AMNEAL PHARMACEUTICALS, INC., 10-Q filed on 8/6/2020
Quarterly Report
v3.20.2
Document And Entity Information - shares
6 Months Ended
Jun. 30, 2020
Jul. 31, 2020
Entity Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2020  
Document Transition Report false  
Entity File Number 001-38485  
Entity Registrant Name Amneal Pharmaceuticals, Inc.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 32-0546926  
Entity Address, Address Line One Amneal Pharmaceuticals, Inc.  
Entity Address, Address Line Two 400 Crossing Boulevard,  
Entity Address, City or Town Bridgewater  
Entity Address, State or Province NJ  
Entity Address, Postal Zip Code 08807  
City Area Code 908  
Local Phone Number 947-3120  
Title of 12(b) Security Class A Common Stock, par value $0.01 per share  
Trading Symbol AMRX  
Security Exchange Name NYSE  
Entity Current Reporting Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Central Index Key 0001723128  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Class A Common Stock    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   147,539,347
Class B Common Stock    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   152,116,890
v3.20.2
Consolidated Statements of Operations (unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Income Statement [Abstract]        
Net revenue $ 464,662 $ 404,642 $ 963,195 $ 850,762
Cost of goods sold 319,666 296,381 633,244 606,124
Cost of goods sold impairment charges 759 3,012 2,215 56,309
Gross profit 144,237 105,249 327,736 188,329
Selling, general and administrative 80,944 67,281 158,920 151,717
Research and development 45,572 48,016 81,951 101,874
In-process research and development impairment charges 0 0 960 22,787
Intellectual property legal development expenses 3,550 2,511 4,820 6,677
Acquisition, transaction-related and integration expenses 1,787 3,519 4,362 9,551
Charges (gains) related to legal matters, net 1,300 0 5,800 0
Restructuring and other charges 333 2,835 2,381 8,996
Operating income (loss) 10,751 (18,913) 68,542 (113,273)
Other (expense) income:        
Interest expense, net (36,669) (43,886) (76,568) (87,167)
Foreign exchange gain (loss), net 3,466 8,311 (1,715) 2,847
Gain (loss) on sale of international businesses, net 123 (1,888) 123 6,930
Other income, net 571 149 1,204 1,256
Total other expense, net (32,509) (37,314) (76,956) (76,134)
Loss before income taxes (21,758) (56,227) (8,414) (189,407)
Provision for (benefit from) income taxes 2,186 (5,701) (105,987) (14,129)
Net (loss) income (23,944) (50,526) 97,573 (175,278)
Less: Net loss attributable to non-controlling interests 11,948 33,624 5,498 110,495
Net (loss) income attributable to Amneal Pharmaceuticals, Inc. $ (11,996) $ (16,902) $ 103,071 $ (64,783)
Net (loss) earnings per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders:        
Class A and Class B-1 basic (in usd per share) $ (0.08) $ (0.13) $ 0.70 $ (0.51)
Class A and Class B-1 diluted (in usd per share) $ (0.08) $ (0.13) $ 0.69 $ (0.51)
Weighted-average common shares outstanding:        
Class A and Class B-1 basic (in shares) 147,392 128,016 147,286 127,852
Class A and Class B-1 diluted (in shares) 147,392 128,016 148,309 127,852
v3.20.2
Consolidated Statements of Comprehensive (Loss) Income (unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Statement of Other Comprehensive Income [Abstract]        
Net (loss) income $ (23,944) $ (50,526) $ 97,573 $ (175,278)
Less: Net loss attributable to non-controlling interests 11,948 33,624 5,498 110,495
Net (loss) income attributable to Amneal Pharmaceuticals, Inc. (11,996) (16,902) 103,071 (64,783)
Foreign currency translation adjustments:        
Foreign currency translation adjustments arising during the period (2,967) (6,219) (8,102) (983)
Less: Reclassification of foreign currency translation adjustment included in net loss 0 40 0 3,413
Foreign currency translation adjustments, net (2,967) (6,179) (8,102) 2,430
Unrealized loss on cash flow hedge, net of tax (9,774) 0 (72,432) 0
Less: Other comprehensive loss (income) attributable to non-controlling interests 6,471 3,533 40,927 (1,394)
Other comprehensive (loss) income attributable to Amneal Pharmaceuticals, Inc. (6,270) (2,646) (39,607) 1,036
Comprehensive (loss) income attributable to Amneal Pharmaceuticals, Inc. $ (18,266) $ (19,548) $ 63,464 $ (63,747)
v3.20.2
Consolidated Balance Sheets (unaudited) - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 266,143 $ 151,197
Restricted cash 2,129 1,625
Trade accounts receivable, net 582,734 604,390
Inventories 443,956 381,067
Prepaid expenses and other current assets 184,748 70,164
Related party receivables 1,164 1,767
Total current assets 1,480,874 1,210,210
Property, plant and equipment, net 460,528 477,997
Goodwill 527,475 419,504
Intangible assets, net 1,423,826 1,382,753
Other assets 28,731 44,270
Total assets 4,056,756 3,665,890
Current liabilities:    
Accounts payable and accrued expenses 599,489 507,483
Current portion of long-term debt, net 29,756 21,479
Related party payable - short term 8,455 5,969
Total current liabilities 655,019 550,406
Long-term debt, net 2,764,578 2,609,046
Note payable - related party 35,661 0
Related party payable - long term 479 0
Other long-term liabilities 93,772 39,583
Total long-term liabilities 3,018,341 2,768,696
Commitments and contingencies (Notes 5 and 17)
Redeemable non-controlling interests 12,380 0
Stockholders' Equity    
Preferred stock, $0.01 par value, 2,000 shares authorized; none issued at both June 30, 2020 and December 31, 2019 0 0
Additional paid-in capital 617,504 606,966
Stockholders' accumulated deficit (274,809) (377,880)
Accumulated other comprehensive loss (39,696) (68)
Total Amneal Pharmaceuticals, Inc. stockholders' equity 305,995 232,010
