin, the Company maintains a seat on Hanxin’s board of directors, and Henry Zhang, a relative of Dr. Jack Zhang and Dr. Mary Luo, is an equity holder, general manager, and chairman of the board of directors of Hanxin. As a result, it was determined that the Company has significant influence over Hanxin and as such the retained noncontrolling investment in Hanxin is accounted for as an equity method investment.

As an equity method investment, the retained noncontrolling 20% investment in Hanxin was recorded at fair value in the amount of $4.2 million, which exceeds the amount of underlying equity in Hanxin’s net assets by $2.7 million. This basis difference was deemed to be a premium in excess of fair value, which is referred to as equity method goodwill, and is recorded within the “Equity Method Investment” line on the Company’s consolidated balance sheets. The fair value of the noncontrolling investment in Hanxin was determined using a discounted cash flow model using Level 3 inputs.

Subsequent to the restructuring, during the third quarter of 2021, Hanxin received additional capital contributions resulting in further reduction of ANP’s ownership to approximately 14%.

During the second quarter of 2021, in connection with the restructuring, the Company terminated the 2018 ANP Equity Incentive Plan. (See note 16)

-11-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4. Revenue Recognition

In accordance with Accounting Standard Codification, or ASC, 606 Revenue from Contracts with Customers, revenue is recognized at the time that the Company’s customers obtain control of the promised goods.

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

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

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

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

Revenues derived from contract manufacturing services are recognized when third-party products are shipped to customers, and after the customer has accepted test samples of the products to be shipped.

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

Provision for Chargebacks and Rebates

The provision for chargebacks and rebates is a significant estimate used in the recognition of revenue. Wholesaler chargebacks relate to sales terms under which the Company agrees to reimburse wholesalers for differences between the gross sales prices at which the Company sells its products to wholesalers and the actual prices of such products that wholesalers resell under the Company’s various contractual arrangements with third parties such as hospitals and group purchasing organizations in the United States. Rebates include primarily amounts paid to retailers, payers, and providers in the United States, including those paid to state Medicaid programs, and are based on contractual arrangements or statutory requirements. The Company estimates chargebacks and rebates using the expected value method at the time of sale to wholesalers based on wholesaler inventory stocking levels, historic chargeback and rebate rates, and current contract pricing.

-12-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The provision for chargebacks and rebates is reflected as a component of net revenues. The following table is an analysis of the chargeback and rebate provision:

	Nine Months Ended
	September 30,
	2021		2020
	(in thousands)
Beginning balance	$	20,380	$	21,644
Provision for chargebacks and rebates		151,174		110,763
Credits and payments issued to third parties		(154,143)		(113,576)
Ending balance	$	17,411	$	18,831

Changes in the chargeback provision from period to period are primarily dependent on the Company’s sales to its wholesalers, the level of inventory held by wholesalers, and the wholesalers’ customer mix. Changes in the rebate provision from period to period are primarily dependent on retailer’s and other indirect customers’ purchases. The approach that the Company uses to estimate chargebacks has been consistently applied for all periods presented. Variations in estimates have been historically small. The Company continually monitors the provision for chargebacks and rebates and makes adjustments when it believes that the actual chargebacks and rebates may differ from the estimates. The settlement of chargebacks and rebates generally occurs within 30 days to 60 days after the sale to wholesalers. Accounts receivable and/or accounts payable and accrued liabilities are reduced and/or increased by the chargebacks and rebate amounts depending on whether the Company has the right to offset with the customer. Of the provision for chargebacks and rebates as of September 30, 2021 and December 31, 2020, $13.5 million and $16.4 million were included in accounts receivable, net, on the condensed consolidated balance sheets, respectively. The remaining provision as of September 30, 2021 and December 31, 2020 of $3.9 million and $4.0 million, respectively, were included in accounts payable and accrued liabilities.

Accrual for Product Returns

The Company offers most customers the right to return qualified excess or expired inventory for partial credit; however, API product sales are generally non-returnable. The Company’s product returns primarily consist of the returns of expired products from sales made in prior periods. Returned products cannot be resold. At the time product revenue is recognized, the Company records an accrual for product returns estimated using the expected value method. The accrual is based, in part, upon the historical relationship of product returns to sales and customer contract terms. The Company also assesses other factors that could affect product returns including market conditions, product obsolescence, and the introduction of new competition. Although these factors do not normally give the Company’s customers the right to return products outside of the regular return policy, the Company realizes that such factors could ultimately lead to increased returns. The Company analyzes these situations on a case-by-case basis and makes adjustments to the product return reserve as appropriate.

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

	Nine Months Ended
	September 30,
	2021		2020
	(in thousands)
Beginning balance	$	14,204	$	10,339
Provision for product returns		11,714		9,084
Credits issued to third parties		(6,183)		(6,731)
Ending balance	$	19,735	$	12,692

-13-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Of the provision for product returns as of September 30, 2021 and December 31, 2020, $14.8 million and $10.2 million, were included in accounts payable and accrued liabilities on the condensed consolidated balance sheets, respectively. The remaining provision as of September 30, 2021 and December 31, 2020, of $4.9 million and $4.0 million, were included in other long-term liabilities, respectively. For the nine months ended September 30, 2021 and 2020, the Company’s aggregate product return rate was 1.7% and 1.3% of qualified sales, respectively.

Note 5. Income per Share Attributable to Amphastar Pharmaceuticals, Inc. Stockholders

Basic net income per share attributable to Amphastar Pharmaceuticals, Inc. stockholders is calculated based upon the weighted-average number of shares outstanding during the period. Diluted net income per share attributable to Amphastar Pharmaceuticals, Inc. stockholders gives effect to all potential dilutive shares outstanding during the period, such as stock options, non-vested restricted stock units and shares issuable under the Company’s Employee Stock Purchase Plan, or ESPP.

For the three and nine months ended September 30, 2021, options to purchase 1,885,093 and 2,045,878 shares of stock, respectively, with a weighted-average exercise price of $20.86 per share and $20.74 per share, respectively, were excluded from the computation of diluted net income per share attributable to Amphastar Pharmaceuticals, Inc. stockholders because the effect would be anti-dilutive.

For the three and nine months ended September 30, 2020, options to purchase 1,271,347 and 1,928,629 shares of stock, respectively, with a weighted-average exercise price of $21.35 per share and $20.84 per share, respectively, and the reallocation of net income attributable to non-controlling interests were excluded in the computation of diluted net income per common share attributable to Amphastar Pharmaceuticals, Inc. stockholders because the effect would be anti-dilutive.

The following table provides the calculation of basic and diluted net income per share attributable to Amphastar Pharmaceuticals, Inc. stockholders for each of the periods presented:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
	(in thousands, except per share data)
Basic and dilutive numerator:
Net income attributable to Amphastar Pharmaceuticals, Inc.	$	29,548	$	3,919	$	42,356	$	7,676
Denominator:
Weighted-average shares outstanding — basic		48,022		47,496		47,758		46,886
Net effect of dilutive securities:
Incremental shares from equity awards		1,987		2,352		1,935		2,036
Weighted-average shares outstanding — diluted		50,009		49,848		49,693		48,922
Net income per share attributable to Amphastar Pharmaceuticals, Inc. stockholders — basic	$	0.62	$	0.08	$	0.89	$	0.16
Net income per share attributable to Amphastar Pharmaceuticals, Inc. stockholders — diluted	$	0.59	$	0.08	$	0.85	$	0.16

-14-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 6. Segment Reporting

The Company’s business is the development, manufacture, and marketing of pharmaceutical products. The Company has identified 2 reporting segments that each report to the Chief Operating Decision Maker, or CODM, as defined in ASC 280, Segment Reporting. The Company’s performance is assessed and resources are allocated by the CODM based on the following two reportable segments:

● Finished pharmaceutical products

● API

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

Selected financial information by reporting segment is presented below:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
	(in thousands)
Net revenues:
Finished pharmaceutical products	$	108,990	$	81,335	$	301,594	$	243,568
API		3,208		2,096		15,287		10,357
Total net revenues		112,198		83,431		316,881		253,925
Gross profit (loss):
Finished pharmaceutical products		54,602		39,546		149,502		113,793
API		(3,419)		(3,038)		(5,997)		(7,285)
Total gross profit		51,183		36,508		143,505		106,508
Operating expenses		26,414		32,991		97,870		98,433
Income from operations		24,769		3,517		45,635		8,075
Non-operating income		12,877		3,561		11,342		3,304
Income before income taxes	$	37,646	$	7,078	$	56,977	$	11,379

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

-15-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
	(in thousands)
Finished pharmaceutical products net revenues:
Primatene Mist®	$	16,561	$	12,988	$	51,624	$	38,333
Epinephrine		13,892		5,370		38,662		16,317
Lidocaine		11,649		10,657		32,314		28,922
Glucagon		12,189		—		32,304		—
Phytonadione		11,591		10,470		31,577		32,188
Enoxaparin		8,034		11,647		28,020		31,033
Naloxone		8,028		8,739		20,994		26,337
Other finished pharmaceutical products		27,046		21,464		66,099		70,438
Total finished pharmaceutical products net revenues	$	108,990	$	81,335	$	301,594	$	243,568

The amount of depreciation and amortization expense included in cost of revenues, by reporting segments, is presented below:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
	(in thousands)
Depreciation and amortization expense
Finished pharmaceutical products	$	1,534	$	1,408	$	4,429	$	4,325
API		970		1,048		3,197		2,205
Total depreciation and amortization expense	$	2,504	$	2,456	$	7,626	$	6,530

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

	Net Revenue								Long-Lived Assets
	Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,		December 31,
	2021		2020		2021		2020		2021		2020
	(in thousands)
United States	$	107,829	$	79,407	$	302,192	$	242,370	$	134,684	$	129,401
China		2,554		1,959		4,801		2,482		89,385		98,538
France		1,815		2,065		9,888		9,073		46,946		52,770
Total	$	112,198	$	83,431	$	316,881	$	253,925	$	271,015	$	280,709

Note 7. Customer and Supplier Concentration

Customer Concentrations

NaN large wholesale drug distributors, AmerisourceBergen Corporation, or AmerisourceBergen, Cardinal Health, Inc., or Cardinal, and McKesson Corporation, or McKesson, are all distributors of the Company’s products, as well as suppliers of a broad range of health care products. The Company considers these 3 customers to be its major customers, as each individually, and these customers collectively, represented a significant percentage of the Company’s net revenue for the three and nine months ended September 30, 2021 and 2020, and accounts receivable as of September

-16-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

30, 2021 and December 31, 2020, respectively. The following table provides accounts receivable and net revenue information for these major customers:

	% of Total Accounts				% of Net
	Receivable				Revenue
					Three Months Ended				Nine Months Ended
	September 30,		December 31,		September 30,				September 30,
	2021		2020		2021		2020		2021		2020
AmerisourceBergen	15	%	9	%	25	%	23	%	24	%	23	%
McKesson	23	%	24	%	21	%	21	%	20	%	22	%
Cardinal Health	20	%	17	%	18	%	17	%	16	%	18	%

Supplier Concentrations

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

Note 8. Fair Value Measurements

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

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

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

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

As of September 30, 2021, cash equivalents include money market accounts. Short-term investments consist of certificates of deposit as well as investment-grade municipal bonds with original expiration dates within 12 months. The certificates of deposit are carried at amortized cost in the Company’s condensed consolidated balance sheet, which approximates their fair value determined based on Level 2 inputs. The corporate and municipal bonds are classified as held-to-maturity and are carried at amortized cost net of allowance for credit losses, which approximates their fair value determined based on Level 2 inputs. The restrictions on restricted cash and short-term investments have a negligible effect on the fair value of these financial assets.

