Amphastar Pharmaceuticals Inc

Previous wording

Our largest products by net revenues currently include BAQSIMI®, Primatene MIST®, glucagon, epinephrine, lidocaine, enoxaparin sodium, and phytonadione. In March 2023, the FDA approved our naloxone hydrochloride nasal spray 4mg, REXTOVYTM, which we recently launched.

Current wording

Our largest products by net revenues currently include BAQSIMI®, Primatene MIST®, glucagon, epinephrine, lidocaine, enoxaparin sodium, and phytonadione.

Previous wording

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

Current wording

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

Previous wording

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.

Current wording

To complement our internal growth and expertise, we have made several strategic acquisitions of companies, products and technologies. These acquisitions collectively have strengthened our injectable, inhalation, and intra-nasal 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.

Previous wording

Recent uncertain macroeconomic conditions and worldwide events, including extended periods of heightened inflation, rising interest rates and instability in the financial systems, ongoing geopolitical conflicts such as the Russia-Ukraine and Middle East conflicts, as well as rising healthcare costs continue to pose challenges to our business.

Current wording

Recent uncertain macroeconomic conditions and worldwide events, including extended periods of heightened inflation, high interest rates and instability in the financial systems, ongoing geopolitical conflicts such as the Russia-Ukraine and Middle East conflicts, as well as rising healthcare costs continue to pose challenges to our business.

Previous wording

In connection with the acquisition of BAQSIMI® in June 2023, we entered into a Transition Service Agreement, or the TSA with Lilly pursuant to which Lilly agreed, for a period of time not to exceed 18 months to provide certain services to us to support the transition of the BAQSIMI® operations, including with respect to the conduct of certain clinical, regulatory, medical affairs, and commercial sales channel activities. Revenues from the sales of BAQSIMI® under the TSA with Lilly during the three months ended March 31, 2024, were recognized on a net basis similar to a royalty arrangement. The impact of this revenue recognition method resulted in lower reported revenues relative to the revenue that would have been reported had we recognized gross revenues from sales of BAQSIMI®.

Current wording

conduct of certain clinical, regulatory, medical affairs, and commercial sales channel activities. Revenues from the sales of BAQSIMI® under the TSA with Lilly during the transition period were recognized on a net basis, similar to a royalty arrangement. The impact of this revenue recognition method resulted in lower reported revenues relative to the revenue that would have been reported had we recognized gross revenues from sales of BAQSIMI®.

Previous wording

During the first quarter of 2024, we assumed distribution responsibilities from Lilly to our customers in the United States, which comprises approximately 80% of BAQSIMI® worldwide revenues, as well as certain countries in Europe. As a result, for a portion of the quarter ended March 31, 2024, we started recognizing gross revenues and cost of revenues from the sales of BAQSIMI® in these countries, which is classified as product revenue, net and cost of revenue, respectively on the condensed consolidated statement of operations. The assumption of distribution in countries outside the United States will occur on a country-by-country basis once the marketing authorizations for each territory have been transferred to us, we have set up distribution agreements, and we have obtained sufficient inventory.

Current wording

During the first quarter of 2024, we assumed distribution responsibilities from Lilly to our customers in the United States, which comprises approximately 80% of BAQSIMI® worldwide revenues, as well as certain countries in Europe. As a result, we started recognizing gross revenues and cost of revenues from the sales of BAQSIMI® in these countries, which is classified as product revenue, net and cost of revenue, respectively on the condensed consolidated statement of operations. The assumption of distribution in countries outside the United States will occur on a country-by-country basis once the marketing authorizations for each territory have been transferred to us, we have set up distribution agreements, and we have obtained sufficient inventory.

Previous wording

In the first quarter of 2024, we assumed distribution responsibilities for BAQSIMI® from Lilly to our customers in the United States, and certain countries in Europe. As a result, a portion of our first quarter BAQSIMI® revenues of $13.8 million are recognized similar to other products.

Current wording

In the first quarter of 2024, we assumed distribution responsibilities for BAQSIMI® from Lilly to our customers in the United States, and certain countries in Europe. As a result, $30.9 million of our second quarter BAQSIMI® sales were recognized separate from the cost of revenues, similar to our other products.

Previous wording

caused by other supplier shortages. Primatene MIST® sales increased primarily due to an increase in unit volumes and a higher average selling price. The decrease in the sales of lidocaine is primarily due to lower unit volumes, as a result of other suppliers returning to their historical distribution levels. The decrease in sales of enoxaparin and naloxone was primarily due to a decrease in unit volumes. The decrease in other finished pharmaceutical products was primarily due to lower unit sales of MPA as our API supplier discontinued making the active ingredient. This decrease was partially offset by higher unit volumes of dextrose and sodium bicarbonate due to an increase in demand caused by other supplier shortages during the quarter, as well as the launch of regadenoson in April 2023.