Non-controlling interests 65,021 114,778
Total stockholders' equity 371,016 346,788
Total liabilities and stockholders' equity 4,056,756 3,665,890
Class A Common Stock    
Stockholders' Equity    
Common stock 1,474 1,470
Class B Common Stock    
Stockholders' Equity    
Common stock 1,522 1,522
Excluding Related Party    
Current assets:    
Operating lease right-of-use assets 49,159 53,344
Current liabilities:    
Current portion of operating lease liabilities 12,512 11,874
Operating lease liabilities 38,591 43,135
Related Party    
Current assets:    
Operating lease right-of-use assets 26,183 16,528
Financing lease right-of-use assets - related party 59,980 61,284
Current liabilities:    
Current portion of operating and financing lease liabilities - related party 3,807 3,601
Current portion of note payable - related party 1,000 0
Operating lease liabilities 24,478 15,469
Financing lease liabilities - related party $ 60,782 $ 61,463
v3.20.2
Consolidated Balance Sheets (unaudited) (Parenthetical) - $ / shares
Jun. 30, 2020
Dec. 31, 2019
Preferred stock, par value (in usd per share) $ 0.01  
Preferred stock, shares authorized (in shares) 2,000,000 2,000,000
Preferred stock, shares issued (in shares) 0 0
Common stock, par value (in usd per share)   $ 0.01
Class A Common Stock    
Common stock, par value (in usd per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 900,000,000 900,000,000
Common stock, shares issued (in shares) 147,493,000 147,070,000
Class B Common Stock    
Common stock, par value (in usd per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 300,000,000 300,000,000
Common stock, shares issued (in shares) 152,117,000 152,117,000
v3.20.2
Consolidated Statements of Cash Flows (unaudited) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities:    
Net (loss) income $ 97,573 $ (175,278)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Depreciation and amortization 116,155 99,574
Amortization of Levothyroxine Transition Agreement asset 0 36,393
Unrealized foreign currency loss (gain) 1,251 (3,695)
Amortization of debt issuance costs and discount 4,214 3,218
Gain on sale of international businesses, net (123) (6,930)
Intangible asset impairment charges 3,175 79,096
Non-cash restructuring and asset-related charges 0 1,314
Non-cash restructuring and asset-related charges 2,381 8,996
Deferred tax benefit 0 (18,209)
Stock-based compensation 10,202 10,571
Inventory provision 34,708 50,410
Other operating charges and credits, net 4,156 3,155
Changes in assets and liabilities:    
Trade accounts receivable, net 75,769 (162,954)
Inventories (33,182) (19,658)
Income taxes receivable associated with the CARES Act (110,069) 0
Prepaid expenses, other current assets and other assets 8,772 28,614
Related party receivables 633 (1,624)
Accounts payable, accrued expenses and other liabilities 15,172 (13,538)
Related party payables (139) 2,225
Net cash provided by (used in) operating activities 228,267 (87,316)
Cash flows from investing activities:    
Purchases of property, plant and equipment (15,919) (29,629)
Acquisition of intangible assets (1,050) (50,000)
Acquisitions, net of cash acquired (254,000) 0
Proceeds from sale of international businesses, net of cash sold 0 34,834
Net cash used in investing activities (270,969) (44,795)
Cash flows from financing activities:    
Proceeds from issuance of debt 180,000 0
Payments of principal on debt, financing leases and other (17,072) (13,500)
Payments of deferred financing costs (4,102) 0
Proceeds from exercise of stock options 158 1,385
Employee payroll tax withholding on restricted stock unit vesting (557) (921)
Acquisition of non-controlling interest 0 (3,543)
Tax distribution to non-controlling interest 0 (13,494)
Net cash provided by (used in) financing activities 157,897 (30,939)
Effect of foreign exchange rate on cash 255 1,293
Net increase (decrease) in cash, cash equivalents, and restricted cash 115,450 (161,757)
Cash, cash equivalents, and restricted cash - beginning of period 152,822 218,779
Cash, cash equivalents, and restricted cash - end of period 268,272 57,022
Cash and cash equivalents - end of period 266,143 54,893
Restricted cash - end of period 2,129 2,129
Supplemental disclosure of cash flow information:    
Cash paid for interest 68,433 81,103
Cash (paid) received for income taxes, net (4,518) 8,533
Supplemental disclosure of non-cash investing and financing activity:    
Tax distributions to non-controlling interests 1,573 0
Related Party    
Cash flows from financing activities:    
Payments of principal on financing lease - related party (530) (866)
Supplemental disclosure of non-cash investing and financing activity:    
Notes payable for acquisitions - related party $ 36,033 $ 0
v3.20.2
Consolidated Statement of Stockholders' Equity (unaudited) - USD ($)
$ in Thousands
Total
Common Stock
Class A Common Stock
Common Stock
Class B Common Stock
Common Stock
Class B-1 Common Stock
Additional Paid-in Capital
Stockholders' Accumulated Deficit
Accumulated other comprehensive loss
Non-Controlling Interests
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Cumulative-effective adjustment from adoption of Topic 842, net of tax | Adoption of Topic 842 $ 13,561         $ 4,957   $ 8,604
Shares beginning balance (in shares) at Dec. 31, 2018   115,047,000 171,261,000 12,329,000        
Stockholders' equity beginning balance at Dec. 31, 2018 896,363 $ 1,151 $ 1,713 $ 123 $ 530,438 (20,920) $ (7,755) 391,613
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net (loss) income (175,278)         (64,783)   (110,495)
Foreign currency translation adjustment (983)           (425) (558)
Stock-based compensation 10,571       10,571      
Exercise of stock options (in shares)   205,000            