-17-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The fair value of the Company’s financial assets and liabilities measured on a recurring basis as of September 30, 2021 and December 31, 2020, are as follows:

	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Cash equivalents - money market	$	82,146	$	82,146	$	—	$	—
Restricted cash - money market		235		235		—		—
Short-term investments - certificates of deposit		5,102		—		5,102		—
Restricted short-term investments - certificates of deposit		2,200		—		2,200		—
Corporate and municipal bonds		3,039		—		3,039		—
Interest rate swap liabilities related to variable rate loans		(279)		—		(279)		—
Fair value measurement as of September 30, 2021	$	92,443	$	82,381	$	10,062	$	—
Cash equivalents - money market	$	58,710	$	58,710	$	—	$	—
Restricted cash - money market		1,865		1,865		—		—
Short-term investments - certificates of deposit		9,089		—		9,089		—
Restricted short-term investments - certificates of deposit		2,200		—		2,200		—
Corporate and municipal bonds		3,855		—		3,855		—
Interest rate swap liabilities related to variable rate loans		(902)		—		(902)		—
Fair value measurement as of December 31, 2020	$	74,817	$	60,575	$	14,242	$	—

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

Nonfinancial assets and liabilities are not measured at fair value on a recurring basis but are subject to fair value adjustments in certain circumstances. These items primarily include investments in unconsolidated affiliates, long-lived assets, goodwill, and intangible assets for which the fair value is determined as part of the related impairment test. As of September 30, 2021, and December 31, 2020, there were no significant adjustments to fair value for nonfinancial assets or liabilities.

Note 9. Investments

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

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(in thousands)
Corporate bonds	$	513	$	—	$	(1)	$	512
Municipal bonds		2,527		—		—		2,527
Total investments as of September 30, 2021	$	3,040	$	—	$	(1)	$	3,039
Corporate bonds	$	1,560	$	—	$	(1)	$	1,559
Municipal bonds		2,297		—		(1)		2,296
Total investments as of December 31, 2020	$	3,857	$	—	$	(2)	$	3,855

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

-18-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Investment in Hanxin

As a result of the ANP restructuring that was completed during the third quarter of 2021 (see Note 3), the Company has a 14% noncontrolling investment in Hanxin that is accounted for as an equity method investment.

The Company accounts for its share of the earnings or losses of Hanxin with a reporting lag of three months, as the financial statements of Hanxin are not completed on a basis that is sufficient for the Company to apply the equity method on a current basis. Hanxin became an equity method investment during the third quarter of 2021, and as such, no shares of earnings or losses of Hanxin were recorded in the condensed consolidated statement of operations for the three and nine months ended September 30, 2021.

Note 10. Goodwill and Intangible Assets

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

	Weighted-Average			Accumulated
	Life (Years)	Original Cost		Amortization		Net Book Value
	(in thousands)
Definite-lived intangible assets
IMS (UK) international product rights	10	$	9,416	$	4,865	$	4,551
Patents	12		486		329		157
Land-use rights	39		2,540		667		1,873
Subtotal	12		12,442		5,861		6,581
Indefinite-lived intangible assets
Trademark	*		29,225		—		29,225
Goodwill - Finished pharmaceutical products	*		3,386		—		3,386
Subtotal	*		32,611		—		32,611
As of September 30, 2021	*	$	45,053	$	5,861	$	39,192

	Weighted-Average			Accumulated
	Life (Years)	Original Cost		Amortization		Net Book Value
	(in thousands)
Definite-lived intangible assets
IMS (UK) international product rights	10	$	9,561	$	4,223	$	5,338
Patents	12		486		297		189
Land-use rights	39		2,540		617		1,923
Subtotal	12		12,587		5,137		7,450
Indefinite-lived intangible assets
Trademark	*		29,225		—		29,225
Goodwill - Finished pharmaceutical products	*		3,940		—		3,940
Subtotal	*		33,165		—		33,165
As of December 31, 2020	*	$	45,752	$	5,137	$	40,615

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

-19-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Goodwill

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

	September 30,		December 31,
	2021		2020
	(in thousands)
Beginning balance	$	3,940	$	3,634
ANP restructuring		(374)		—
Currency translation		(180)		306
Ending balance	$	3,386	$	3,940

Primatene^® Trademark

In January 2009, the Company acquired the exclusive rights to the trademark, domain name, website and domestic marketing, distribution and selling rights related to Primatene Mist^®, an over-the-counter bronchodilator product, recorded at the allocated fair value of $29.2 million, which is its carrying value as of September 30, 2021.

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

Note 11. Inventories

Inventories consist of the following:

	September 30,		December 31,
	2021		2020
	(in thousands)
Raw materials and supplies	$	45,752	$	47,051
Work in process		37,555		37,257
Finished goods		16,933		12,523
Total inventories	$	100,240	$	96,831

Charges of $6.1 million and $17.0 million were included in the cost of revenues in the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2021, respectively, to adjust the Company’s inventory and related firm purchase commitments to their net realizable value. For the three and nine months ended September 30, 2020, charges of $2.5 million and $12.7 million were included in the cost of revenues, respectively, to adjust the Company’s inventory and related firm purchase commitments to their net realizable value.

Losses on firm purchase commitments related to raw materials on order were $3.5 million and $4.2 million as of September 30, 2021 and 2020, respectively.

-20-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 12. Property, Plant, and Equipment

Property, plant, and equipment consist of the following:

	September 30,		December 31,
	2021		2020
	(in thousands)
Buildings	$	127,700	$	124,326
Leasehold improvements		27,356		30,028
Land		7,645		7,719
Machinery and equipment		207,595		211,666
Furniture, fixtures, and automobiles		27,123		26,482
Construction in progress		40,057		43,981
Total property, plant, and equipment		437,476		444,202
Less accumulated depreciation		(194,552)		(184,147)
Total property, plant, and equipment, net	$	242,924	$	260,055

Note 13. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following:

	September 30,		December 31,
	2021		2020
	(in thousands)
Accrued customer fees and rebates	$	11,581	$	9,029
Accrued payroll and related benefits		27,324		24,597
Accrued product returns, current portion		14,823		10,190
Accrued loss on firm purchase commitments		3,449		1,223
Accrued litigation and settlements		—		13,780
Other accrued liabilities		10,076		12,328
Total accrued liabilities		67,253		71,147
Accounts payable		21,658		24,357
Total accounts payable and accrued liabilities	$	88,911	$	95,504

-21-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 14. Debt

Debt consists of the following:

	September 30,		December 31,
	2021		2020
	(in thousands)
Line of Credit Facilities
Line of credit facility with China Everbright Bank - closed June 2021	$	—	$	764
Line of credit facility with China Merchant Bank		—		382
Line of credit facility with Bank of Nanjing - deconsolidated (see Note 3)		—		153
Line of credit facility with Cathay Bank - closed in August 2021		—		—
Line of credit facility with East West Bank - closed in August 2021		—		—
Equipment line of credit facility with East West Bank - closed in August 2021		—		3,216
Revolving line of credit facility with Capital One N.A. due August 2026		—		—
Term Loan
Term loan with Capital One N.A. due August 2026		70,000		—
Mortgage Loans
Mortgage payable with East West Bank paid off May 2021		—		3,306
Mortgage payable with East West Bank paid off August 2021		—		3,334
Mortgage payable with Cathay Bank paid off August 2021		—		7,268
Mortgage payable with East West Bank due June 2027		8,393		8,510
Equipment Loans
Equipment loan with East West Bank paid off June 2021		—		612
Equipment loan with East West Bank paid off August 2021		—		4,000
Equipment loan with East West Bank paid off August 2021		—		5,254
Other Loans and Payment Obligations
Acquisition loan with Cathay Bank paid off August 2021		—		8,710
French government loan paid off July 2021		—		64
French government loans due December 2026		339		350
Equipment under Finance Leases		471		526
Total debt		79,203		46,449
Less current portion of long-term debt		2,256		12,263
Less: Loan issuance costs		1,395		84
Long-term debt, net of current portion and unamortized debt issuance costs	$	75,552	$	34,186

-22-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of September 30, 2021, the fair value of the loans listed above approximated their carrying amount. The interest rate used in the fair value estimation was determined to be a Level 2 input. For the mortgage loan with East West Bank, the Company has entered into fixed interest rate swap contracts to exchange the variable interest rate for a fixed interest rate over the life of the debt instrument without the exchange of the underlying notional debt amount.

Credit Agreement with Capital One N.A. - Due August 2026

In August 2021, the Company entered into a $140.0 million credit agreement with Capital One N.A. acting as a lender and as agent for other lenders. Under the terms of the credit agreement, the Company borrowed $70.0 million in the form of a term loan. Proceeds from the loan were used to pay down certain of the Company’s outstanding loans and revolving lines of credit with Cathay Bank and East West Bank. The interest rate on the term loan is based on a variable interest rate, plus an applicable margin rate ranging between 0.5% and 2.5%, determined based on the Company’s net leverage ratio as defined by the terms of the agreement. The loan matures in August 2026.