Current wording

The increase in sales of epinephrine was primarily due to an increase in unit volumes, as a result of an increase in demand caused by other supplier shortages. Primatene MIST® sales increased primarily due to an increase in unit volumes. The decrease in the sales of lidocaine and phytonadione were primarily due to lower unit volumes, as a result of other suppliers returning to their historical distribution levels. The decrease in sales of enoxaparin and naloxone was primarily due to a decrease in unit volumes. The decrease in other finished pharmaceutical products was primarily due to not having any sales of medroxyprogesterone, or MPA, during the quarter, as our API supplier discontinued making the active ingredient, as well as, lower unit sales of atropine, as a result of other suppliers returning to their historical distribution levels. This decrease was partially offset by higher unit volumes of dextrose and sodium bicarbonate due to an increase in demand caused by other supplier shortages during the quarter.

Previous wording

Other revenues include the portion of BAQSIMI® sales made by Lilly on our behalf under the TSA which amounted to $14.2 million during the three months ended March 31, 2024, based on total BAQSIMI® sales of $24.6 million as reported to us by Lilly, which was recognized on a net basis similar to a royalty arrangement.

Current wording

Other revenues include the portion of BAQSIMI® sales made by Lilly on our behalf under the TSA which amounted to $3.0 million during the three months ended June 30, 2024, based on total BAQSIMI® sales of $7.6 million as reported to us by Lilly, which was recognized on a net basis, similar to a royalty arrangement.

Previous wording

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, as of March 31, 2024, we experienced a backlog of approximately $6.8 million for various products, primarily as a result of competitor shortages and supplier constraints. Historically, our backlog has not been a meaningful indicator in any given period of our ability to achieve any particular level of overall revenue or financial performance.

Current wording

A significant portion of our customer shipments in any period relate to orders received and shipped in the same period, generally resulting in low product backlog relative to total shipments at any time. As of June 30, 2024, we experienced an immaterial amount of backlog for various products, primarily as a result of competitor shortages and supplier constraints. Historically, our backlog has not been a meaningful indicator in any given period of our ability to achieve any particular level of overall revenue or financial performance.

Previous wording

The decrease in gross margins during the three months ended March 31, 2024, is primarily due to an increase in depreciation and amortization expenses related to the acquired BAQSIMI® assets, an increase in labor costs and certain component costs, as well as charges included in cost of revenues to adjust our inventory and related purchase commitments to their net realizable value. This was partially offset by the increase in sales of glucagon, Primatene MIST®, and epinephrine, which are higher-margin products, the sales of regadenoson, which we launched in April 2023, as well as the sales of BAQSIMI® into the United States and certain countries in Europe as we assumed distribution responsibilities from Lilly in the first quarter of 2024. Additionally, as a result of the TSA with Lilly, revenues relating to BAQSIMI® sold by Lilly are reported on a net basis similar to a royalty arrangement with no amount reported as cost of revenues.

Current wording

The increase in gross margins during the three months ended June 30, 2024, is primarily due to an increase in sales of Primatene MIST® and epinephrine, which are higher-margin products, as well as the sales of BAQSIMI® in the United States and certain European countries, following our assumption of distribution responsibilities from Lilly in the first quarter of 2024. As a result of the TSA with Lilly, the portion of revenues relating to BAQSIMI® sales made by Lilly on our behalf are reported on a net basis, similar to a royalty arrangement with no amount reported as cost of revenues. The increase in gross margins was partially offset by an increase in depreciation and amortization expenses related to the acquired BAQSIMI® assets, an increase in labor costs and certain component costs, as well as charges included in cost of revenues to adjust our inventory and related purchase commitments to their net realizable value.

Previous wording

We are experiencing increased costs for labor and certain APIs and purchased components. However, we believe that this trend will be offset by increased sales of our higher-margin products, including BAQSIMI®, glucagon, vasopressin, ganirelix, regadenoson and new products we anticipate launching in 2024.

Current wording

We are currently experiencing increased costs for labor as well as certain APIs and purchased components. However, we believe that this trend will be offset longer term by increased sales of our higher-margin products, including BAQSIMI®, Primatene MIST®, vasopressin, ganirelix, regadenoson and new products we anticipate launching.

Previous wording

Our effective tax rate for the three months ended March 31, 2024 decreased in comparison to the three months ended March 31, 2023, primarily due to timing of discrete tax items. For more information regarding our income taxes, see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 15. Income Taxes.”

Current wording

Our effective tax rate for the three months ended June 30, 2024 increased in comparison to the three months ended June 30, 2023, primarily due to differences in pre-tax income positions and timing of discrete tax items. For more information regarding our income taxes, see “Part I – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 15. Income Taxes.”