Exercise of stock options 1,385 $ 2     922   (7) 468
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (in shares)   250,000            
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (921) $ 2     6   (5) (924)
Unrealized loss on cash flow hedge, net of tax 0              
Redemption of Class B Common Stock (in shares)   320,000 (320,000)          
Redemption of Class B Common Stock 223 $ 3 $ (3)   1,124   (19) (882)
Conversion of Class B-1 Common Stock (in shares)   12,329,000   (12,329,000)        
Conversion of Class B-1 Common Stock   $ 123   $ (123)        
Reclassification of foreign currency translation adjustment included in net loss 3,413           1,461 1,952
Tax distribution (82)             (82)
Other 1,100       1,100      
Shares ending balance (in shares) at Jun. 30, 2019   128,151,000 170,941,000 0        
Stockholders' equity ending balance at Jun. 30, 2019 749,352 $ 1,281 $ 1,710 $ 0 544,161 (80,746) (6,750) 289,696
Shares beginning balance (in shares) at Mar. 31, 2019   115,564,000 170,941,000 12,329,000        
Stockholders' equity beginning balance at Mar. 31, 2019 799,781 $ 1,156 $ 1,710 $ 123 537,159 (63,844) (4,099) 327,576
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net (loss) income (50,526)         (16,902)   (33,624)
Foreign currency translation adjustment (6,219)           (2,663) (3,556)
Stock-based compensation 6,224       6,224      
Exercise of stock options (in shares)   8,000            
Exercise of stock options 375       174     201
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (in shares)   250,000            
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (921) $ 2     6   (5) (924)
Unrealized loss on cash flow hedge, net of tax 0              
Conversion of Class B-1 Common Stock (in shares)   12,329,000   (12,329,000)        
Conversion of Class B-1 Common Stock   $ 123   $ (123)        
Reclassification of foreign currency translation adjustment included in net loss 40           17 23
Other 598       598      
Shares ending balance (in shares) at Jun. 30, 2019   128,151,000 170,941,000 0        
Stockholders' equity ending balance at Jun. 30, 2019 749,352 $ 1,281 $ 1,710 $ 0 544,161 (80,746) (6,750) 289,696
Shares beginning balance (in shares) at Dec. 31, 2019   147,070,000 152,117,000          
Stockholders' equity beginning balance at Dec. 31, 2019 346,788 $ 1,470 $ 1,522   606,966 (377,880) (68) 114,778
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net (loss) income 96,265         103,071   (6,806)
Net (loss) income 97,573              
Foreign currency translation adjustment (8,102)           (3,985) (4,117)
Stock-based compensation 10,202       10,202      
Exercise of stock options (in shares)   58,000            
Exercise of stock options 158 $ 1     158   (6) 5
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (in shares)   365,000            
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (693) $ 3     178   (15) (859)
Unrealized loss on cash flow hedge, net of tax (72,432)           (35,622) (36,810)
Tax distribution (1,170)             (1,170)
Shares ending balance (in shares) at Jun. 30, 2020   147,493,000 152,117,000          
Stockholders' equity ending balance at Jun. 30, 2020 371,016 $ 1,474 $ 1,522   617,504 (274,809) (39,696) 65,021
Redeemable Non-Controlling Interests, beginning balance at Dec. 31, 2019 0              
Increase (Decrease) in Temporary Equity [Roll Forward]                
Net (loss) income 1,308              
Redeemable non-controlling interests issued for acquisitions 11,475              
Tax distribution (403)              
Redeemable Non-Controlling Interests, ending balance at Jun. 30, 2020 12,380              
Shares beginning balance (in shares) at Mar. 31, 2020   147,311,000 152,117,000          
Stockholders' equity beginning balance at Mar. 31, 2020 403,458 $ 1,472 $ 1,522   611,600 (262,813) (33,405) 85,082
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net (loss) income (24,164)         (11,996)   (12,168)
Net (loss) income (23,944)              
Foreign currency translation adjustment (2,967)           (1,460) (1,507)
Stock-based compensation 5,663       5,663      
Exercise of stock options (in shares)   56,000            
Exercise of stock options 153 $ 1     153   (6) 5
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (in shares)   126,000            
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (183) $ 1     88   (15) (257)
Unrealized loss on cash flow hedge, net of tax (9,774)           (4,810) (4,964)
Tax distribution (1,170)             (1,170)
Shares ending balance (in shares) at Jun. 30, 2020   147,493,000 152,117,000          
Stockholders' equity ending balance at Jun. 30, 2020 371,016 $ 1,474 $ 1,522   $ 617,504 $ (274,809) $ (39,696) $ 65,021
Redeemable Non-Controlling Interests, beginning balance at Mar. 31, 2020 12,563              
Increase (Decrease) in Temporary Equity [Roll Forward]                
Net (loss) income 220              
Tax distribution (403)              
Redeemable Non-Controlling Interests, ending balance at Jun. 30, 2020 $ 12,380              
v3.20.2
Nature of Operations
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Operations Nature of Operations
Amneal Pharmaceuticals, Inc., formerly known as Atlas Holdings, Inc. (the "Company"), was formed along with its wholly owned subsidiary, K2 Merger Sub Corporation, a Delaware corporation ("Merger Sub"), on October 4, 2017, for the purpose of facilitating the combination of Impax Laboratories, Inc. (now Impax Laboratories, LLC), a Delaware corporation then listed on the Nasdaq Stock Market ("Impax") and Amneal Pharmaceuticals LLC, a Delaware limited liability company ("Amneal"). The Company is a holding company, whose principal assets are Amneal Common Units.