At September 30, 2021, the interest rate on this loan was 1.84%.

The loan requires principal payments of $1.8 million per year for the first two years, which increases to $3.5 million during the third and fourth year and to $3.9 million in the fifth year, with the remaining balance due at maturity. The loan is secured by substantially all of the Company’s assets, excluding the assets of ANP.

The credit agreement provides for a $70.0 million revolving credit facility, which bears a variable interest rate, plus a fixed margin.

In conjunction with the new credit agreement, the Company entered into an interest rate swap agreement with Capital One N.A., with a notional amount of $55.0 million to exchange the variable interest rate on the new term loan for a fixed rate of 0.93%.

The Company incurred approximately $1.4 million in issuance costs in connection with this credit agreement, which is being amortized over the term of the loan.

Note 15. Income Taxes

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
	(in thousands)
Income before taxes	$	37,646		$	7,078		$	56,977		$	11,379
Income tax provision		6,686			2,285			13,436			4,490
Net income	$	30,960		$	4,793		$	43,541		$	6,889
Income tax provision as a percentage of income before income taxes		17.8	%		32.3	%		23.6	%		39.5	%

The change in the Company’s effective tax rate for the three and nine months ended September 30, 2021, was primarily due to differences in pre-tax income positions and timing of discrete tax items.

Valuation Allowance

In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will be realized. Ultimately, realization depends on the existence of future

-23-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

taxable income. Management considers sources of taxable income such as income in prior carryback periods, future reversal of existing deferred taxable temporary differences, tax-planning strategies, and projected future taxable income.

The Company continues to record a full valuation allowance on the net deferred income tax assets of its subsidiary AFP and will continue to do so until AFP generates sufficient taxable income to realize its deferred income tax assets.

For purposes of computing its annual effective tax rate, the Company did not benefit from its losses in the states where it files separately. This increased the Company’s income tax expense by $0.1 million and $0.3 million for the three and nine months ended September 30, 2021, respectively. The increase in the Company’s income tax provision for the three and nine months ended September 30, 2020 was $0.2 million and $0.4 million, respectively.

Note 16. Stockholders' Equity

Share Buyback Program

Pursuant to the Company’s existing share buyback program, the Company purchased 317,212 and 820,637 shares of its common stock during the three and nine months ended September 30, 2021, for total consideration of $6.1 million and $15.4 million, respectively. The Company purchased 214,256 and 1,190,362 shares of its common stock during the three and nine months ended September 30, 2020, for total consideration of $4.3 million and $21.0 million, respectively.

In August 2021, the Company’s Board of Directors authorized an increase of $20.0 million to the Company’s share buyback program, which is expected to continue for an indefinite period of time. Since the inception of the program, the Company’s Board of Directors have authorized a total of $160.0 million to the Company’s share buyback program. The primary goal of the program is to offset dilution created by the Company’s equity compensation programs.

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

Amended and Restated 2015 Equity Incentive Plan

As of September 30, 2021, the Company reserved an aggregate of 5,997,738 shares of common stock for future issuance under the Amended and Restated 2015 Equity Incentive Plan, or the 2015 Plan, including 1,187,386 shares, which were reserved in January 2021 pursuant to the evergreen provision in the 2015 Plan.

2014 Employee Stock Purchase Plan

As of September 30, 2021, the Company has issued 890,904 shares of common stock under the ESPP, and 1,109,096 shares of its common stock remains available for issuance under the ESPP.

In May 2021, the Company issued 83,354 shares at a weighted-average purchase price of $15.25 per share under the ESPP. For the three and nine months ended September 30, 2021, the Company recorded ESPP expense of $0.2 million and $0.5 million, respectively. For the three and nine months ended September 30, 2020, the Company recorded ESPP expense of $0.1 million and $0.5 million, respectively.

-24-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Share-Based Award Activity and Balances (excluding the ANP Equity Plan)

The Company accounts for share-based compensation payments in accordance with ASC 718, which requires measurement and recognition of compensation expense at fair value for all share-based payment awards made to employees and directors. Under these standards, the fair value of option awards and the option components of the Employee Stock Purchase Plan awards are estimated at the grant date using the Black-Scholes option-pricing model. The fair value of RSUs is estimated at the grant date using the Company’s common share price. The portion that is ultimately expected to vest is amortized and recognized in compensation expense on a straight-line basis over the requisite service period, generally from the grant date to the vesting date.

The weighted-averages for key assumptions used in determining the fair value of options granted during the three and nine months ended September 30, 2021 and 2020, are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Average volatility	41.4	%	43.7	%	42.1	%	43.1	%
Average risk-free interest rate	1.1	%	0.5	%	1.2	%	0.8	%
Weighted-average expected life in years	6.3		6.3		6.1		5.7
Dividend yield rate	0	%	0	%	0	%	0	%

A summary of option activity for the nine months ended September 30, 2021, is presented below:

				Weighted-Average
		Weighted-Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Options	Price		Term (Years)	Value(1)
					(in thousands)
Outstanding as of December 31, 2020	8,580,475	$	15.00
Options granted	1,436,929		18.25
Options exercised	(899,436)		13.49
Options cancelled	(155,784)		17.02
Options expired	(56,826)		14.67
Outstanding as of September 30, 2021	8,905,358	$	15.65	5.34	$	33,500
Exercisable as of September 30, 2021	6,021,669	$	15.11	3.90	$	26,145

(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the estimated fair value of the Company’s common stock for those awards that have an exercise price below the estimated fair value at September 30, 2021.

For the three and nine months ended September 30, 2021, the Company recorded an expense of $1.9 million and $6.2 million, respectively, related to stock options granted. For the three and nine months ended September 30, 2020, the Company recorded an expense of $1.9 million and $7.1 million, respectively, related to stock options granted under all plans.

In April 2020, Jason Shandell resigned from his position as the Company’s President and General Counsel and as a member of the Company’s Board of Directors. In connection with his resignation, the Company and Mr. Shandell entered into a separation agreement. As part of the separation agreement, the Company agreed to accelerate 80% of his unvested stock options and extended the expiration date of certain vested stock option awards. As a result of this modification, the Company incurred share-based compensation expense of $0.7 million, which is included within general and administration expenses in the condensed consolidated statement of operations for the nine months ended September 30, 2020.

-25-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Information relating to option grants and exercises is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
	(in thousands, except per share data)
Weighted-average grant date fair value per option share	$	8.00	$	8.64	$	7.62	$	5.50
Intrinsic value of options exercised		2,176		1,687		5,292		8,661
Cash received from options exercised		3,953		3,195		12,122		23,534
Total fair value of the options vested during the period		112		121		8,162		9,965

A summary of the status of the Company’s non-vested options as of September 30, 2021, and changes during the nine months ended September 30, 2021, is presented below:

		Weighted-Average
		Grant Date
	Options	Fair Value
Non-vested as of December 31, 2020	2,825,652	$	6.50
Options granted	1,436,929		7.62
Options vested	(1,223,108)		6.67
Options forfeited	(155,784)		6.98
Non-vested as of September 30, 2021	2,883,689		6.96

As of September 30, 2021, there was $14.1 million of total unrecognized compensation cost, net of forfeitures, related to non-vested stock option based compensation arrangements granted under all plans. The cost is expected to be recognized over a weighted-average period of 2.6 years and will be adjusted for future changes in estimated forfeitures.

Restricted Stock Units

The Company grants restricted stock units, or RSUs, to certain employees and members of the Board of Directors with a vesting period of up to five years. The grantee receives 1 share of common stock at a specified future date for each RSU awarded. The RSUs may not be sold or otherwise transferred until certificates of common stock have been issued, recorded, and delivered to the participant. The RSUs do not have any voting or dividend rights prior to the issuance of certificates of the underlying common stock. The share-based expense associated with these grants was based on the Company’s common stock fair value at the time of grant and is amortized over the requisite service period, which generally is the vesting period using the straight-line method. During the three and nine months ended September 30, 2021, the Company recorded total expenses of $1.9 million and $6.2 million, respectively, related to RSU awards granted. During the three and nine months ended September 30, 2020, the Company recorded expenses of $2.0 million and $8.0 million, respectively, related to RSU awards granted.

As part of the separation agreement with Mr. Shandell, the Company agreed to accelerate the vesting of 80% of his RSU awards. As a result of this modification, the Company incurred share-based compensation expense of $1.6 million, which is included within general and administrative expenses in the condensed consolidated statement of operations for the nine months ended September 30, 2020.

As of September 30, 2021, there was $15.0 million of total unrecognized compensation cost, net of forfeitures, related to non-vested RSU-based compensation arrangements granted under all plans. The cost is expected to be recognized over a weighted-average period of 2.6 years and will be adjusted for future changes in estimated forfeitures.

-26-

AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Information relating to RSU grants and deliveries is as follows:

		Total Fair Market
		Value of RSUs
		Issued
	Total RSUs	as
	Issued	Compensation(1)
		(in thousands)
RSUs outstanding at December 31, 2020	1,156,518
RSUs granted	600,207	$	10,941
RSUs forfeited	(64,030)
RSUs vested(2)	(493,007)
RSUs outstanding at September 30, 2021	1,199,688

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

(2) Of the vested RSUs, 167,034 shares of common stock were surrendered to fulfill tax withholding obligations.

The 2018 ANP Equity Incentive Plan

In December 2018, ANP’s board of directors approved the 2018 ANP Equity Incentive Plan, or the 2018 Plan, which was set to expire in December 2023. The 2018 Plan permitted the grant of stock options and other equity awards in ANP shares to ANP employees.

During the second quarter of 2021, in connection with the ANP restructuring, the 2018 Plan was terminated.

At the time of the 2018 Plan termination, the number of stock options outstanding was 5,018,880. As part of the termination, ANP cash settled 4,091,080 stock options, of which, 1,944,771 stock options were vested and 2,146,309 stock options were unvested, for $0.8 million which approximated the fair value of these awards at the time of settlement. The cash settlement of these awards was recorded as a reduction in equity.

