Amneal Pharmaceuticals, Inc. [AMRX] Filings

10-Q 1 amrx-20230930.htm 10-Q amrx-20230930

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, 2023


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

For the transition period from to

Commission file number 001-38485

Amneal Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)


Delaware			32-0546926
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
Amneal Pharmaceuticals, Inc. 400 Crossing Boulevard, Bridgewater, NJ			08807
(Address of principal executive offices)			(Zip Code)

(908) 947-3120

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.01 per share	AMRX	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 7, 2023, there were 306,544,199 shares of Class A common stock outstanding, with a par value of $0.01.

Amneal Pharmaceuticals, Inc.

Table of Contents


Cautionary Note Regarding Forward-Looking Statements			2

PART I - FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)	4
		Consolidated Statements of Operations	4
		Consolidated Statements of Comprehensive Income (Loss)	5
		Consolidated Balance Sheets	6
		Consolidated Statements of Cash Flows	7
		Consolidated Statements of Changes in Stockholders' Equity	9
		Notes to Consolidated Financial Statements	11
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
	Item 4.	Controls and Procedures	52

PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings	53
	Item 1A.	Risk Factors	53
	Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchase of Equity Securities	53
	Item 3.	Defaults Upon Senior Securities	53
	Item 4.	Mine Safety Disclosures	53
	Item 5.	Other Information	53
	Item 6.	Exhibits	54

Signatures			55

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q and Amneal Pharmaceuticals, Inc.’s other publicly available documents contain “forward-looking statements” within the meaning of the safe harbor provisions of the United States (“U.S.”) Private Securities Litigation Reform Act of 1995. Management and representatives of Amneal Pharmaceuticals, Inc. and its subsidiaries (“the Company”, “we”, “us”, or “our”) also may from time to time make forward-looking statements. Forward-looking statements do not relate strictly to historical or current facts and reflect management’s assumptions, views, plans, objectives and projections about the future. Forward-looking statements may be identified by the use of words such as “plans,” “expects,” “will,” “anticipates,” “target,” “estimates” and other words of similar meaning in conjunction with, among other things: discussions of future operations; expected operating results and financial performance; impact of planned acquisitions and dispositions; our strategy for growth; product development; regulatory approvals; market position and expenditures.

Because forward-looking statements are based on current beliefs, expectations and assumptions regarding future events, they are subject to uncertainties, risks and changes that are difficult to predict and many of which are outside of our control. Investors should realize that if underlying assumptions prove inaccurate, known or unknown risks or uncertainties materialize, or other factors or circumstances change, our actual results and financial condition could vary materially from expectations and projections expressed or implied in our forward-looking statements. Investors are therefore cautioned not to rely on these forward-looking statements.

Summary of Material Risks

Risks and uncertainties that make an investment in the Company speculative or risky or that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to:

•our ability to successfully develop, license, acquire and commercialize new products on a timely basis;

•the competition we face in the pharmaceutical industry from brand and generic drug product companies, and the impact of that competition on our ability to set prices;

•our ability to obtain exclusive marketing rights for our products;

•our ability to manage our growth through acquisitions and otherwise;

•our revenues derived from the sales of a limited number of products, a substantial portion of which are through a limited number of customers;

•the continuing trend of consolidation of certain customer groups;

•our dependence on third-party suppliers and distributors for raw materials for our products and certain finished goods;

•our substantial amount of indebtedness and our ability to generate sufficient cash to service our indebtedness in the future, and the impact of interest rate fluctuations on such indebtedness;

•our ability to secure satisfactory terms when negotiating a refinancing or other new indebtedness;

•our dependence on third-party agreements for a portion of our product offerings;

•legal, regulatory and legislative efforts by our brand competitors to deter competition from our generic alternatives;

•risks related to federal regulation of arrangements between manufacturers of branded and generic products;

•our reliance on certain licenses to proprietary technologies from time to time;

•the significant amount of resources we expend on research and development;

•the risk of product liability and other claims against us by consumers and other third parties;

•risks related to changes in the regulatory environment, including U.S. federal and state laws related to healthcare fraud abuse and health information privacy and security and changes in such laws;

•changes to Food and Drug Administration product approval requirements;

•the impact of healthcare reform and changes in coverage and reimbursement levels by governmental authorities and other third-party payers;

•our potential expansion into additional international markets subjecting us to increased regulatory, economic, social and political uncertainties;

•our ability to identify, make and integrate acquisitions or investments in complementary businesses and products on advantageous terms;

•the impact of global economic, political or other catastrophic events;

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

•our obligations under a tax receivable agreement may be significant;

•the high concentration of ownership of our Class A Common Stock and the fact that we are controlled by the Amneal Group; and

•such other factors as may be set forth elsewhere in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, particularly in the section 1A. Risk Factors and our public filings with the SEC.

Investors should carefully read our Annual Report on Form 10-K for the year ended December 31, 2022, including the section 1A. Risk Factors, for a description of certain risks that could, among other things, cause our actual results to differ materially from those expressed in our forward-looking statements. Investors should understand that it is not possible to predict or identify all such factors and should not consider the risks described herein and in our Annual Report to be a complete statement of all potential risks and uncertainties. The Company does not undertake to publicly update any forward-looking statement that may be made from time to time, whether as a result of new information or future events or developments.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Amneal Pharmaceuticals, Inc.