Amneal was formed in 2002 and operates through various subsidiaries. Amneal is a vertically integrated developer, manufacturer, and seller of generic pharmaceutical products. Amneal’s pharmaceutical research includes analytical and formulation development and stability. Amneal operates principally in the United States, India, and Ireland.  Amneal sells to wholesalers, distributors, hospitals, chain pharmacies and individual pharmacies, either directly or indirectly.
On October 17, 2017, Amneal, Impax, the Company and Merger Sub entered into the Business Combination Agreement, as amended on November 21, 2017 and December 16, 2017 (the "BCA").
On May 4, 2018, pursuant to the BCA, Impax and Amneal combined the generics and specialty pharmaceutical business of Impax with the generic drug development and manufacturing business of Amneal to create the Company as a new generics and specialty pharmaceutical company, through the following transactions (together, the "Combination", and the closing of the Combination, the "Closing"): (i) Merger Sub merged with and into Impax, with Impax surviving as a wholly owned subsidiary of the Company, (ii) each share of Impax’s common stock, par value $0.01 per share ("Impax Common Stock"), issued and outstanding immediately prior to the Closing, other than Impax Common Stock held by Impax in treasury, by the Company or by any of their respective subsidiaries, was converted into the right to receive one fully paid and non-assessable share of Class A common stock of the Company, par value $0.01 per share ("Class A Common Stock"), (iii) Impax converted to a Delaware limited liability company, (iv) the Company contributed to Amneal all of the Company’s equity interests in Impax, in exchange for Amneal common units ("Amneal Common Units"), (v) the Company issued an aggregate number of shares of Class B common stock of the Company, par value $0.01 per share ("Class B Common Stock", and collectively, with the Class A Common Stock and Class B-1 common stock of the Company, par value $0.01 ("Class B-1 Common Stock"), the "Company Common Stock") to APHC Holdings, LLC (formerly Amneal Holdings, LLC), the parent entity of Amneal as of the Closing ("Holdings"), and (vi) the Company became the managing member of Amneal.
Immediately upon the Closing, holders of Impax Common Stock prior to the Closing collectively held approximately 25% of the Company and Holdings held a majority interest in the Company with an effective voting interest of approximately 75% on a fully diluted and as converted basis through its ownership of Class B Common Stock. Holdings also held a corresponding number of Amneal Common Units, which entitled it to approximately 75% of the economic interests in the combined businesses of Impax and Amneal. The Company held an interest in Amneal of approximately 25% and became its managing member.
In connection with the Combination, on May 4, 2018, Holdings entered into definitive purchase agreements which provided for a private placement of certain shares of Class A Common Stock and Class B-1 Common Stock (the "PIPE Investment") with select institutional investors (the "PIPE Investors"). Pursuant to the terms of the purchase agreements, upon the Closing, Holdings exercised its right to cause the Company to redeem approximately 15% of its ownership interests in the Company in exchange for 34.5 million shares of Class A Common Stock and 12.3 million unregistered shares of Class B-1 Common Stock (the "Redemption"). The shares of Class A Common Stock and Class B-1 Common Stock received in the Redemption were sold immediately following the Closing by Holdings to the PIPE Investors at a per share purchase price of $18.25 for gross proceeds of $855 million. Following the PIPE Investment, the PIPE Investors owned collectively approximately 15% of the Company Common Stock on a fully diluted and as converted basis. On May 4, 2018, Holdings also caused Amneal to redeem (the "Closing Date Redemption") 6.9 million of Amneal Common Units held by Holdings for a like number of shares of Class A Common Stock, for future distribution to certain direct and indirect members of Holdings who were or are employees of the Company and to whom were previously issued (prior to the Closing) profit participation units ("PPUs") in Amneal. As a result of the PIPE Investment and Closing Date Redemption, the voting and economic interest of approximately 75% held by Holdings immediately upon Closing was reduced by approximately 18%. The overall interest percentage held by non-controlling interest holders (the "Amneal Group") upon the consummation of the Combination, PIPE Investment and Closing Date Redemption was approximately 57%. As of both June 30, 2020 and December 31, 2019, the overall interest percentage held by non-controlling interest holders was approximately 51%.