Previous wording

Beginning in 2024, many countries are implementing some or all of the Organisation for Economic Co-operation and Development’s Inclusive Framework on Base Erosion and Profit Shifting Two-Pillar in response to tax challenges arising from the digitalization of the global economy. While we continue to evaluate those countries’ implementations, we do not expect those implementations to have a material impact on our consolidated financial statements in 2024.

Current wording

Beginning in 2024, many countries are implementing some or all of the Organization for Economic Co-operation and Development’s Inclusive Framework on Base Erosion and Profit Shifting Two-Pillar in response to tax challenges arising from the digitalization of the global economy. While we continue to evaluate those countries’ implementations, we do not expect those implementations to have a material impact on our consolidated financial statements in 2024.

Previous wording

We anticipate that sales of naloxone and enoxaparin will continue to fluctuate in the future due to competitive dynamics. We also anticipate that sales of epinephrine and other finished pharmaceutical products will continue to fluctuate depending on the ability of our competitors to supply market demands. Sales of medroxyprogesterone were essentially halted as of August 2023, as our API supplier discontinued manufacturing this product. During the fourth quarter of 2023, we qualified our subsidiary, ANP, to manufacture this API. Sales of medroxyprogesterone totaled $0.2 million in the three months ended March 31, 2024, compared to $5.4 million in the three months ended March 31, 2023. We plan to relaunch the product during the second half of 2024.

Current wording

We anticipate that sales of naloxone and enoxaparin will continue to fluctuate in the future due to competitive dynamics. We also anticipate that sales of epinephrine and other finished pharmaceutical products will continue to fluctuate depending on the ability of our competitors to supply market demands. Sales of medroxyprogesterone were essentially halted as of August 2023, as our API supplier discontinued manufacturing this product. During the fourth quarter of 2023, we qualified our subsidiary, ANP, to manufacture this API. Sales of medroxyprogesterone totaled $0.2 million during the six months ended June 30, 2024, compared to $10.0 million during the six months ended June 30, 2023. We plan to relaunch the product during the second half of 2024.

Previous wording

Sales of API primarily depend on the timing of customer purchases, and will be lower because MannKind, our largest RHI customer, is in the process of qualifying our upgraded Recombinant Human Insulin, or RHI, which uses our internally produced inclusion bodies made at AFP. Until they complete this process, we anticipate sales will be at levels lower than historical ones.

Current wording

Sales of API primarily depend on the timing of customer purchases, and will be lower for the next two years because MannKind, our largest RHI customer, is in the process of qualifying our upgraded Recombinant Human Insulin, or RHI, which uses our internally produced inclusion bodies made at AFP. Until they complete this process, we anticipate sales will be at levels lower than historical.

Previous wording

The decrease in research and development expenses is primarily due to a decrease in clinical trial expense, as well as a decrease in materials and supply expense, as a result of a ramp-up of expenses in 2023 for our insulin and inhalation pipeline products.

Current wording

The decrease in research and development expenses is primarily due to a decrease in clinical trials expense, as well as a decrease in materials and supply expense, as a result of a ramp-up of expenses in 2023 for our insulin and inhalation pipeline products. This was partially offset by an increase in salary and personnel-related expenses.

Previous wording

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 and China, including a significant increase in capital expenditures over the next few years. We plan to fund this facility expansion primarily with cash flows from operations. Our cash obligations include the

Current wording

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

Previous wording

As of March 31, 2024, our foreign subsidiaries collectively held $11.2 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 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.

Current wording

As of June 30, 2024, our foreign subsidiaries collectively held $8.4 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 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.

Previous wording

Working capital increased $35.7 million to $299.9 million at March 31, 2024, compared to $264.2 million at December 31, 2023.

Current wording

Working capital increased $81.5 million to $345.7 million at June 30, 2024, compared to $264.2 million at December 31, 2023.

Previous wording

The following table summarizes our cash flows used in operating, investing, and financing activities for the three months ended March 31, 2024 and 2023:

Current wording

The following table summarizes our cash flows used in operating, investing, and financing activities for the six months ended June 30, 2024 and 2023:

Previous wording

Net cash provided by operating activities was $55.3 million for the three months ended March 31, 2024, which included net income of $43.2 million. Non-cash items comprised primarily of $16.1 million of depreciation and amortization, which includes $6.8 million related to deprecation of property, plant and equipment, $6.2 million related to amortization of product rights, trademarks and patents, $2.1 million related to amortization of discounts, premiums, and debt issuance costs. Additionally, non-cash items included share-based compensation expense of $7.4 million.

Current wording

Net cash provided by operating activities was $124.4 million for the six months ended June 30, 2024, which included net income of $81.1 million. Non-cash items comprised primarily of $32.7 million of depreciation and amortization, which includes $13.8 million related to deprecation of property, plant and equipment; $12.4 million related to amortization of product rights, trademarks and patents; $4.6 million related to amortization of discounts, premiums, and debt issuance costs; and share-based compensation expense of $13.1 million.