Consolidated Statements of Operations

(unaudited; in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net revenue	$	620,040	$	545,557	$	1,776,626	$	1,602,545
Cost of goods sold	387,509		351,327		1,145,888		1,033,225
Gross profit	232,531		194,230		630,738		569,320
Selling, general and administrative	113,006		100,071		320,672		297,542
Research and development	41,375		50,235		117,864		153,781
Intellectual property legal development expenses	886		1,411		3,350		2,996
Acquisition, transaction-related and integration expenses	—		39		—		714
Restructuring and other charges	1,043		581		1,635		1,312
Change in fair value of contingent consideration	3,120		(1,425)		(787)		(1,495)
Insurance recoveries for property losses and associated expenses	—		—		—		(1,911)
(Credit) charges related to legal matters, net	(2,620)		285		(1,039)		249,836
Other operating expense (income)	73		(1,320)		(1,138)		(2,495)
Operating income (loss)	75,648		44,353		190,181		(130,960)
Other (expense) income:
Interest expense, net	(50,909)		(42,391)		(151,081)		(111,349)
Foreign exchange loss, net	(2,939)		(5,491)		(617)		(12,933)
Other income, net	1,157		5,709		4,708		14,770
Total other expense, net	(52,691)		(42,173)		(146,990)		(109,512)
Income (loss) before income taxes	22,957		2,180		43,191		(240,472)
(Benefit from) provision for income taxes	(2,076)		4,570		(1,431)		8,459
Net income (loss)	25,033		(2,390)		44,622		(248,931)
Less: Net (income) loss attributable to non-controlling interests	(15,351)		(299)		(29,966)		123,716
Net income (loss) attributable to Amneal Pharmaceuticals, Inc. before accretion of redeemable non-controlling interest	9,682		(2,689)		14,656		(125,215)
Accretion of redeemable non-controlling interest	—		—		—		(438)
Net income (loss) attributable to Amneal Pharmaceuticals, Inc.	$	9,682	$	(2,689)	$	14,656	$	(125,653)

Net income (loss) per share attributable to Amneal Pharmaceuticals, Inc.'s class A common stockholders:
Basic	$	0.06	$	(0.02)	$	0.10	$	(0.83)
Diluted	$	0.06	$	(0.02)	$	0.09	$	(0.83)
Weighted-average common shares outstanding:
Basic	154,219		151,393		153,363		150,765
Diluted	159,691		151,393		156,284		150,765

The accompanying notes are an integral part of these consolidated financial statements.

Amneal Pharmaceuticals, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(unaudited; in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income (loss)	$	25,033	$	(2,390)	$	44,622	$	(248,931)
Less: Net (income) loss attributable to non-controlling interests	(15,351)		(299)		(29,966)		123,716
Net income (loss) attributable to Amneal Pharmaceuticals, Inc. before accretion of redeemable non-controlling interest	9,682		(2,689)		14,656		(125,215)
Accretion of redeemable non-controlling interest	—		—		—		(438)
Net income (loss) attributable to Amneal Pharmaceuticals, Inc.	9,682		(2,689)		14,656		(125,653)
Other comprehensive (loss) income:
Foreign currency translation adjustments arising during the period	(3,086)		(9,243)		(1,029)		(24,950)
Unrealized (loss) gain on cash flow hedge, net of tax	(5,292)		32,639		(11,250)		100,333
Less: Other comprehensive loss (income) attributable to non-controlling interests	4,160		(11,725)		6,133		(37,905)
Other comprehensive (loss) income attributable to Amneal Pharmaceuticals, Inc.	(4,218)		11,671		(6,146)		37,478
Comprehensive income (loss) attributable to Amneal Pharmaceuticals, Inc.	$	5,464	$	8,982	$	8,510	$	(88,175)

The accompanying notes are an integral part of these consolidated financial statements.

Amneal Pharmaceuticals, Inc.

Consolidated Balance Sheets

(unaudited; in thousands, except per share amounts)