On July 5, 2018, Holdings distributed to its members all Amneal Common Units and shares of Class B Common Stock held by Holdings. As a result, as of June 30, 2020, Holdings did not hold any equity interest in Amneal or the Company.
During the year ended December 31, 2019, pursuant to the Company's certificate of incorporation, the Company converted all (12.3 million) of its issued and outstanding shares of Class B-1 Common Stock to Class A Common Stock and such shares of Class B-1 Common Stock have been retired and may not be reissued by the Company. The rights of Class A Common Stock and Class B-1 Common Stock were identical, except that the Class B-1 Common Stock had certain director appointment rights and the Class B-1 Common Stock had no voting rights (other than with respect to its director appointment right and as otherwise required by law).
v3.20.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United States of America, should be read in conjunction with Amneal’s annual audited financial statements for the year ended December 31, 2019 included in the Company’s 2019 Annual Report on Form 10-K. Certain information and footnote disclosures normally included in annual financial statements have been omitted from the accompanying unaudited consolidated financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of June 30, 2020, cash flows for the six months ended June 30, 2020 and 2019 and the results of its operations, its comprehensive income (loss) and its changes in stockholders' equity for the three and six months ended June 30, 2020 and 2019. The consolidated balance sheet data at December 31, 2019 was derived from the Company's audited annual financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America.
The accounting policies of the Company are set forth in Note 2. Summary of Significant Accounting Policies contained in the Company’s 2019 Annual Report on Form 10-K, except for the impact of the adoption of new accounting standards discussed under Recently Adopted Accounting Pronouncements. The following new significant accounting policy relates to the acquisitions of AvKARE, Inc. and Dixon-Shane, LLC d/b/a R&S Northeast LLC (refer to Note 3. Acquisitions and Divestitures).
Chargebacks Received From Manufacturers
When a sale occurs on a contracted item, the difference between the cost the Company pays to the manufacturer of that item and the contract price that the end customer has with the manufacturer is rebated to the Company by the manufacturer as a chargeback. Chargebacks are recorded as a reduction to cost of sales and either a reduction in the amount due to the manufacturer (if there is a right of offset) or as a receivable from the manufacturer.
Use of Estimates
The preparation of financial statements requires the Company's management to make estimates and assumptions that affect the reported financial position at the date of the financial statements and the reported results of operations during the reporting period. Such estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The following are some, but not all, of such estimates: the determination of chargebacks, sales returns, rebates, billbacks, distribution fees, allowances for accounts receivable, accrued liabilities, chargebacks received from manufacturers, stock-based compensation, valuation of inventory balances, the determination of useful lives for product rights, allowances for deferred tax assets, measurement of assets acquired and liabilities assumed in business combinations at fair value and the assessment of expected cash flows used in evaluating goodwill and other long-lived assets for impairment. Actual results could differ from those estimates.
Recently Adopted Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 82): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurement.  The Company adopted ASU 2018-13 effective January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, guidance that changes the impairment model for most financial assets including trade receivables and certain other instruments that are not measured at fair value through net income. The standard will replace today’s "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. Entities will apply the standard’s provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company adopted ASU 2016-13 effective January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provided 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.  The amendments may be applied to impacted contracts and hedges prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.
v3.20.2
Acquisitions and Divestitures
6 Months Ended
Jun. 30, 2020
Business Combinations [Abstract]  
Acquisitions and Divestitures Acquisitions and Divestitures
AvKARE and R&S Acquisitions
On December 10, 2019, the Company, through its investment in Rondo Partners, LLC (“Rondo”), entered into an equity purchase and operating agreements to acquire approximately a 65.1% controlling financing interest in both AvKARE Inc., a Tennessee corporation, and Dixon-Shane, LLC d/b/a R&S Northeast LLC, a Kentucky limited liability company (“R&S”) (collectively the “Acquisitions”). Prior to closing, AvKARE, Inc. converted to a limited liability company, AvKARE, LLC. AvKARE, LLC is one of the largest private label providers of generic pharmaceuticals in the U.S. federal agency sector, primarily focused on serving the Department of Defense and the Department of Veterans Affairs. R&S is a national pharmaceutical wholesaler focused primarily on offering 340b-qualified entities products to provide consistency in care and pricing.
On January 31, 2020, the Company completed the Acquisitions.  The purchase price of $295 million, included cash of $254 million and the issuance of long-term promissory notes to the sellers with an aggregate principal amount of $44 million (estimated fair value of $35 million) (the “Sellers Notes”) and a short-term promissory note (the “Short-Term Seller Note”) with a principal amount of $1 million to the sellers.  The cash purchase price was funded by $76 million of cash on hand and $178 million of proceeds from a $180 million term loan.  The remaining $2 million consisted of working capital costs. The Company is not party to or a guarantor of the term loan, Sellers Notes or Short-Term Sellers Note. (refer to Note 13. Debt).  For further detail of the preliminary purchase price, refer to the table below.