For the remaining 927,800 stock option awards that were outstanding under the 2018 Plan, of which 56,925 stock options were vested and 870,875 were unvested, the Company cancelled these awards and issued replacement awards under the 2015 Plan. The modified awards vest over periods ranging from 1 to 2 years and have a 10-year contractual term. The cancellation and replacement of the awards was accounted for as a modification in accordance with ASC 718.

As a result of the modification, the Company incurred $2.3 million of share-based compensation expense, of which $1.8 million was recorded within general and administrative expenses in the condensed consolidated statement of operations for the nine months ended September 30, 2021, and the remaining $0.5 million which will be recognized over the vesting period of the modified awards.

Prior to the termination of the 2018 Plan, during the three and nine months ended September 30, 2020, the Company recorded expense of $0.2 million and $0.5 million related to stock options issued by ANP under the 2018 Plan, respectively.

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Share-based Compensation Expense

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
	(in thousands)
Cost of revenues	$	889	$	947	$	2,967	$	3,276
Operating expenses:
Selling, distribution, and marketing		164		120		438		350
General and administrative		2,533		2,899		10,069		11,170
Research and development		333		404		1,363		1,369
Total share-based compensation	$	3,919	$	4,370	$	14,837	$	16,165

Note 17. Employee Benefits

401(k) Plan

The Company has a defined contribution 401(k) plan, or the Plan, whereby eligible employees voluntarily contribute up to a defined percentage of their annual compensation. The Company matches contributions at a rate of 50% on the first 6% of employee contributions, and pays the administrative costs of the Plan. Total employer contributions for the three and nine months ended September 30, 2021 were approximately $0.5 million and $1.5 million, respectively, compared to the prior year expense of $0.4 million and $1.4 million for the three and nine months ended September 30, 2020, respectively.

Defined Benefit Pension Plan

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

The liability under the plan is based on a discount rate of 0.3% as of September 30, 2021 and December 31, 2020. The liability is included in accrued liabilities in the accompanying condensed consolidated balance sheets. The plan is currently unfunded, and the benefit obligation under the plan was $2.9 million at September 30, 2021 and December 31, 2020. The Company recorded an immaterial amount of expense under the plan for the three and nine months ended September 30, 2021 and 2020.

Deferred Compensation Plan

In December 2019, the Company established a non-qualified deferred compensation plan. The deferred compensation plan allows certain eligible participants to defer a portion of their cash compensation and provides a matching contribution at the discretion of the Company. The plan obligations are payable upon retirement, termination of employment and/or certain other times in a lump-sum distribution or in installments, as elected by the participant in accordance with the plan. Participants can allocate their deferred compensation amongst various investment options with earnings accruing to the participant. The Company has established a Rabbi Trust to fund the plan obligations and to hold the plan assets. Eligible participants began contributing to the plan in January 2020. The plan assets were valued at approximately $2.7 million as of September 30, 2021. The plan liabilities were valued at approximately $2.7 million as

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

of September 30, 2021. As of December 31, 2020, the plan assets and liabilities were valued at approximately $1.6 million and $1.7 million, respectively.

Note 18. Commitments and Contingencies

Purchase Commitments

As of September 30, 2021, the Company has entered into commitments to purchase equipment and raw materials for an aggregate amount of approximately $56.2 million. The Company anticipates that most of these commitments with a remaining term in excess of one year will be fulfilled by 2022.

Note 19. Related Party Transactions

Subsequent to the ANP restructuring discussed in Note 3, which involved various related parties, Hanxin is no longer a wholly-owned subsidiary of the Company and was deconsolidated in the third quarter of 2021.

The Company determined that it has significant influence over Hanxin as a result of its 14% ownership interest, its seat on Hanxin’s board of directors, and Henry Zhang’s position as an equity holder, general manager, and chairman of the board of directors of Hanxin, given he is the son of Dr. Jack Zhang. Additionally, Dr. Mary Luo and Dr. Jack Zhang, through an affiliated entity, have an ownership interest in Hanxin and as such Hanxin continues to be a related party after the restructuring.

As of September 30, 2021, the Company had a receivable from Hanxin of approximately $2.5 million, the majority of which was collected subsequent to the end of the quarter.

Note 20. Litigation

Amphastar Pharmaceuticals, Inc. v. Aventis Pharma, SA

In January 2009, the Company filed a qui tam complaint in the U.S. District Court for the Central District of California, alleging that Aventis Pharma S.A., or Aventis, through its acquisition of a patent through false and misleading statements to the U.S. Patent and Trademark Office, as well as through false and misleading statements to the FDA, overcharged the federal and state governments for its Lovenox^® product.

On May 11, 2017, the Company’s lawsuit against Aventis was dismissed for lack of jurisdiction. On July 14, 2017, Aventis filed an application with the District Court for entitlement to attorneys’ fees and expenses. On November 20, 2017, the District Court issued its order granting Aventis’ application for fees, and on November 13, 2020, the Court issued an Order (“November Order”) awarding Aventis $12.1 million in attorneys’ fees and $0.7 million in cost and expenses. The Company recorded $12.8 million in other income (expenses), in the consolidated statement of operations for the year ended December 31, 2020.

On May 3, 2021, the Court issued a further Order based upon supplemental application to the Court seeking fees, expenses, and interest for the period after, and not covered by, the November Order. The Court awarded Aventis an additional $4.4 million bringing the total amount awarded to Aventis to $17.2 million.

On June 30, 2021, the Company and Aventis entered into a settlement agreement to settle the attorney fees’ and expenses claim for $14.5 million. The additional $1.7 million was recorded in other income (expenses), in the condensed consolidated statement of operations. The settlement was paid in full in the third quarter of 2021.

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AMPHASTAR PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

On February 25, 2020, Astellas US LLC, Astellas Pharma US, Inc., and Gilead Sciences, Inc. (collectively, “Astellas-Gilead”) filed a Complaint in the United States District Court for the District of Delaware against IMS for infringement of U.S. Patent Nos. 8,106,183 (the “‘183 patent”), RE47,301 (the “‘301 patent”), and 8,524,883 (the “‘883 patent”) (collectively, “Astellas-Gilead Patents”) with regard to IMS’s ANDA No. 214,252 for approval to manufacture and sell 0.4 mg/5 mL (0.08 mg/mL) intravenous solution of Regadenoson. On March 4, 2020, IMS filed its Answer and Counterclaims. On March 30, 2020, the Court issued an Order allowing the Company to join pending consolidated litigation with five other generic Regadenoson ANDA filers involving similar claims. Trial is currently scheduled for January 2022. The Company’s 30-month FDA stay expires August 10, 2022. Currently, this lawsuit does not expose the Company to any liabilities, as the product has not been launched. The Company intends to vigorously defend this patent lawsuit.

Ramirez v. Amphastar Pharmaceuticals, Inc.

On May 29, 2020, Priscilla Ramirez (“Ramirez”), a former employee filed a PAGA lawsuit for alleged violations of various California labor laws pertaining to wage and hour against the Company. The Company accrued the amount of $1.0 million for this litigation as of March 31, 2021. On April 5, 2021, the parties reached a settlement for $1.0 million. On June 9, 2021, Ramirez submitted a motion to the Court to approve the settlement. On August 16, 2021, the Court approved Ramirez’s motion to approve the settlement. On September 13, 2021, consistent with the terms of the settlement agreement, the Company remitted payment for this case, thus resolving the matter.

Other Litigation

The Company is also subject to various other claims, arbitrations, and lawsuits from time to time arising in the ordinary course of business.

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

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

The following is a discussion and analysis of the consolidated operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the “Condensed Consolidated Financial Statements” and the related notes thereto included in this Quarterly Report on Form 10-Q, or Quarterly Report. This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements. These risks, uncertainties, and other factors include, among others, those identified under the “Special Note About Forward-Looking Statements,” above and described in greater detail elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2020, particularly in Item 1A. “Risk Factors”.

Overview

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

We are currently developing a portfolio of 13 generic abbreviated new drug applications, or ANDAs, three biosimilar insulin product candidates and four proprietary product candidates, which are in various stages of development and target a variety of indications. Five of the ANDAs and one NDA are currently on file with the FDA.

Our largest products by net revenues currently include Primatene Mist^®, glucagon, epinephrine, enoxaparin sodium injection, lidocaine jelly and sterile solution, and phytonadione. During the second quarter of 2020, we launched our epinephrine injection, USP 30mg/mL multiple dose vial product. In December 2020, the FDA granted approval of our glucagon for injection emergency kit, 1mg, which we launched in February 2021.

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

Included in these acquisitions are marketing authorizations for 33 products in the UK, Ireland, Australia, and New Zealand, representing 11 different injectable chemical entities. We are in the process of transferring the manufacturing of these products to our facilities in California. We plan to launch these products in the UK once we receive the required approvals from the UK Medicines and Healthcare products Regulatory Agency.

In July 2018, our Chinese subsidiary, ANP, completed a private placement of its common equity interest and received approximately $56.3 million of cash proceeds. We retained approximately 58% of the equity interest in ANP following the private placement.

During the third quarter of 2021, we restructured the equity ownership of ANP, whereby we purchased an additional ownership interest in ANP from certain equity holders of ANP (the “Sellers”), and split-off certain subsidiaries of ANP. We paid approximately $29.4 million in cash and contributed approximately 80% of Hanxin Pharmaceutical Technology Co., Ltd, or Hanxin, to the Sellers in exchange for additional ownership interest in ANP, resulting in our ownership of ANP increasing to approximately 85%, while ANP retained approximately 20% of ownership in Hanxin. Hanxin’s wholly-owned subsidiaries, Nanjing Baixin Trading Co., Ltd., and Nanjing Letop Biological Technology Co., Ltd., were included in the split-off of Hanxin.

In August 2021, we entered into a second Share Purchase Agreement, or Second SPA, with the sole remaining equity holder of ANP to acquire the remaining approximately 15% of ownership interest in ANP. The total cash paid for this transaction was approximately $22.5 million. As a result of the transaction, our ownership interest in ANP increased to

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100%. The Sellers in both transactions include some of our executive officers, directors and other related parties who participated in the ANP Private Placement in 2018, see Note 3 to the condensed consolidated financial statements.