	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	86,929	$	25,976
Restricted cash	8,678		9,251
Trade accounts receivable, net	690,947		741,791
Inventories	576,474		530,735
Prepaid expenses and other current assets	91,444		103,565
Related party receivables	1,603		500
Total current assets	1,456,075		1,411,818
Property, plant and equipment, net	451,852		469,815
Goodwill	598,631		598,853
Intangible assets, net	982,531		1,096,093
Operating lease right-of-use assets	32,523		38,211
Operating lease right-of-use assets - related party	15,876		17,910
Financing lease right-of-use assets	60,548		63,424
Other assets	89,043		103,217
Total assets	$	3,687,079	$	3,799,341
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	557,761	$	538,199
Current portion of liabilities for legal matters	76,828		107,483
Revolving credit facilities	76,000		60,000
Current portion of long-term debt, net	30,533		29,961
Current portion of operating lease liabilities	9,826		8,321
Current portion of operating lease liabilities - related party	3,055		2,869
Current portion of financing lease liabilities	3,098		3,488
Related party payables - short term	3,500		2,479
Total current liabilities	760,601		752,800
Long-term debt, net	2,541,814		2,591,981
Note payable - related party	41,001		39,706
Operating lease liabilities	26,412		32,126
Operating lease liabilities - related party	13,598		15,914
Financing lease liabilities	59,351		60,769
Related party payables - long term	11,534		9,649
Other long-term liabilities	41,388		87,468
Total long-term liabilities	2,735,098		2,837,613
Commitments and contingencies (Notes 5 and 19)
Redeemable non-controlling interests	37,144		24,949
Stockholders' Equity
Preferred stock, $0.01 par value, 2,000 shares authorized, none issued at both September 30, 2023 and December 31, 2022	—		—
Class A common stock, $0.01 par value, 900,000 shares authorized at both September 30, 2023 and December 31, 2022; 154,346 and 151,490 shares issued at September 30, 2023 and December 31, 2022, respectively	1,542		1,514
Class B common stock, $0.01 par value, 300,000 shares authorized at both September 30, 2023 and December 31, 2022; 152,117 shares issued at both September 30, 2023 and December 31, 2022	1,522		1,522
Additional paid-in capital	715,450		691,629
Stockholders' accumulated deficit	(391,527)		(406,183)
Accumulated other comprehensive income	3,873		9,939
Total Amneal Pharmaceuticals, Inc. stockholders' equity	330,860		298,421
Non-controlling interests	(176,624)		(114,442)
Total stockholders' equity	154,236		183,979
Total liabilities and stockholders' equity	$	3,687,079	$	3,799,341

The accompanying notes are an integral part of these consolidated financial statements.

Amneal Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(unaudited; in thousands)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income (loss)	$	44,622	$	(248,931)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	172,467		179,119
Unrealized foreign currency loss	1,563		12,893
Amortization of debt issuance costs and discount	6,884		6,489
Loss on refinancing - revolving credit facility	—		291
Intangible asset impairment charges	2,036		5,786
Change in fair value of contingent consideration	(787)		(1,495)
Stock-based compensation	20,848		24,016
Inventory provision	56,637		28,884
Insurance recoveries for property and equipment losses	—		(1,000)
Other operating charges and credits, net	6,370		7,077
Changes in assets and liabilities:
Trade accounts receivable, net	49,055		33,570
Inventories	(103,092)		(91,326)
Prepaid expenses, other current assets and other assets	24,810		(34,380)
Related party receivables	(1,131)		(517)
Accounts payable, accrued expenses and other liabilities	(74,685)		165,437
Related party payables	4,157		2,479
Net cash provided by operating activities	209,754		88,392
Cash flows from investing activities:
Purchases of property, plant and equipment	(33,351)		(34,941)
Saol Acquisition	—		(84,714)
Acquisition of intangible assets	(2,488)		(41,800)
Deposits for future acquisition of property, plant and equipment	(1,658)		(2,388)
Proceeds from insurance recoveries for property and equipment losses	—		1,000
Net cash used in investing activities	(37,497)		(162,843)
Cash flows from financing activities:
Payments of deferred financing and refinancing costs	(542)		(1,663)
Payments of principal on debt, revolving credit facilities, financing leases and other	(151,510)		(105,618)
Borrowings on revolving credit facilities	110,000		85,000
Proceeds from exercise of stock options	408		662
Employee payroll tax withholding on restricted stock unit vesting	(2,222)		(3,483)
Payments of deferred consideration for acquisitions - related party	—		(44,498)
Acquisition of redeemable non-controlling interest	—		(1,722)
Tax distributions to non-controlling interests	(67,875)		(13,131)
Net cash used in financing activities	(111,741)		(84,453)
Effect of foreign exchange rate on cash	(136)		(1,944)
Net increase (decrease) in cash, cash equivalents, and restricted cash	60,380		(160,848)
Cash, cash equivalents, and restricted cash - beginning of period	35,227		256,739
Cash, cash equivalents, and restricted cash - end of period	$	95,607	$	95,891
Cash and cash equivalents - end of period	$	86,929	$	87,335
Restricted cash - end of period	8,678		8,556
Cash, cash equivalents, and restricted cash - end of period	$	95,607	$	95,891

The accompanying notes are an integral part of these consolidated financial statements.

Amneal Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows (continued)

(unaudited; in thousands)


	Nine Months Ended September 30,
	2023		2022
Supplemental disclosure of cash flow information:
Cash paid for interest	$	136,600	$	92,215
Cash received (paid), net for income taxes	$	426	$	(9,942)

Supplemental disclosure of non-cash investing and financing activity:
Tax distributions to non-controlling interests	$	1,062	$	—
Contingent consideration for acquisition	$	—	$	8,796
Payable for acquisition of intangible assets	$	8,500	$	—

The accompanying notes are an integral part of these consolidated financial statements.