For the six months ended June 30, 2020, there were $1 million of transaction costs associated with the Acquisitions recorded in acquisition, transaction-related and integration expenses (none for the three months ended June 30, 2020).
The Acquisitions were accounted for under the acquisition method of accounting, with Amneal as the accounting acquirer of AvKARE, LLC and R&S.
The preliminary purchase price is calculated as follows (in thousands):
Cash$254,000  
Sellers Notes (1)
35,033  
Settlement of Amneal trade accounts receivable from R&S (2)
7,440  
Short-Term Seller Note (3)
1,000  
Working capital adjustment (4)
(2,640) 
Fair value consideration transferred$294,833  
(1)In accordance with ASC 805, Business Combinations, all consideration transferred was measured at its acquisition-date fair value. The Sellers Notes are stated at the preliminary fair value estimate of $35 million, which is the $44 million aggregate principal amount less a $9 million discount.  The fair value of the Sellers Notes was estimated using the Monte-Carlo simulation approach under the option pricing framework.
(2)Represents trade accounts receivable from R&S that was effectively settled upon closing of the Acquisitions.
(3)Represents the principal amount due on the Short-Term Seller Note, which approximates fair value.
(4)Represents estimated working capital adjustment pursuant to the terms of the purchase agreement.
The following is a summary of the preliminary purchase price allocation for the Acquisitions (in thousands):
Preliminary Fair Values as of
January 31, 2020
Trade accounts receivable, net$49,286  
Inventories68,115  
Prepaid expenses and other current assets7,401  
Related party receivables61  
Property, plant and equipment5,278  
Goodwill108,790  
Intangible assets, net130,800  
Operating lease right-of-use assets - related party5,544  
Total assets acquired375,275  
Accounts payable and accrued expenses61,891  
Related party payables1,532  
Operating lease liabilities - related party5,544  
Total liabilities assumed68,967  
Redeemable non-controlling interests11,475  
Fair value of consideration transferred$294,833  
The acquired intangible assets are being amortized over their estimated useful lives as follows (in thousands):
Preliminary
Fair Values
Weighted-Average
Useful Life
Government licenses$66,700  7 years
Government contracts22,000  4 years
National contracts28,600  5 years
Customer relationships13,000  10 years
Trade name500  6 years
$130,800  
The estimated fair values of the customer relationships, government contracts and national contracts were determined using the “income approach,” which is a valuation technique that provides an estimate of the fair value of an intangible asset based on market participant expectations of the cash flows that an intangible asset would generate over its remaining useful life.  The estimated fair value of the trade name was determined using the “relief from royalty method,” which is a valuation technique that provides an estimate of the fair value of an intangible asset equal to the present value of the after-tax royalty savings attributable to owning the intangible asset. The estimated fair value of the government licenses was determined using the “with-and-without method,” which is a valuation technique that provides an estimate of the fair value of an intangible asset that is equal to the difference between the present value of the prospective revenues and expenses for the business with and without the subject intangible asset in place. The assumptions, including the expected projected cash flows, utilized in the preliminary purchase price allocation and in determining the purchase price were based on management's best estimates as of the closing date of the Acquisitions on January 31, 2020.
Some of the more significant assumptions inherent in the development of those asset valuations include the estimated net cash flows for each year for each asset (including net revenues, cost of sales, selling and marketing costs and working capital / contributory asset charges), the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, competitive trends impacting the asset and each cash flow stream, as well as other factors. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change. For these and other reasons, actual results may vary significantly from estimated results.
The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets, assumed liabilities and redeemable non-controlling interests. The Company obtains this information during due diligence and through other sources.  In the months after closing, as the Company obtains additional information about these assets and liabilities and learns more about the newly acquired businesses, it is able to refine the estimates of fair value and more accurately allocate the purchase price.  Only items identified as of the acquisition date are considered for subsequent adjustment.  The Company is continuing to evaluate the acquired assets, assumed liabilities and redeemable non-controlling interests associated with the Acquisitions. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.
The Sellers Notes and redeemable non-controlling interests were estimated using the Monte-Carlo simulation approach under the option pricing framework.  The non-controlling interests are redeemable at the option of either the non-controlling interest holder and Amneal. The fair value of the redeemable non-controlling interests considers these redemption rights.
Of the $109 million of goodwill acquired in connection with the Acquisitions, approximately $73 million was allocated to the Company’s AvKARE segment (refer to Note 18. Segment Information) and approximately $36 million was allocated to the Generics segment.  Goodwill was allocated to the Generics segment as net revenue of products manufactured from Amneal and distributed by the Acquisitions is reflected in Generics’ segment results.  Goodwill is calculated as the excess of the fair value of the consideration transferred and the fair value of the redeemable non-controlling interests over the fair value of the net assets recognized. Factors that contributed to the recognition of goodwill include Amneal’s intent to diversify its business and open growth opportunities in the large, complex and growing federal healthcare market.
For the three months ended June 30, 2020, the Acquisitions contributed total net revenue of approximately $67 million and operating income of $3 million, which included approximately $8 million of amortization expense from intangible assets acquired in the Acquisitions, to the Company’s consolidated results of operations. 