The reduction of our ownership in Hanxin to 20%, resulted in ANP experiencing a “loss of control” of a subsidiary as defined by generally accepted accounting principles, or GAAP. Loss of control is deemed to have occurred when, among other things, a parent company owns less than a majority of the outstanding common stock in the subsidiary, lacks a controlling financial interest in the subsidiary and, is unable to unilaterally control the subsidiary through other means such as having, or being able to obtain, the power to elect a majority of the subsidiary's board of directors based solely on contractual rights or ownership of shares holding a majority of the voting power of the subsidiary's voting securities. These loss-of-control factors were met with respect to ANP’s ownership interest in Hanxin after the restructuring. Accordingly, we deconsolidated Hanxin and recorded a $13.6 million gain on deconsolidation, which is recognized in other income (expenses), net in the consolidated statement of operations for the three and nine months ended September 30, 2021.

Subsequent to the restructuring, during the third quarter, Hanxin received additional capital contributions from its equity owners further reducing ANP’s ownership interest to approximately 14%.

In addition to the retained noncontrolling investment in Hanxin, we maintain a seat of Hanxin’s board of directors. Additionally, Henry Zhang, a relative of Dr. Jack Zhang and Dr. Mary Luo, holds a significant stake in Hanxin and is also Hanxin’s general manager, and chairman of the board of directors. As a result, we determined that we have significant influence over Hanxin and as such the retained noncontrolling investment in Hanxin is accounted for as an equity method investment. Hanxin continues to be a related party subsequent to the restructuring.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus, or COVID-19, as a pandemic, which continues to spread throughout the world, including locations where we operate, such as the United States, China and France. We have been actively monitoring the COVID-19 pandemic, including regarding the Delta variant, and its impact globally. Currently, our production facilities in all of our locations continue to operate as they had prior to the COVID-19 pandemic with few changes, other than for enhanced safety measures intended to prevent the spread of the virus.

As a result of the COVID-19 pandemic, during the first half of 2020, sales of Primatene Mist^® and certain hospital products increased, while sales of certain products frequently used in elective procedures, such as Cortrosyn^® and lidocaine products decreased. We saw these trends continue in late 2020 and early 2021 when COVID cases trended higher. Starting in the second quarter of 2021, the sales of these products, frequently used in elective procedures returned to their normal level.

Some of our ongoing clinical trials experienced short-term interruptions in the recruitment of patients due to the COVID-19 pandemic, as hospitals prioritize their resources towards the COVID-19 pandemic and governments impose travel restrictions. Some clinical trials experienced increased expenses due to new protocols to protect participants from COVID-19. Additionally, certain suppliers had difficulties meeting their delivery commitments.

It is not possible at this time to estimate the complete impact that COVID-19 could have on our business, including our customers and suppliers, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. Infections may resurge or become more widespread and the limitation on our ability to travel and timely sell and distribute our products, as well as any closures or supply disruptions, may be extended for longer periods of time, all of which would have a negative impact on our business, financial condition and operating results.

The COVID-19 pandemic has and will continue to adversely affect global economies and financial markets, potentially resulting in an economic downturn that could affect demand for our products and impact our operating results. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of the continued global economic impact of the pandemic. We cannot anticipate all of the ways in which health epidemics

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such as COVID-19 could adversely impact our business. See the “Risk Factors” section for further discussion of the possible impact of the COVID-19 pandemic on our business.

Business Segments

As of September 30, 2021, our performance is assessed and resources are allocated based on the following two reportable segments: (1) finished pharmaceutical products and (2) API products. The finished pharmaceutical products segment manufactures, markets and distributes Primatene Mist^®, glucagon, enoxaparin, naloxone, phytonadione, lidocaine, epinephrine, as well as various other critical and non-critical care drugs. The API segment manufactures and distributes RHI API and porcine insulin API for external customers and internal product development. Information reported herein is consistent with how it is reviewed and evaluated by our chief operating decision maker. Factors used to identify our segments include markets, customers and products.

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

Results of Operations

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Net revenues

	Three Months Ended
	September 30,						Change
	2021			2020			Dollars		%
	(in thousands)
Net revenues
Finished pharmaceutical products	$	108,990		$	81,335		$	27,655	34	%
API		3,208			2,096			1,112	53	%
Total net revenues	$	112,198		$	83,431		$	28,767	34	%
Cost of revenues
Finished pharmaceutical products	$	54,388		$	41,789		$	12,599	30	%
API		6,627			5,134			1,493	29	%
Total cost of revenues	$	61,015		$	46,923		$	14,092	30	%
Gross profit	$	51,183		$	36,508		$	14,675	40	%
as % of net revenues		46	%		44	%

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The increase in net revenues of the finished pharmaceutical products for the three months ended September 30, 2021 was due to the following changes:

	Three Months Ended
	September 30,				Change
	2021		2020		Dollars		%
	(in thousands)
Finished pharmaceutical products net revenues
Primatene Mist®	$	16,561	$	12,988	$	3,573	28	%
Epinephrine		13,892		5,370		8,522	159	%
Glucagon		12,189		—		12,189	N/A
Lidocaine		11,649		10,657		992	9	%
Phytonadione		11,591		10,470		1,121	11	%
Enoxaparin		8,034		11,647		(3,613)	(31)	%
Naloxone		8,028		8,739		(711)	(8)	%
Other finished pharmaceutical products		27,046		21,464		5,582	26	%
Total finished pharmaceutical products net revenues	$	108,990	$	81,335	$	27,655	34	%

We launched glucagon for injection emergency kit, 1mg in the first quarter of 2021. The continued growth in sales of Primatene Mist^® was due to increased unit volumes, which was primarily a result of the continued success of our advertising campaign. The increase in sales of lidocaine and epinephrine was primarily due to an increase in unit volumes, as a result of higher demand due to competitor shortages. The increase in sales of phytonadione was primarily due to higher average selling price. The decrease in sales of enoxaparin was primarily due to lower average selling price as a competitor re-entered the market during the second quarter of 2021. The decrease in sales of Naloxone was primarily due to lower average selling price as a result of new competition. The increase in sales for other finished pharmaceutical products was primarily due to higher unit volumes as a result of competitor shortages during the third quarter of this year.

We anticipate that sales of naloxone and enoxaparin will continue to fluctuate in the future as a result of changing levels of competition.

Sales of API primarily depend on the timing of customer purchases. We anticipate that sales of API will continue to fluctuate and may decrease due to the inherent uncertainties related to sales to MannKind Corporation pursuant to our supply agreement with them. In addition, most of our API sales are denominated in euros, and the fluctuation in the value of euros versus the U.S. dollar has had, and will continue to have, an impact on API sales revenues in the near term.

A significant portion of our customer shipments in any period relate to orders received and shipped in the same period, generally resulting in low product backlog relative to total shipments at any time. However, during the third quarter of 2021, we experienced a backlog of approximately $12 million for various products, including glucagon, epinephrine and phytonadione because of the higher than anticipated demand for these products, partially brought on by competitor shortages. We are working to resolve this issue prior to year-end and believe that we will be able to reduce the backlog in the near future. Historically, our backlog has not been a meaningful indicator in any given period of our ability to achieve any particular level of overall revenue or financial performance.

Gross margins

The increase in sales of Primatene Mist^® and our epinephrine injection multiple dose vial, as well as the launch of glucagon for injection emergency kit during the first quarter of 2021, which are higher-margin products, helped increase our gross margins for the three months ended September 30, 2021. These increases in gross margins were partially offset by lower pricing and increased costs for enoxaparin, particularly the cost for heparin raw material, which is used as the starting material for enoxaparin.

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The cost of heparin may increase further, putting downward pressure on our gross margins. However, we believe that this trend will be offset by increased sales of our higher-margin products, including Primatene Mist^®, epinephrine multi dose vials, and glucagon. Additionally, we have not seen significant supply disruptions due to the COVID-19 pandemic at this time, but we are continuing to monitor our supply chain for any potential problems.

Selling, distribution and marketing, and general and administrative

	Three Months Ended
	September 30,				Change
	2021		2020		Dollars		%
	(in thousands)
Selling, distribution, and marketing	$	4,745	$	3,673	$	1,072	29	%
General and administrative	$	10,910	$	11,674	$	(764)	(7)	%

The increase in selling, distribution, and marketing expenses was primarily due to marketing expenses related to Primatene Mist^®. The decrease in general and administrative expense was primarily due to a decrease in legal expenses.

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

Research and development

	Three Months Ended
	September 30,				Change
	2021		2020		Dollars		%
	(in thousands)
Salaries and personnel-related expenses	$	5,934	$	6,774	$	(840)	(12)	%
Clinical trials		234		2,544		(2,310)	(91)	%
FDA fees		109		44		65	148	%
Testing, operating and lab supplies		205		3,344		(3,139)	(94)	%
Depreciation		2,546		2,590		(44)	(2)	%
Other expenses		1,731		2,348		(617)	(26)	%
Total research and development expenses	$	10,759	$	17,644	$	(6,885)	(39)	%

Research and development expense decreased due to a decrease in clinical trial expense as a result of the completion of one of our clinical trial studies at the end of 2020 and delays in other studies. Additionally, the restructuring of ANP and the deconsolidation of Hanxin and its subsidiaries resulted in the decrease in salary and personnel-related expense and testing, operating and lab supplies expenses during the third quarter.

Research and development costs consist primarily of costs associated with the research and development of our product candidates including the cost of developing APIs. We expense research and development costs as incurred.

We have made, and expect to continue to make, substantial investments in research and development to expand our product portfolio and grow our business. We expect that research and development expenses will increase on an annual basis due to increased clinical trial costs related to our biosimilar and inhalation product candidates. These expenditures will include costs of APIs developed internally as well as APIs purchased externally, the cost of purchasing reference listed drugs and the costs of performing the clinical trials. As we undertake new and challenging research and development projects, we anticipate that the associated costs will increase significantly over the next several quarters and years. Over the past year, some of our ongoing clinical trials experienced short term interruptions in the recruitment of patients due to the COVID-19 pandemic, as hospitals prioritized their resources towards the COVID-19 pandemic and government imposed travel restrictions. These conditions may in turn delay spending and the results of these trials. Additionally, some clinical trials experienced increased expenses due to new protocols to protect participants from COVID-19.