Amneal Pharmaceuticals, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited; in thousands)


	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Stockholders' Accumulated Deficit		Accumulated Other Comprehensive Income		Non- Controlling Interests		Total Equity		Redeemable Non-Controlling Interests
	Shares	Amount		Shares	Amount
Balance at June 30, 2023	154,050	$	1,540	152,117	$	1,522	$	708,233	$	(401,209)	$	8,083	$	(167,401)	$	150,768	$	32,106
Net income	—	—		—	—		—		9,682		—		5,858		15,540		9,493
Foreign currency translation adjustments	—	—		—	—		—		—		(1,554)		(1,532)		(3,086)		—
Stock-based compensation	—	—		—	—		6,691		—		—		—		6,691		—
Exercise of stock options	149	1		—	—		405		—		4		(2)		408		—
Restricted stock unit vesting, net of shares withheld to cover payroll taxes	147	1		—	—		121		—		4		(279)		(153)		—
Unrealized loss on cash flow hedge, net of tax	—	—		—	—		—		—		(2,664)		(2,628)		(5,292)		—
Tax distributions	—	—		—	—		—		—		—		(10,640)		(10,640)		(4,455)
Balance at September 30, 2023	154,346	$	1,542	152,117	$	1,522	$	715,450	$	(391,527)	$	3,873	$	(176,624)	$	154,236	$	37,144


	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Stockholders' Accumulated Deficit		Accumulated Other Comprehensive Income		Non- Controlling Interests		Total Equity		Redeemable Non-Controlling Interests
	Shares	Amount		Shares	Amount
Balance at December 31, 2022	151,490	$	1,514	152,117	$	1,522	$	691,629	$	(406,183)	$	9,939	$	(114,442)	$	183,979	$	24,949
Net income	—	—		—	—		—		14,656		—		7,485		22,141		22,481
Foreign currency translation adjustments	—	—		—	—		—		—		(525)		(504)		(1,029)		—
Stock-based compensation	—	—		—	—		20,848		—		—		—		20,848		—
Exercise of stock options	149	1		—	—		405		—		4		(2)		408		—
Restricted stock unit vesting, net of shares withheld to cover payroll taxes	2,707	27		—	—		2,568		—		76		(4,881)		(2,210)		—
Unrealized loss on cash flow hedge, net of tax	—	—		—	—		—		—		(5,621)		(5,629)		(11,250)		—
Tax distributions	—	—		—	—		—		—		—		(58,651)		(58,651)		(10,286)
Balance at September 30, 2023	154,346	$	1,542	152,117	$	1,522	$	715,450	$	(391,527)	$	3,873	$	(176,624)	$	154,236	$	37,144

The accompanying notes are an integral part of these consolidated financial statements.

Amneal Pharmaceuticals, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited; in thousands)


	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Stockholders' Accumulated Deficit		Accumulated Other Comprehensive Income		Non- Controlling Interests		Total Equity		Redeemable Non-Controlling Interests
	Shares	Amount		Shares	Amount
Balance at June 30, 2022	151,196	$	1,510	152,117	$	1,522	$	675,588	$	(399,161)	$	868	$	(107,336)	$	172,991	$	17,885
Net (loss) income	—	—		—	—		—		(2,689)		—		(4,924)		(7,613)		5,223
Foreign currency translation adjustments	—	—		—	—		—		—		(4,610)		(4,633)		(9,243)		—
Stock-based compensation	—	—		—	—		7,689		—		—		—		7,689		—
Exercise of stock options	154	2		—	—		422		—		—		(1)		423		—
Restricted stock unit vesting, net of shares withheld to cover payroll taxes	76	1		—	—		46		—		—		(163)		(116)		—
Unrealized gain on cash flow hedge, net of tax	—	—		—	—		—		—		16,281		16,358		32,639		—
Tax distributions	—	—		—	—		—		—		—		(2,481)		(2,481)		(733)
Balance at September 30, 2022	151,426	$	1,513	152,117	$	1,522	$	683,745	$	(401,850)	$	12,539	$	(103,180)	$	194,289	$	22,375


	Class A Common Stock			Class B Common Stock			Additional Paid-in Capital		Stockholders' Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Non- Controlling Interests		Total Equity		Redeemable Non-Controlling Interests
	Shares	Amount		Shares	Amount
Balance at December 31, 2021	149,413	$	1,492	152,117	$	1,522	$	658,350	$	(276,197)	$	(24,827)	$	6,633	$	366,973	$	16,907
Net (loss) income	—	—		—	—		—		(125,215)		—		(133,343)		(258,558)		9,627
Foreign currency translation adjustments	—	—		—	—		—		—		(12,426)		(12,524)		(24,950)		—
Stock-based compensation	—	—		—	—		24,016		—		—		—		24,016		—
Exercise of stock options	208	2		—	—		615		—		—		45		662		—
Restricted stock unit vesting, net of shares withheld to cover payroll taxes	1,805	19		—	—		764		—		(112)		(4,164)		(3,493)		—
Unrealized gain on cash flow hedge, net of tax	—	—		—	—		—		—		49,904		50,429		100,333		—
Tax distributions, net	—	—		—	—		—		—		—		(9,811)		(9,811)		(3,320)
Reclassification of redeemable non-controlling interest	—	—		—	—		—		(438)		—		(445)		(883)		883
Acquisition of redeemable non-controlling interest	—	—		—	—		—		—		—		—		—		(1,722)
Balance at September 30, 2022	151,426	$	1,513	152,117	$	1,522	$	683,745	$	(401,850)	$	12,539	$	(103,180)	$	194,289	$	22,375

The accompanying notes are an integral part of these consolidated financial statements.