For the six months ended June 30, 2020, the Acquisitions contributed total net revenue of approximately $132 million and operating income of $1 million, which included approximately $14 million of amortization expense from intangible assets acquired in the Acquisitions, to the Company’s consolidated results of operations.  
Unaudited Pro Forma Information
The unaudited pro forma combined results of operations for the three and six months ended June 30, 2020 and 2019 (assuming the closing of the Acquisitions occurred on January 1, 2019) are as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Net revenue$464,662  $479,891  $989,965  $991,096  
Net (loss) income$(23,944) $(45,622) $92,472  $(178,006) 
Net (loss) income attributable to Amneal Pharmaceuticals, Inc.$(11,996) $(15,535) $101,438  $(65,712) 
The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the closing of the Acquisitions taken place on January 1, 2019. Furthermore, the pro forma results do not purport to project the future results of operations of the Company.
Adjustments to arrive at the unaudited pro forma information primarily related to increases in selling, general and administrative expenses for amortization of acquired intangible assets, net of the applicable tax impact.
U.K. Divestiture

On March 30, 2019, the Company sold 100% of the stock of its Creo Pharma Holding Limited subsidiary, which comprised substantially all of the Company's operations in the United Kingdom, to AI Sirona (Luxembourg) Acquisition S.a.r.l ("AI Sirona") for net cash consideration of approximately $32 million which was received in April 2019. The carrying value of the net assets sold was $22 million, including intangible assets of $7 million and goodwill of $5 million. As a result of the sale, the Company recognized a pre-tax gain of $9 million, inclusive of transaction costs and the recognition of accumulated foreign currency translation adjustment losses of $3 million, within gain (loss) on sale of international businesses, net for the six months ended June 30, 2019. For the three months ended June 30, 2020, the Company made a $0.5 million payment to AI Sirona for and recognized a $0.1 million gain on sale of international business for final settlement of the divestiture. As part of
the disposition, the Company entered into a supply and license agreement with AI Sirona to supply certain products for a period of up to two years.
Germany Divestiture

On May 3, 2019, the Company sold 100% of the stock of its Amneal Deutschland GmbH subsidiary, which comprised substantially all of the Company's operations in Germany, to EVER Pharma Holding Ges.m.b.H. (“EVER”) for net cash consideration of approximately $3 million which was received in May 2019. The carrying value of the net assets sold was $7 million, including goodwill of $0.5 million. As a result of the sale, the Company recognized a pre-tax loss of $2 million, inclusive of transaction costs and the recognition of accumulated foreign currency translation adjustment losses, within gain (loss) on sale of international businesses, net for the three and six months ended June 30, 2019. As part of the disposition, the Company also entered into a license and supply agreement with EVER to supply certain products for an 18 month period.
v3.20.2
Revenue Recognition
6 Months Ended
Jun. 30, 2020
Revenue from Contract with Customer [Abstract]  
Revenue Recognition Revenue Recognition
Performance Obligations
The Company’s performance obligation is the supply of finished pharmaceutical and related products to its customers. The Company’s customers consist primarily of major wholesalers, retail pharmacies, managed care organizations, purchasing co-ops, hospitals, government agencies, institutions, and pharmaceutical companies. The Company’s customer contracts generally consist of both a master agreement, which is signed by the Company and its customer, and/or a customer submitted purchase order, which is governed by the terms and conditions of the master agreement. Customers purchase product by direct channel sales from the Company or by indirect channel sales through various distribution channels.
Revenue is recognized when the Company transfers control of its products to the customer, which typically occurs at a point-in-time, either upon shipment or delivery. Substantially all of the Company’s net revenues relate to products which are transferred to the customer at a point-in-time.
The Company offers standard payment terms to its customers and has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing, since the period between when the Company transfers the product to the customer and when the customer pays for that product is one year or less. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues. The consideration amounts due from customers as a result of product sales are subject to variable consideration, as described further below.
The Company offers standard product warranties which provide assurance that the product will function as expected and in accordance with specifications. Customers cannot purchase warranties separately and these warranties do not give rise to a separate performance obligation.
The Company permits the return of product under certain circumstances, mainly upon product expiration, instances of shipping errors or where product is damaged in transit. The Company accrues for the customer’s right to return as part of its variable consideration. See below for further details.
Variable Consideration
The Company includes an estimate of variable consideration in its transaction price at the time of sale, when control of the product transfers to the customer. Variable consideration includes but is not limited to: chargebacks, distribution fees, rebates, group purchasing organization ("GPO") fees, prompt payment (cash) discounts, consideration payable to the customer, billbacks, Medicaid and other government pricing programs, price protection and shelf stock adjustments, sales returns, and profit shares.
The Company assesses whether or not an estimate of its variable consideration is constrained and has determined that the constraint does not apply, since it is probable that a significant reversal in the amount of cumulative revenue will not occur in the future when the uncertainty associated with the variable consideration is subsequently resolved. The Company’s estimates for variable consideration are adjusted as required at each reporting period for specific known developments that may result in a change in the amount of total consideration it expects to receive.