Previous wording

Additionally, for the three months ended March 31, 2024, there was a net cash outflow from changes in operating assets and liabilities of $7.3 million, which resulted from an increase in accounts receivables and 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 increase in accrued customer fees and rebates associated with BAQSIMI® sales. The increase in accounts receivables was primarily due to the increase in sales, as well as the timing of payment from Lilly for BAQSIMI® revenues during the quarter, which was received subsequent to the quarter end.

Current wording

Additionally, for the six months ended June 30, 2024, there was a net cash inflow from changes in operating assets and liabilities of $1.4 million, which resulted primarily from an increase in accounts payable and accrued liabilities, which was partially offset by an increase in accounts receivables and inventories. Accounts payable and accrued liabilities increased primarily due to the increase in accrued customer fees and rebates associated with BAQSIMI® sales. The increase in accounts receivables was primarily due to the increase in sales. The increase in inventories was primarily due to the increased purchases of certain raw materials and components.

Previous wording

Net cash provided by operating activities was $40.4 million for the three months ended March 31, 2023, which included net income of $26.0 million. Non-cash items comprised primarily of $7.4 million of depreciation and amortization and $6.1 million of share-based compensation expense. Additionally, for the three months ended March 31, 2023, there was a net cash outflow from changes in operating assets and liabilities of $0.1 million, which resulted from an increase in accounts receivables, 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 receivables was due to both increases in sales and timing of sales.

Current wording

Net cash provided by operating activities was $95.3 million for the six months ended June 30, 2023, which included net income of $52.2 million. Non-cash items comprised primarily of $14.4 million of depreciation and amortization, $11.0 million of share-based compensation expense, and an impairment charge of $2.7 million relating to the impairment of the IMS (UK) international product rights. Additionally, for the six months ended June 30, 2023, there was a net cash inflow from changes in operating assets and liabilities of $8.3 million, which resulted from an increase in accounts payable and accrued liabilities, which was partially offset by an increase in accounts receivables. Accounts payable and accrued liabilities increased primarily due to the timing of payments. The increase in accounts receivables was due to both increases in sales and timing of sales.

Previous wording

Net cash provided by investing activities was $15.2 million for the three months ended March 31, 2024, primarily as a result of a net cash inflow of $25.0 million from sales and purchases of investments during the quarter. This was partially offset by $8.8 million in purchases of property, plant, and equipment, which included $3.7 million incurred in the United States, $0.4 million in France, and $4.7 million in China.

Current wording

Net cash used in investing activities was $54.7 million for the six months ended June 30, 2024, primarily due to the payment of $129.0 million relating to the BAQSIMI® acquisition, $14.8 million in purchases of property, plant, and equipment, which included $6.9 million incurred in the United States, $1.6 million in France, and $6.3 million in China. This was partially offset by a net cash inflow of $90.8 million from sales and purchases of investments during the quarter.

Previous wording

Net cash used in investing activities was $6.3 million for the three months ended March 31, 2023, primarily as a result of $9.5 million in purchases of property, plant, and equipment, which included $6.6 million incurred in the United States, $0.1 million in France, and $2.8 million in China. This was partially offset by a net cash inflows from purchases and sales of short-term investments during the period of $3.5 million.

Current wording

Net cash used in investing activities was $514.9 million for the six months ended June 30, 2023, primarily as a result of $500.8 million relating to the BAQSIMI®acquisition, $18.5 million in purchases of property, plant, and equipment, which included $13.5 million incurred in the United States, $0.6 million in France, and $4.4 million in China. This was partially offset by a net cash inflows from purchases and sales of short-term investments during the period of $5.4 million.

Previous wording

Net cash used in financing activities was $13.6 million for the three months ended March 31, 2024, primarily as a result of $17.3 million used to settle share-based compensation awards under our equity plan and for tax payments related to the net share settlement of options exercised. This was partially offset by $4.1 million of net proceeds from borrowings on our line of credit.

Current wording

Net cash used in financing activities was $24.3 million for the six months ended June 30, 2024, primarily as a result of $11.5 million used to settle share-based compensation awards under our equity plan and for tax payments related to the net share settlement of options exercised and $8.5 million used to purchase treasury stock. Additionally, we made $8.1 million in principal payments on our long-term debt, primarily as a result of paying off the mortgage loan with East West Bank. This was partially offset by $4.1 million of net proceeds from borrowings on our line of credit in China.

Previous wording

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and notes to the financial statements. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. A summary of our critical accounting policies is presented in Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to our critical accounting policies as compared to the critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

could differ materially from those estimates under different assumptions or conditions. A summary of our critical accounting policies is presented in Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to our critical accounting policies as compared to the critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2023.