Amneal Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

(unaudited)

1. Nature of Operations

Amneal Pharmaceuticals, Inc. (the “Company”) is a global pharmaceutical company that develops, manufactures, markets, and distributes a diverse portfolio of essential medicines, including complex generics and specialty branded pharmaceuticals. The Company operates principally in the United States (the “U.S.”), India, and Ireland, and sells to wholesalers, distributors, hospitals, chain pharmacies and individual pharmacies, either directly or indirectly. Prior to the Reorganization (as defined herein) and during the period covered by this report, the Company was a holding company, whose principal assets were common units (“Amneal Common Units”) of Amneal Pharmaceuticals, LLC (“Amneal”). As of September 30, 2023, the Company held 50.4% of Amneal Common Units and the group, together with their affiliates and certain assignees, who owned Amneal when it was a private company (the “Members” or the “Amneal Group”) held the remaining 49.6%. For further information regarding the Reorganization, refer to Note 24. Subsequent Events.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), should be read in conjunction with the Company’s annual audited financial statements for the year ended December 31, 2022 included in the Company’s 2022 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in annual financial statements have been omitted from the accompanying unaudited consolidated financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company’s financial position as of September 30, 2023, cash flows for the nine months ended September 30, 2023 and 2022 and the results of its operations, its comprehensive income (loss) and its changes in stockholders’ equity for the three and nine months ended September 30, 2023 and 2022. The consolidated balance sheet data at December 31, 2022 was derived from the Company’s audited annual financial statements, but does not include all disclosures required by U.S. GAAP.

Except for the updates included in this note, the accounting policies of the Company are set forth in Note 2. Summary of Significant Accounting Policies contained in the Company’s 2022 Annual Report on Form 10-K.

Use of Estimates

The preparation of financial statements requires the Company's management to make estimates and assumptions that affect the reported financial position at the date of the financial statements and the reported results of operations during the reporting period. Such estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The following are some, but not all, of such estimates: the determination of chargebacks, sales returns, rebates, billbacks, valuation of intangible and other assets acquired in business combinations, allowances for accounts receivable, accrued liabilities, liabilities for legal matters, initial and subsequent valuation of contingent consideration recognized in business combinations, stock-based compensation, valuation of inventory balances, the determination of useful lives for product rights and the assessment of expected cash flows used in evaluating goodwill and other long-lived assets for impairment. Actual results could differ from those estimates.

Recently Adopted Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers (“ASC 606”). The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. ASU 2021-08 was effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted ASU 2021-08 effective January 1, 2023 and will apply the guidance to subsequent acquisitions. The adoption of ASU 2021-08 did not have an impact on the Company’s consolidated financial statements because the Company did not acquire a business during the nine months ended September 30, 2023.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides elective amendments for entities that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), to expand and clarify the scope of Topic 848 to include derivative instruments on discounting transactions. In December 2022, the FASB issued ASU 2022-06, Reference Rate reform (Topic 848): Deferral of the Sunset Date of Topic 848, which deferred the sunset date of Topic 848, Reference Rate Reform to December 31, 2024. The Company adopted ASU 2020-04 during the three months ended June 30, 2023 (refer to Note 15. Debt and Note 18. Financial Instruments for additional information). The adoption of ASU 2020-04 did not have a material impact on the Company’s consolidated financial statements.

Reclassifications

The prior period balances related to cost of goods sold impairment charges of $0.7 million and $5.8 million, formerly included in a separate income statement caption for both the three and nine months ended September 30, 2022, respectively, have been reclassified to be included within the income statement caption cost of goods sold to conform with the current period presentation. This reclassification did not impact gross profit or net income.

The prior period balance related to loss on refinancing of $0.3 million, formerly included in a separate income statement caption for the nine months ended September 30, 2022, has been reclassified to be included within the income statement caption other income, net to conform to the current period presentation. This reclassification did not impact net income.

3. Acquisition

Saol Baclofen Franchise Acquisition

On December 30, 2021, the Company entered into an asset purchase agreement with certain entities affiliated with Saol International Limited (collectively, “Saol”), a private specialty pharmaceutical company, pursuant to which it agreed to acquire Saol’s baclofen franchise, including Lioresal®, LYVISPAH™, and a pipeline product under development (the “Saol Acquisition”). The Saol Acquisition expanded the Company’s commercial institutional and specialty portfolio in neurology and added commercial infrastructure in advance of its entry into the biosimilar institutional market. The transaction closed on February 9, 2022. Consideration for the Saol Acquisition included $84.7 million, paid at closing with cash on hand, and contingent royalty payments based on annual net sales for certain acquired assets, beginning in June 2023.

Refer to Note 3. Acquisitions in the Company’s 2022 Annual Report on Form 10-K for additional information.

4. Revenue Recognition

The Company recognizes revenue in accordance with ASC 606. Revenue is recognized when the Company transfers control of its products to the customer, which typically occurs at a point-in-time, either upon shipment or delivery. Substantially all of the Company’s net revenues relate to products which are transferred to the customer at a point-in-time.

License Agreements

Refer to Note 5. Alliance and Collaboration for further information related to revenue recognition associated with a license agreement with multiple performance obligations.