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Other income, net

	Three Months Ended
	September 30,				Change
	2021		2020		Dollars		%
	(in thousands)
Other income, net	$	13,263	$	3,575	$	9,688	271	%

During the third quarter of 2021, we completed the restructuring of ANP, whereby our ownership interest in ANP increased to 100% and ANP’s ownership interest in Hanxin and its subsidiaries was reduced to approximately 14%. As a result of the loss in control over Hanxin, we deconsolidated Hanxin and recorded a $13.6 million gain on deconsolidation. For more information regarding our ANP restructuring, see Note 3 to the condensed consolidated financial statements.

Income tax provision

	Three Months Ended
	September 30,						Change
	2021			2020			Dollars		%
	(in thousands)
Income tax provision	$	6,686		$	2,285		$	4,401	NM
Effective tax rate		18	%		32	%

Our effective tax rate for the three months ended September 30, 2021 decreased in comparison to the three months ended September 30, 2020, primarily due to differences in pre-tax income positions and timing of discrete tax items.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Net revenues

	Nine Months Ended
	September 30,						Change
	2021			2020			Dollars		%
	(in thousands)
Net revenues
Finished pharmaceutical products	$	301,594		$	243,568		$	58,026	24	%
API		15,287			10,357			4,930	48	%
Total net revenues	$	316,881		$	253,925		$	62,956	25	%
Cost of revenues
Finished pharmaceutical products	$	152,092		$	129,775		$	22,317	17	%
API		21,284			17,642			3,642	21	%
Total cost of revenues	$	173,376		$	147,417		$	25,959	18	%
Gross profit	$	143,505		$	106,508		$	36,997	35	%
as % of net revenues		45	%		42	%

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The increase in net revenues of the finished pharmaceutical products for the nine months ended September 30, 2021, was due to the following changes:

	Nine Months Ended
	September 30,				Change
	2021		2020		Dollars		%
	(in thousands)
Finished pharmaceutical products net revenues
Primatene Mist®	$	51,624	$	38,333	$	13,291	35	%
Epinephrine		38,662		16,317		22,345	137	%
Lidocaine		32,314		28,922		3,392	12	%
Glucagon		32,304		—		32,304	N/A
Phytonadione		31,577		32,188		(611)	(2)	%
Enoxaparin		28,020		31,033		(3,013)	(10)	%
Naloxone		20,994		26,337		(5,343)	(20)	%
Other finished pharmaceutical products		66,099		70,438		(4,339)	(6)	%
Total finished pharmaceutical products net revenues	$	301,594	$	243,568	$	58,026	24	%

We launched glucagon for injection emergency kit, 1mg in the first quarter of 2021. The continued growth in sales of Primatene Mist^® was due to increased unit volumes, which was primarily a result of the continued success of our advertising campaign. The increase in sales of epinephrine was primarily due to the launch of our epinephrine injection, USP 30mg/30mL multiple dose vial product in the second quarter of 2020, as well as an increase in unit volumes, as a result of higher demand due to a market shortage for pre-filled syringes. The increase in sales of lidocaine was primarily due to an increase in unit volumes, as a result of a market shortage. The decrease in sales of phytonadione was primarily due to lower unit volumes as a result of decreased market demand, which was partially offset by higher average selling price. Sales of enoxaparin decreased $3.0 million due to lower average selling price as a competitor re-entered the market during the second quarter of 2021. The decrease in sales of Naloxone was primarily due a decrease in unit volumes as well as lower average selling price as a result of a competitor entering the market. The decrease in other finished pharmaceutical products was primarily due to lower unit volumes as a result of competitors returning to their normal distribution levels during the year after being unable to supply market demands in 2020.

We anticipate that sales of naloxone and enoxaparin will continue to fluctuate in the future as a result of changing levels of competition.

Sales of API primarily depend on the timing of customer purchases. In May 2021, we amended the Supply Agreement with MannKind Corporation, or MannKind, whereby MannKind’s aggregate total commitment of RHI API under the Supply Agreement was modified and extended for an additional year through 2027, which timeframe would have previously lapsed after calendar year 2026. MannKind has agreed to pay us an amendment fee of $2.0 million. We received the first payment of the amendment fee of $1.0 million in June 2021 and recognized $0.8 million in net revenues during the nine months ended September 30, 2021. The remaining $0.2 million is recorded as a contract liability in our condensed consolidated balance sheet as of September 30, 2021 and will be recognized to net revenues in the fourth quarter of 2021. The remaining $1.0 million of the amendment fee is due January 2022 and relates to the amendments to the 2022 supply level and will be recognized ratably to net revenues in 2022.

We anticipate that sales of API will continue to fluctuate and may decrease due to the inherent uncertainties related to sales to MannKind Corporation pursuant to our supply agreement with them. In addition, most of our API sales are denominated in euros, and the fluctuation in the value of euros versus the U.S. dollar has had, and will continue to have, an impact on API sales revenues in the near term.

A significant portion of our customer shipments in any period relate to orders received and shipped in the same period, generally resulting in low product backlog relative to total shipments at any time. However, during the third quarter of 2021, we experienced a backlog of approximately $12 million for various products, including glucagon, epinephrine and phytonadione because of the higher than anticipated demand for these products, partially brought on by competitor shortages. We are working to resolve this issue prior to year-end and believe that we will be able to reduce the backlog in

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the near future. Historically, our backlog has not been a meaningful indicator in any given period of our ability to achieve any particular level of overall revenue or financial performance.

Gross margins

The increase in sales of Primatene Mist^®, the launch of glucagon for injection emergency kit during the first quarter of 2021, as well as the launch of our epinephrine injection multiple dose vial in the second quarter of 2020, which are higher-margin products, helped increase our gross margins for the nine months ended September 30, 2021. These increases in gross margins were partially offset by lower pricing and increased costs for enoxaparin, particularly the cost for heparin raw material, which is used as the starting material for enoxaparin.

The cost of heparin may increase further, putting downward pressure on our gross margins. However, we believe that this trend will be offset by increased sales of our higher-margin products, including Primatene Mist^®, epinephrine multi-dose vials, and glucagon. Additionally, we have not seen significant supply disruptions due to the COVID-19 pandemic at this time, but we are continuing to monitor our supply chain for any potential problems.

Selling, distribution and marketing, and general and administrative

	Nine Months Ended
	September 30,				Change
	2021		2020		Dollars		%
	(in thousands)
Selling, distribution, and marketing	$	13,411	$	10,993	$	2,418	22	%
General and administrative	$	40,813	$	38,344	$	2,469	6	%

The increase in selling, distribution, and marketing expenses was primarily due to marketing and distribution expenses related to Primatene Mist^®, including the cost of creating a new commercial for our national digital, television and radio marketing campaign. The increase in general and administrative expense was primarily due to an increase in legal expenses (see note 20 to the condensed consolidated financial statements for more information regarding litigation matters).

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

Research and development

	Nine Months Ended
	September 30,				Change
	2021		2020		Dollars		%
	(in thousands)
Salaries and personnel-related expenses	$	20,538	$	19,676	$	862	4	%
Clinical trials		2,575		6,428		(3,853)	(60)	%
FDA fees		189		133		56	42	%
Testing, operating and lab supplies		5,816		9,375		(3,559)	(38)	%
Depreciation		8,439		7,397		1,042	14	%
Other expenses		6,089		6,087		2	0	%
Total research and development expenses	$	43,646	$	49,096	$	(5,450)	(11)	%

The decrease in research and development expenses is primarily due to a decrease in clinical trial expense as a result of the completion of one of our clinical trial studies at the end of 2020 and delays in other studies. Additionally, the restructuring of ANP and the deconsolidation of Hanxin and its subsidiaries resulted in a decrease in our testing, operating and lab supplies expenses.

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Research and development costs consist primarily of costs associated with the research and development of our product candidates including the cost of developing APIs. We expense research and development costs as incurred.

We have made, and expect to continue to make, substantial investments in research and development to expand our product portfolio and grow our business. We expect that research and development expenses will increase on an annual basis due to increased clinical trial costs related to our biosimilar and inhalation product candidates. These expenditures will include costs of APIs developed internally as well as APIs purchased externally, the cost of purchasing reference listed drugs and the costs of performing the clinical trials. As we undertake new and challenging research and development projects, we anticipate that the associated costs will increase significantly over the next several quarters and years. Over the past year, some of our ongoing clinical trials experienced short term interruptions in the recruitment of patients due to the COVID-19 pandemic, as hospitals prioritized their resources towards the COVID-19 pandemic and government imposed travel restrictions. These conditions may in turn delay spending and the results of these trials. Additionally, some clinical trials experienced increased expenses due to new protocols to protect participants from COVID-19.

Other income, net

	Nine Months Ended
	September 30,				Change
	2021		2020		Dollars		%
	(in thousands)
Other income, net	$	11,615	$	3,078	$	8,537	277	%

During the third quarter of 2021, we completed the restructuring of ANP, whereby our ownership interest in ANP increased to 100% and ANP’s ownership interest in Hanxin and its subsidiaries was reduced to approximately 14%. As a result of the loss in control over Hanxin, we deconsolidated Hanxin and recorded a $13.6 million gain on deconsolidation. For more information regarding our ANP restructuring, see Note 3 to the condensed consolidated financial statements.

Income tax provision

	Nine Months Ended
	September 30,						Change
	2021			2020			Dollars		%
	(in thousands)
Income tax provision	$	13,436		$	4,490		$	8,946	NM
Effective tax rate		24	%		39	%

Our effective tax rate for the nine months ended September 30, 2021 decreased in comparison to the nine months ended September 30, 2020, primarily due to differences in pre-tax income positions and timing of discrete tax items.

Liquidity and Capital Resources

Cash Requirements and Sources

We need capital resources to maintain and expand our business. We expect our cash requirements to increase significantly in the foreseeable future as we sponsor clinical trials for, seek regulatory approvals of, and develop, manufacture and market our current development-stage product candidates and pursue strategic acquisitions of businesses or assets. Our future capital expenditures include projects to upgrade, expand, and improve our manufacturing facilities in the United States, China, and France. Our cash obligations include the principal and interest payments due on our existing loans and lease payments, as described below and throughout this Quarterly Report. 

As of September 30, 2021, our foreign subsidiaries collectively held $13.5 million in cash and cash equivalents. Cash or cash equivalents held at foreign subsidiaries are not available to fund the parent company’s operations in the United States. We believe that our cash reserves, operating cash flows, and borrowing availability under our credit facilities will

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be sufficient to fund our operations for at least the next 12 months from the date of filing of this Quarterly Report on Form 10-Q. We expect additional cash flows to be generated in the longer term from future product introductions, although there can be no assurance as to the receipt of regulatory approval for any product candidates that we are developing or the timing of any product introductions, which could be lengthy or ultimately unsuccessful.