Concentration of Revenue

The following table summarizes revenues from each of the Company’s customers which individually accounted for 10% or more of its total net revenue:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Customer A	24	%	21	%	24	%	20	%
Customer B	17	%	17	%	15	%	17	%
Customer C	21	%	23	%	21	%	23	%
Customer D	10	%	9	%	10	%	11	%

Disaggregated Revenue

The Company’s significant therapeutic classes for its Generics and Specialty segments and sales channels for its AvKARE segment, as determined based on net revenue for the three and nine months ended September 30, 2023 and 2022, are set forth below (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022
Generics
	Anti-infective	$	7,382	$	4,957	$	18,648	$	16,768
	Hormonal / allergy	126,425		119,726		357,711		334,403
	Antiviral	7,150		5,782		36,221		17,649
	Central nervous system	96,587		96,877		264,773		286,789
	Cardiovascular system	32,459		28,926		98,108		84,422
	Gastroenterology	18,858		17,129		53,127		51,280
	Oncology	37,722		12,240		76,846		47,872
	Metabolic disease/ endocrine	11,026		9,276		35,227		30,497
	Respiratory	7,832		8,720		31,783		26,503
	Dermatology	17,279		17,327		53,232		48,741
	Other therapeutic classes	27,270		29,101		80,974		86,790
	International and other	867		205		1,714		1,194
	Total Generics net revenue	390,857		350,266		1,108,364		1,032,908
Specialty
	Hormonal / allergy	28,494		22,012		82,268		65,751
	Central nervous system	61,142		61,785		180,844		185,309
	Other therapeutic classes	7,668		5,687		22,864		20,511
	Total Specialty net revenue	97,304		89,484		285,976		271,571
AvKARE
	Distribution	81,904		66,057		248,929		190,560
	Government label	32,764		26,000		87,150		72,739
	Institutional	10,551		8,297		28,395		20,672
	Other	6,660		5,453		17,812		14,095
	Total AvKARE net revenue	131,879		105,807		382,286		298,066
	Total net revenue	$	620,040	$	545,557	$	1,776,626	$	1,602,545

A rollforward of the major categories of sales-related deductions for the nine months ended September 30, 2023 is as follows (in thousands):


	Contract Charge - Backs and Sales Volume Allowances		Cash Discount Allowances		Accrued Returns Allowance		Accrued Medicaid and Commercial Rebates
Balance at December 31, 2022	$	573,592	$	27,454	$	145,060	$	86,030
Provision related to sales recorded in the period	2,502,481		84,465		50,786		187,161
Credits/payments issued during the period	(2,601,904)		(87,767)		(65,878)		(183,028)
Balance at September 30, 2023	$	474,169	$	24,152	$	129,968	$	90,163

5. Alliance and Collaboration

The Company has entered into several alliance, collaboration, license, distribution and similar agreements with respect to certain of its products and services with third-party pharmaceutical companies. The consolidated statements of operations include revenue recognized under agreements the Company has entered into to develop marketing and/or distribution

relationships with its partners to fully leverage the technology platform and revenue recognized under development agreements which generally obligate the Company to provide research and development (“R&D”) services over multiple periods. The Company’s significant arrangements are discussed below.

License Agreement

On December 28, 2022, Amneal signed a long-term license agreement with Orion Corporation (“Orion”), a globally operating Finnish pharmaceutical company, to commercialize a number of its complex generic products in most parts of Europe, Australia and New Zealand (the “Orion Agreement”). The initial term of the Orion Agreement commences upon commercial launch of the products and will continue for eight years. The Orion Agreement will automatically renew for successive two-year terms unless either party declines such renewal in writing at least one year in advance.

Under the terms of the Orion Agreement, Amneal granted Orion licenses to certain generic products commercially available in the U.S. today and select high-value pipeline products currently under development. In addition, Amneal will be responsible for the performance of all R&D activities to be conducted to obtain regulatory approval for each product. Amneal is entitled to be reimbursed for a percentage of mutually agreed upon R&D expenses from Orion. Orion will be responsible for preparing and filing regulatory documentation, along with paying any application fees seeking regulatory approval for the products.

Upon achieving regulatory approval for products, Amneal will be responsible for manufacturing and supplying products to Orion. Orion will be responsible for all commercialization and marketing activities for the territories described above. Amneal will earn revenue for supplying products to Orion at the greater of: (i) cost plus a stated margin, or (ii) a fixed percentage of the net selling price, as defined in the Orion Agreement.

Upon signing of the Orion Agreement, Amneal was entitled to an upfront, non-refundable payment of €20.0 million, or $21.4 million (based on the exchange rate as of that date), which was collected in January 2023. Amneal is eligible to receive certain one-time sales-based milestones in the aggregate of €45.0 million, or $47.6 million, based on the exchange rate as of September 30, 2023, contingent upon whether Orion achieves certain annual sales targets.