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

Working capital increased by $38.2 million to $205.7 million at September 30, 2021, compared to $167.5 million at December 31, 2020.

Cash Flows from Operations

The following table summarizes our cash flows used in operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020:

	Nine Months Ended September 30,
	2021		2020
	(in thousands)
Statement of Cash Flow Data:
Net cash provided by (used in)
Operating activities	$	57,553	$	40,373
Investing activities		(16,718)		(24,239)
Financing activities		(28,322)		(2,019)
Effect of exchange rate changes on cash		(175)		110
Net increase in cash, cash equivalents, and restricted cash	$	12,338	$	14,225

Sources and Use of Cash

Operating Activities

Net cash provided by operating activities was $57.6 million for the nine months ended September 30, 2021, which included net income of $43.5 million. Non-cash items comprised primarily of $17.7 million of depreciation and amortization, $14.8 million of share-based compensation expense and a $13.6 million gain relating to the deconsolidation of Hanxin and its subsidiaries as result of the ANP restructuring during the third quarter of 2021.

Additionally, for the nine months ended September 30, 2021, there was a net cash outflow from changes in operating assets and liabilities of $12.9 million, which resulted from an increase in accounts receivable as well as an increase in inventories, which was partially offset by an increase in accounts payable and accrued liabilities. Accounts payable and accrued liabilities increased primarily due to the timing of payments. The increase in accounts receivable was due to both increases in sales and the timing of sales.

Net cash provided by operating activities was $40.4 million for the nine months ended September 30, 2020, which included net income of $6.9 million. Non-cash items were primarily comprised of $15.7 million of depreciation and amortization, and $16.2 million of share-based compensation expense. Additionally, for the nine months ended September 30, 2020, there was a net cash outflow from changes in operating assets and liabilities of $4.9 million, which resulted from an increase in accounts receivable, which was partially offset by a decrease in inventory, as well as an increase in accounts payable and accrued liabilities. The increase in accounts receivable was due to the timing of sales. Accounts payable and accrued liabilities increased primarily due to the timing of payments.

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Investing Activities

Net cash used in investing activities was $16.7 million for the nine months ended September 30, 2021, primarily as a result of $20.6 million in purchases of property, plant, and equipment, which included $11.0 million incurred in the United States, $0.6 million in France, and $9.0 million in China, offset by, increase in cash of $5.0 million relating to short-term investment activities.

Net cash used in investing activities was $24.2 million for the nine months ended September 30, 2020, primarily as a result of $24.5 million in purchases of property, plant, and equipment, which included $5.9 million incurred in the United States, $2.7 million in France, and $15.9 million in China.

Financing Activities

Net cash used in financing activities was $28.3 million for the nine months ended September 30, 2021, primarily as a result of $54.0 million in payments relating to the purchase of additional ANP ownership interest in connection with the ANP restructuring completed during the third quarter of 2021 (see Note 3 to the condensed consolidated financial statements). We borrowed $70.0 million in connection with a credit agreement with Capital One N.A., which was partially offset by $37.3 million in principle payments of our long-term debt and lines of credit. We used $15.4 million to purchase treasury stock and received $10.3 million in net proceeds from the settlement of share-based compensation awards under our equity plans.

Net cash used in financing activities was $2.0 million for the nine months ended September 30, 2020, primarily as a result of $21.0 million used to purchase treasury stock offset by $21.3 million in net proceeds from the settlement of share-based compensation awards under our equity plans. Additionally, we also made $6.3 million in principal payments on our long-term debt and received $4.1 million from borrowings on our lines of credit, of which $3.1 million was converted into an equipment loan during the year.

Indebtedness

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

Contractual Obligations

There have been no material changes outside the ordinary course of our business in the contractual obligations disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, except that our outstanding debt obligations have changed as follows:

	September 30,		December 31,
	2021		2020		Change
	(in thousands)
Short-term debt and current portion of long-term debt	$	2,256	$	12,263	$	(10,007)
Long-term debt		75,552		34,186		41,366
Total debt	$	77,808	$	46,449	$	31,359

As of September 30, 2021, we had $84.6 million in unused borrowing capacity under revolving lines of credit with Capital One N.A. and China Merchant Bank.

Critical Accounting Policies

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes to the financial statements. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially

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from those estimates under different assumptions or conditions. A summary of our critical accounting policies is presented in Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2020.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Summary of Significant Accounting Policies”.

Off-Balance Sheet Arrangements

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

Government Regulation

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

From June 14 through June 22, 2021, our Amphastar facility in Rancho Cucamonga, California was subject to a pre-approval inspection by the FDA. The inspection included a review of our corrective actions taken from the previous cGMP inspection in February 2019, as well as review of data to support our pending applications. The inspections resulted in multiple observations on Form 483. We fully responded to those observations on July 14, 2021. We believe that our responses to the observations will satisfy the requirements of the FDA and that no significant further actions will be necessary.

From July 12 through July 16, 2021, our IMS facility in South El Monte, California was subject to a post-approval inspection by the FDA. The inspection included a review progress and updates since the October 2019 pre-approval inspection. The inspection resulted in no Form 483 findings. No further actions will be necessary.

From July 12 through July 14, 2021, our Armstrong facility in Canton, Massachusetts was subject to a routine inspection by the FDA. The inspection included a review of compliance with FDA regulations relating to Good Manufacturing Practices. The inspection resulted in no Form 483 findings. No further actions will be necessary.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Except for the broad, ongoing effects of the COVID-19 pandemic as a result of its negative impact on the global economy and financial markets, there have been no material changes in market risk from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2020. We are exposed to market risk in the ordinary course of business. Market risk represents the potential loss arising from adverse changes in the value of financial instruments. The risk of loss is assessed based on the likelihood of adverse changes in fair values, cash flows or future earnings. We are exposed to market risk for changes in the market values of our investments (Investment Risk), the impact of interest rate changes (Interest Rate Risk), and the impact of foreign currency exchange changes (Foreign Currency Exchange Risk).

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

Inherent Limitations of Internal Controls

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

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For information regarding legal proceedings, see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Litigation”.

ITEM 1A. RISK FACTORS

Except as noted below, there were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on March 15, 2021.

Our business may be adversely affected by the ongoing COVID-19 pandemic or other epidemics.

The ongoing COVID-19 pandemic, including the recent Delta variant, has continued to impact worldwide economic activity and financial markets. While three vaccines have received Emergency Use Authorization from the FDA, the COVID-19 pandemic remains a challenge to our business until it is abated. Mass and rapid production of the vaccines, for example, has placed increased pressure on the availability of supplies that are also used in our products, such as glass vials and needles. The COVID-19 pandemic is imposing additional burdens on our business to comply with regulations imposed by the State of California. The COVID-19 pandemic may also disrupt the operations of our customers, suppliers and partners for an indefinite period of time, including as a result of travel restrictions and/or business shutdowns, all of which could negatively impact our business and results of operations, including cash flows. Disruptions to our manufacturing partners and suppliers could result in disruption to the production of our products and failure to satisfy demand. More generally, the outbreak of COVID-19 could adversely affect economies and financial markets globally and nationally, potentially leading to an economic downturn, which could decrease spending and adversely affect demand for our products and harm our business and results of operations. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future. Specifically, difficult macroeconomic conditions, increased and prolonged unemployment or a decline in business confidence as a result of the COVID-19 pandemic, could have a continuing adverse effect on the demand for some of our products. The degree of impact of the COVID-19 pandemic on our business will depend on several factors, such as the duration and the extent of the pandemic, as well as actions taken by governments, businesses, and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time.

As a result of the consequences of the COVID-19 pandemic, FDA has issued various COVID-19 related guidance documents applicable to biopharmaceutical manufacturers and clinical trial sponsors. For example, in March 2020, the FDA issued a guidance, which the FDA subsequently updated, on conducting clinical trials during the pandemic, which describes a number of considerations for sponsors of clinical trials impacted by the pandemic, including the requirement to include in the clinical trial report contingency measures implemented to manage the clinical trial, among others. The FDA also issued a guidance on good manufacturing practice considerations for responding to COVID-19 infection in employees in drug products manufacturing, and a guidance on review timelines for applicant responses to Complete Response Letters when a facility assessment is needed during the COVID-19 public health emergency. These and future guidance documents and regulatory requirements, including future legislation, may require us to develop and implement new policies and procedures, make significant adjustments to our clinical trials, or increase the amount time and resources needed for regulatory compliance, which may impact our clinical development plans and timelines.

Some of our ongoing clinical trials have experienced short term interruptions in the recruitment of patients due to the COVID-19 pandemic, as hospitals prioritize their resources toward the COVID-19 pandemic and governments impose travel restrictions. Additionally, protocols at certain clinical sites have changed which could slow down the pace of clinical trials while also increasing their cost. These conditions may in turn delay spending and delay the results of these trials. Additionally, certain suppliers have delayed shipments to us in 2020 and 2021. These delays may have been caused by manufacturing disruptions due to the COVID-19 pandemic. None of these delays caused delays in our

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manufacturing to date, but future delays could cause manufacturing disruptions at our factories and could also cause lost sales.

It is not possible at this time to estimate the complete impact that the COVID-19 pandemic could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. Infections may resurge or become more widespread and the limitation on our ability to travel and timely sell and distribute our products, as well as any closures or supply disruptions, may be extended for longer periods of time, all of which would have a negative impact on our business, financial condition and operating results. We will continue to monitor the impact of the COVID-19 pandemic on all aspects of our business.