The Orion Agreement is within the scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”). The Company identified performance obligations related to: (1) the grant of a license of functional intellectual property (“IP”), (2) the performance of R&D activities, and (3) the supply of products. The Company evaluated that the grant of licenses is in the scope of ASC 606, whereas the performance of R&D activities is in the scope of ASC 730-20, Research and Development Arrangements, because the Company determined that performing R&D activities on behalf of other parties is not part of the ordinary activities of its business. The Company records reimbursement received from Orion for R&D activities as a reduction of R&D expense. The Company concluded each future purchase order from Orion represents a separate contract. Amneal will record revenue related to each purchase order when it transfers control of the products to Orion. At December 31, 2022, Amneal had not performed any reimbursable R&D activities under the Orion Agreement or supplied any products to Orion.

The Company determined that the transaction price under the arrangement was the upfront payment of $21.4 million, which was allocated to the performance obligations based on their relative standalone selling prices. The remaining sales-based milestones payments are variable consideration and were not included in the transaction price because they were fully constrained under ASC 606.

For the year ended December 31, 2022, the Company recognized $8.0 million in license revenue related to the delivery of functional IP, which was recorded in net revenues. The remaining $13.4 million of the transaction price was allocated to the R&D activities performance obligation and was recorded as deferred income, of which $6.7 million was recorded in accounts payable and accrued expenses and $6.7 million was recorded in other long-term liabilities as of December 31, 2022. During the three and nine months ended September 30, 2023, the Company recognized $0.3 million and $0.9 million, respectively, as a reduction to R&D expense related to services performed under the Orion Agreement. As of September 30, 2023, deferred income of $9.1 million and $3.4 million was recorded in accounts payable and accrued expenses and other long-term liabilities, respectively. As of September 30, 2023, no products have been supplied by Amneal under the Orion Agreement.

Biosimilar Licensing and Supply Agreement

On May 7, 2018, the Company entered into a licensing and supply agreement with Mabxience S.L. for its biosimilar candidate for Avastin® (bevacizumab). The supply agreement was subsequently amended on March 2, 2021 and the licensing agreement was amended on March 4, 2021. Pursuant to the agreement, the Company will be the exclusive partner in the U.S. market and will pay development and regulatory milestone payments as well as commercial milestone payments on reaching pre-agreed sales targets in the market to Mabxience, up to $78.3 million.

On April 13, 2022, the Food and Drug Administration (the “FDA”) approved the Company’s biologics license application for bevacizumab-maly, a biosimilar referencing Avastin®. In connection with this regulatory approval and associated activity, the Company paid milestones of $26.5 million in 2022, which were capitalized as product rights intangible assets and are being amortized to cost of sales over their estimated useful lives of 7 years.

Agreements with Kashiv Biosciences, LLC

For details on the Company’s related party agreements with Kashiv Biosciences, LLC (“Kashiv”), refer to Note 21. Related Party Transactions in this Form 10-Q and Note 24. Related Party Transactions in the Company’s 2022 Annual Report on Form 10-K.

6. Government Grants

In November 2021, Amneal Pharmaceuticals Private Limited, a subsidiary of the Company in India, was selected as one of 55 companies to participate in the India Production Linked Incentive Scheme for the Pharmaceutical Sector (“PLI Scheme”). The government of India established the PLI Scheme to make India’s domestic manufacturing more globally competitive and to create global champions within the pharmaceutical sector by encouraging investment and product diversification with a focus on manufacturing complex and high value goods.

Under the PLI Scheme, the Company is eligible to receive up to 10 billion Indian rupees, or approximately $120.2 million (based on the exchange rate as of September 30, 2023), over a maximum six-year period, starting in 2022. To be eligible to receive the cash incentives, Amneal must achieve (i) minimum cumulative expenditures towards developmental and/or capital investments and (ii) a minimum percentage growth in sales of eligible products.

The Company concluded the PLI Scheme is government assistance in the form of a grant and, in the absence of specific accounting guidance under U.S. GAAP, the Company has analogized to International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance. The Company evaluated the PLI Scheme to be a grant related to income and will recognize the cash incentives on a systematic basis in other operating income. For the nine months ended September 30, 2023, the Company recognized $1.2 million of other operating income from the PLI Scheme. For the three and nine months ended September 30, 2022, the Company recognized $1.3 million and $2.5 million, respectively, of other operating income from the PLI Scheme. As of September 30, 2023 and December 31, 2022, the Company had receivables from the government of India of $5.0 million and $4.0 million, respectively, within prepaid expenses and other current assets.

7. Income Taxes

For the three months ended September 30, 2023, the Company’s benefit from income taxes and effective tax rate were $(2.1) million and (9.0)%, respectively, as compared to a provision for income taxes and effective tax rate of $4.6 million and 209.6%, respectively, for the three months ended September 30, 2022. For the nine months ended September 30, 2023, the Company’s benefit from income taxes and effective tax rate were $(1.4) million and (3.3)%, respectively, as compared to $8.5 million and (3.5)%, respectively, for the nine months ended September 30, 2022. For the three and nine months ended September 30, 2023, the period-over-period changes in the (benefit from) provision for income taxes were primarily related to changes in the jurisdictional mix of income and a discrete Indian tax benefit. The Company recognized a discrete Indian tax benefit of approximately $2.9 million from the utilization of a loss carryforward after the completion of a merger of certain of our subsidiaries in India during the three months ended September 30, 2023.