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

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

● disruptions in the construction of the manufacturing facility;

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

● product supply disruptions and increased costs as a result of heightened exposure to changes in the policies of the Chinese government, political unrest or unstable economic conditions in China;

● the imposition of tariffs or other trade barriers as a result of changes in social, political, and economic conditions or in laws, regulations, and policies governing foreign trade, including the tariffs previously implemented and additional tariffs that have been proposed by the U.S. government on various imports from China and by the Chinese government on certain U.S. goods, the scope and duration of which, if implemented, remain uncertain;

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

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

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

We are actively monitoring and assessing the potential impact of the COVID-19 pandemic. This includes evaluating the impact on our employees, suppliers, and logistics providers as well as evaluating governmental actions being taken to curtail the spread of the virus. While the Chinese government has been relaxing work restrictions, at this time, it is

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unclear if the Chinese government will reinstate restrictions or if further restrictions will be put into place by the government. In addition, many countries have placed significant bans on travel to and from China, with many countries and airlines suspending flights to and from mainland China. Any material adverse effect on our employees, suppliers, and logistics providers could have a material adverse effect on our manufacturing operations in China or the supply of raw materials or APIs originating from China.

Our epinephrine prefilled syringe product is marketed without FDA approval and may be subject to enforcement actions by the FDA.

Our epinephrine prefilled syringe prescription product is marketed without FDA approval. This products, like many other prescription drugs on the market that have not been formally evaluated as being effective by the FDA, contain active ingredients that were first marketed prior to the enactment of the Federal Food, Drug, and Cosmetic Act, or FFDCA. The FDA has assessed this product in a program known as the “Prescription Drug Wrap-Up” and has stated that this drug cannot be lawfully marketed unless they comply with certain “grandfather” exceptions to the definition of “new drug” in the FFDCA. These exceptions have been strictly construed by FDA and by the courts, and the FDA has stated that it is unlikely that any of the unapproved prescription drugs on the market, including our drug, qualify for the exceptions. At any time, the FDA may require that our unapproved prescription drug be submitted for approval and may direct us to recall this product and/or cease marketing the product until they are approved. The FDA may also take enforcement actions based on our marketing of this unapproved product, including but not limited to the issuance of an untitled letter or a warning letter, judicial action seeking an injunction, product seizure and/or civil or criminal penalties. The enforcement posture could change at any time and our ability to market such drugs could terminate with little or no notice. Moreover, if our competitors seek and obtain approval and market FDA-approved prescription products that compete against our unapproved prescription product, we would be subject to a higher likelihood that the FDA may seek to take action against our unapproved product. Such competitors have brought and may bring claims against us alleging unfair competition or related claims.

As a result of our meetings with the FDA in 2009, we decided to discontinue all of our products that were subject to the Prescription Drug Wrap-Up program, with the exception of epinephrine in vial form. These products were all produced at our subsidiary, IMS. During the third quarter of 2010, the FDA requested that we reintroduce several of the withdrawn products to help address a national drug shortage, while we prepared and filed applications for approval of the products. Between August and October 2010, we reintroduced our epinephrine prefilled syringes.

In February 2017, the FDA requested that we discontinue the manufacturing and distribution of our epinephrine injection, USP vial product, which had been marketed under the “grandfather” exception to the “FDA’s Prescription Drug Wrap-Up program”. We discontinued selling this product in the second quarter of 2017. In April 2020, the FDA granted approval of our Epinephrine Injection, USP 30mg/mL Multiple Dose Vial, and launched the product in May 2020.

The FDA granted approval of our Atropine Sulfate Injection 0.1mg/mL in the 10mL Luer-Jet^® Prefilled Syringe in October 2020, our Dextrose Injection 50% in the 50mL Luer-Jet^® Prefilled Syringe in March 2021 and our Morphine Sulfate Injection USP, 1mg/mL 30mL in April 2021.

Our only unapproved product currently on the market is epinephrine prefilled syringes. For the years ended December 31, 2020, 2019, and 2018, we recorded net revenues of $13.2 million, $13.9 million, and $10.1 million, respectively, for epinephrine prefilled syringes and for the nine months ended September 30, 2021 and 2020, we recorded net revenues of $19.3 million and $10.9 million, respectively, for this product. We have filed an NDA with respect to our remaining unapproved product in order to mitigate all risk associated with the marketing of unapproved drug products. Prior to the approval of our NDA submission, we continue to operate in compliance with the FDA Compliance Policy Guide, CPG Sec. 440.100 Marketed New Drugs Without Approved NDAs and ANDAs.

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Our business and operations have been impacted in the past, and may be impacted in the future, in the event of system breach or failure.

We, our collaborators, third-party providers, distributors, customers and other contractors utilize information technology systems and networks, including internet-based systems, to transmit, store and otherwise process electronic data in connection with our business activities, including our supply chain processes, operations and communications. This includes our clinical data and business proprietary information, Electronic Data Interchange, or EDI, on purchase orders, invoices, chargebacks, etc. We, and others on our behalf, also collect, transmit, store and otherwise process certain data relating to individuals, including about our personnel, business partners, and others, which may be subject to applicable data protection laws and regulations that require adoption of minimum information security standards. The cost of compliance with applicable data protection laws and regulations have increased and may increase in the future.

Despite our implementation of security measures to protect the confidentiality, integrity, and availability of the systems and data within our control from various threats (e.g., cyber-attack, insider threat, accidental disclosure, intellectual property theft and economic espionage, exploitable defects or bugs in our third-party providers’ systems, natural disaster, war, terrorism, telecommunications and electrical outage), risks remain, and our systems and networks and the systems and networks of third parties that support us and our services may be breached or disrupted due to these threats. Techniques used to sabotage or obtain unauthorized access to systems and networks are constantly evolving and, in some instances, are not identified until or after they are launched against a target. We and our third-party providers may be unable to anticipate these techniques, discover threats and react in a timely manner, or implement adequate preventative or mitigating measures. Further, system breaches, malware, ransomware, computer hacking, and insider threats have become more prevalent, and experts have warned that the COVID-19 pandemic has resulted in increased threats and malicious activity.

Potential legal (regulatory or contractual), financial, operational, and reputational harm may arise from the accidental or unlawful destruction, damage, loss, unavailability, alteration, impairment, misuse, unauthorized disclosure of, or unauthorized access to (i) our data, which is transmitted, stored or otherwise processed by us or by collaborators, third-party providers, distributors and other contractors on our behalf (a “data security incident”); and (ii) the systems upon which we rely for our operations (an “other event”). For example:

● The accidental or unlawful loss, unavailability or alteration of clinical trial data from completed or ongoing clinical trials for any of our product candidates could affect our ability to operate, result in delays in our development and regulatory approval efforts, and significantly increase our costs to recover or reproduce the data.

● The size and complexity of our systems may make them potentially vulnerable to breakdown or interruption, whether due to computer viruses or other causes, which may result in the loss of key information or the impairment of production and other supply chain processes, adversely affecting our business.

● Any data security incident or other event, either on its own or as a pattern, may require costly response and remediation efforts, trigger notification obligations under breach notification laws, result in litigation or adverse regulatory action arising from or related to such an incident or event, damage our reputation, and result in significant additional expense to implement further data protection measures. Integrating the systems and data of any acquired entity may increase these risks due to unforeseen threats and vulnerabilities.

● Similarly, any data security incident or other event experienced by our collaborators, third-party providers, distributors and other contractors may hinder our product development, supply chain, other business operations, or our regulatory and contractual obligations to others and could also give rise to litigation or adverse regulatory action.

We have experienced and may continue to experience cyberattacks of varying degrees from time to time. In the second quarter of 2020, we were subject to a cyber-event that resulted in a temporary disruption to some of our internal computer systems. The breach was not materially disruptive to the business. In response to this incident, we engaged a third-party forensic expert to investigate, and determined that cyber criminals illegally obtained certain personal information of certain current and former employees. We notified affected individuals and regulators, as we deemed was

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required or appropriate. We have incurred costs to respond to this incident, but we did not incur any penalties or settlements as a result of this event. We will continue to incur costs to support our efforts to enhance our security measures.

To enhance oversight of cyber issues, management now updates the Board of Directors on cyber security matters on a quarterly basis, and the Board of Directors has assigned oversite of cyber security to the Audit Committee. Additionally, the Company implemented a security training and compliance program, which employees, with access to information technology, must complete annually or more often if new issues arise.

There can be no assurance that we will be successful in preventing data security incidents or other events nor that we will be successful in mitigating their effects, despite the implementation of security measures for systems and data within our control. Similarly, there can be no assurance that our collaborators, third-party providers, distributors and other contractors will be successful in protecting our data on their systems or in protecting other systems upon which we may rely. Furthermore, breach notification laws are not consistent among jurisdictions, and compliance and other measures in the event of a widespread data security incident could result in a substantial cost and diversion of resources, distract management and technical personnel. Any such data security incident or other event could have a material adverse effect on our business and prospects.

Although we maintain cyber insurance coverage that may cover certain of our losses in connection with a security breach or other security incident, we cannot be certain our insurance coverage will be adequate for losses actually incurred, that insurance will continue to be available to us on commercially reasonable terms (if at all) or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, or denials of coverage, could have a material adverse effect on our business, including our financial condition, results of operations and reputation.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c)Issuer Purchases of Equity Securities

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

				Total Number of Shares	Maximum Number of
		Average		Purchased as Part of	Shares that May Yet Be
	Total Number of Shares	Price Paid		Publicly Announced Plans	Purchased Under the Plans
Period	Purchased (1)	per Share		or Programs	or Programs
July 1 – July 31, 2021	53,201	$	20.30	53,201	—
August 1 – August 31, 2021	88,568		19.62	88,568	—
September 1 – September 30, 2021	175,443		18.64	175,443	—

(1) During the third quarter of 2021, we repurchased shares of our common stock as part of the share buyback program authorized by our Board of Directors on August 4, 2020. In August 2021, our Board of Directors authorized an increase of $20.0 million to the share buyback program. As of September 30, 2021, $21.9 million remained available under such program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

Exhibit No.	Description
10.1	Credit Agreement dated August 4, 2021, between Amphastar Pharmaceuticals, Inc. and Capital One N.A. in the original sum of $140,000,000.
10.2*	Share Purchase Agreement by and between Amphastar Pharmaceuticals, Inc. and Nanjing Quanqia Enterprise Management Consulting, LLP, dated August 19, 2021.
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1#	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2#	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definitions Linkbase Document
104	Cover Page Interactive File (Formatted as Inline XBRL and contained in Exhibit 101)

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

* Certain confidential information contained in this Exhibit was omitted by means of marking such portions with brackets because the identified confidential information (i) is not material and (ii) would be competitively harmful if publicly disclosed.

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SIGNATURES

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

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

Date: November 9, 2021

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

Date: November 9, 2021

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