The Company established a valuation allowance on its deferred tax assets (“DTAs”) based upon all available objective and verifiable evidence, both positive and negative, including historical levels of pre-tax income (loss) both on a consolidated basis and tax reporting entity basis, legislative developments, expectations and risks associated with estimates of future pre-tax income, and prudent and feasible tax planning strategies. Since first establishing a valuation allowance, the Company has generated cumulative consolidated three-year pre-tax losses through September 30, 2023. As a result of the losses through September 30, 2023, the Company determined that it is more likely than not that it will not realize the benefits of its gross DTAs and therefore maintained its valuation allowance. As of September 30, 2023 and December 31, 2022, this valuation allowance was $434.5 million and $434.9 million, respectively, and it reduced the carrying value of these gross DTAs to zero.

The Company previously entered into a tax receivable agreement (“TRA”) for which it was generally required to pay the holders of Amneal Common Units on a one-to-one basis, 85% of the applicable tax savings, if any, in U.S. federal and state income tax that it is deemed to realize as a result of certain tax attributes of their Amneal Common Units sold to the Company (or exchanged in a taxable sale) and that are created as a result of (i) the sales of their Amneal Common Units for shares of class A common stock prior to the Reorganization and (ii) tax benefits attributable to payments made under the TRA. In conjunction

with the valuation allowance recorded on the DTAs, the Company reversed the accrued TRA liability of $192.8 million during 2019.

The projection of future taxable income involves significant judgment. Actual taxable income may differ from the Company’s estimates, which could significantly impact the timing of the recognition of the contingent liability under the TRA. As noted above, the Company has determined it is more-likely-than-not it will be unable to utilize all of its DTAs subject to the TRA; therefore, as of September 30, 2023, the Company has not recognized the contingent liability under the TRA related to the tax savings it may realize from common units sold or exchanged. If utilization of these DTAs becomes more likely than not in the future, at such time, Amneal will recognize a liability under the TRA as a result of basis adjustments under Internal Revenue Code Section 754. As of both September 30, 2023 and December 31, 2022, the contingent liability associated with the TRA was approximately $202.7 million, of which approximately $2.5 million and $0.6 million were recorded as of September 30, 2023 and December 31, 2022, respectively (refer to Note 21. Related Party Transactions.)

The timing and amount of any payments under the TRA may vary depending upon a number of factors, including the timing of the Company’s taxable income and the tax rate in effect at the time of realization of the Company’s taxable income (the TRA liability is determined based on a percentage of the corporate tax savings from the use of the TRA’s attributes). The Reorganization reduced the Company’s contingent liability under the TRA (see below) subsequent to September 30, 2023. Under certain conditions, such as a change of control or other early termination event, the Company could be obligated to make TRA payments in advance of tax benefits being realized. Payments could also be in excess of the tax savings that the Company may ultimately realize.

Any future recognition of these TRA liabilities will be recorded through charges in the Company’s consolidated statements of operations. However, if the tax attributes are not utilized in future years, it is reasonably possible no amounts would be paid under the TRA in excess of the $2.5 million accrued as of September 30, 2023. Should the Company determine that a DTA with a valuation allowance is realizable in a subsequent period, the related valuation allowance will be reversed and, if a resulting TRA payment is determined to be probable, a corresponding TRA liability will be recorded.

Refer to Note 24. Subsequent Events for information about the Reorganization, pursuant to which the parties have agreed, among other things, to reduce the Company’s contingent obligation to pay 85% of the tax benefits subject to the TRA to 75% of such tax benefits. This agreement will not cause the acceleration of payments under the TRA.

8. Earnings (Loss) per Share

Basic earnings (loss) per share of the Company’s class A common stock is computed by dividing net income (loss) attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of class A common stock outstanding during the period. Diluted earnings (loss) per share of class A common stock is computed by dividing net income (loss) attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of class A common stock outstanding, adjusted to give effect to potentially dilutive securities.

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings (loss) per share of class A common stock (in thousands, except per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator:
Net income (loss) attributable to Amneal Pharmaceuticals, Inc.	$	9,682	$	(2,689)	$	14,656	$	(125,653)
Denominator:
Weighted-average shares outstanding - basic	154,219		151,393		153,363		150,765
Effect of dilutive securities:
Stock options	534		—		178		—
Restricted stock units	4,052		—		2,448

Amneal Pharmaceuticals, Inc. [AMRX] Filings
10-Q	[2023-11-09]
10-Q	[2023-08-08]
10-Q	[2023-05-09]
10-K	[2023-03-03]
10-Q	[2022-11-07]
10-Q	[2022-08-08]
10-Q	[2022-05-06]
10-K	[2022-03-01]
10-Q	[2021-11-08]
10-Q	[2021-08-09]
10-Q	[2021-05-07]
10-K	[2021-03-01]
10-Q	[2020-11-06]
10-Q	[2020-08-06]
10-Q	[2020-05-11]
10-K	[2020-03-02]
10-Q	[2019-11-07]
10-Q	[2019-08-05]
10-Q	[2019-05-09]
10-K	[2019-03-01]
10-Q	[2018-11-07]
10-Q	[2018-08-09]
10-Q	[2018-05-15]
S-1	[2018-05-07]
10-K	[2018-03-09]
S-1	[2018-03-07]