Chargebacks
In the case an indirect customer purchases product from their preferred wholesaler instead of directly from the Company, and the contract price charged to the indirect customer is lower than the wholesaler pricing, the Company pays the direct customer (wholesaler) a chargeback for the price differential. The Company estimates its chargeback accrual based on its estimates of the level of inventory of its products in the distribution channel that remain subject to chargebacks and historical chargeback rates. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Rebates
The Company pays fixed or volume-based rebates to its customers based on a fixed amount, fixed percentage of product sales or based on the achievement of a specified level of purchases. The Company’s rebate accruals are based on actual net sales, contractual rebate rates negotiated with customers, and expected purchase volumes / corresponding tiers based on actual sales to date and forecasted amounts.
Group Purchasing Organization Fees
The Company pays fees to GPOs for administrative services that the GPOs perform in connection with the purchases of product by the GPO participants who are the Company’s customers. The Company’s GPO fee accruals are based on actual net sales, contractual fee rates negotiated with GPOs and the mix of the products in the distribution channel that remain subject to GPO fees.
Prompt Payment (Cash) Discounts
The Company provides customers with prompt payment discounts which may result in adjustments to the price that is invoiced for the product transferred, in the case that payments are made within a defined period. The Company’s prompt payment discount accruals are based on actual net sales and contractual discount rates.
Consideration Payable to the Customer
The Company pays administrative and service fees to its customers based on a fixed percentage of the product price. These fees are not in exchange for a distinct good or service and therefore are recognized as a reduction of the transaction price. The Company accrues for these fees based on actual net sales, contractual fee rates negotiated with the customer and the mix of the products in the distribution channel that remain subject to fees.
Billbacks
In the case an indirect customer purchases product from their preferred wholesaler instead of directly from the Company, and the contract price charged to the indirect customer is higher than contractual pricing, the Company pays the indirect customer a billback for the price differential. The Company estimates its billback accrual based on its estimates of the level of inventory of its products in the distribution channel that remain subject to billbacks and historical billback rates. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Medicaid and Other Government Pricing Programs
The Company complies with required rebates mandated by law under Medicaid and other government pricing programs. The Company estimates its government pricing accruals based on monthly sales, historical experience of claims submitted by the various states and jurisdictions, historical rates and estimated lag time of the rebate invoices.
Price Protection and Shelf Stock Adjustments
The Company provides customers with price protection and shelf stock adjustments which may result in an adjustment to the price charged for the product transferred, based on differences between old and new prices which may be applied to the customer’s on-hand inventory at the time of the price change. The Company accrues for these adjustments when its expected value of an adjustment is greater than zero, based on contractual pricing, actual net sales, accrual rates based on historical average rates, and estimates of the level of inventory of its products in the distribution channel that remain subject to these adjustments. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Sales Returns
The Company permits the return of product under certain circumstances, mainly upon product expiration, instances of shipping errors or where product is damaged in transit, and occurrences of product recalls. The Company’s product returns accrual is primarily based on estimates of future product returns based generally on actual net sales, estimates of the level of inventory of its products in the distribution channel that remain subject to returns, estimated lag time of returns and historical return rates. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Profit Shares
For certain product sale arrangements, the Company earns a profit share upon the customer’s sell-through of the product purchased from the Company. The Company estimates its profit shares based on actual net sales, estimates of the level of inventory of its products in the distribution channel that remain subject to profit shares, and historical rates of profit shares earned. The estimate of the level of products in the distribution channel is based primarily on data provided by key customers.
Concentration of Revenue
The Company's three largest customers accounted for approximately 84% and 83% of total gross sales of products for the three and six months ended June 30, 2020, respectively. The Company's three largest customers accounted for approximately 81% and 80% of total gross sales of products for the three and six months ended June 30, 2019, respectively.
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 each of the three and six months ended June 30, 2020 and 2019 are set forth below (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Generics
Anti-Infective$9,722  $8,147  $22,776  $14,089  
Hormonal/Allergy89,277  92,293  177,919  195,018  
Antiviral955  1,346  16,779  15,802  
Central Nervous System (1)
96,228  117,398  195,810  242,173  
Cardiovascular System25,105  31,138  54,359  67,355  
Gastroenterology16,625  9,938  37,878  19,494  
Oncology16,567  21,746  31,422  36,705  
Metabolic Disease/Endocrine6,769  10,887  23,408  28,734  
Respiratory7,240  8,418  17,328  17,636  
Dermatology10,442  14,771  27,584  27,744  
Other therapeutic classes26,668  15,263  51,935  33,440  
International and other961  3,719  1,947  19,351  
Total Generics net revenue306,559  335,064  659,145  717,541  
Specialty
Hormonal/Allergy13,669  9,888  27,623  20,787  
Central Nervous System (1)
74,056  50,694  142,367  93,593  
Gastroenterology439  452  487  933  
Metabolic Disease/Endocrine203  89  476  630  
Other therapeutic classes5,889  8,455  11,280  17,278  
Total Specialty net revenue94,256  69,578  182,233  133,221  
AvKARE
Distribution31,839  —  63,425  —  
Government Label25,073  —  46,451  —  
Institutional4,511  —  7,924  —  
Other2,424  —  4,017  —  
Total AvKARE net revenue63,847  —  121,817  —  
Total net revenue$464,662  $404,642  $963,195  $850,762  
(1)During the three months ended September 30, 2019, operating results for Oxymorphone were reclassified from Generics to Specialty, where it is sold as a non-promoted product.  Prior period results have not been restated to reflect the reclassification.
A rollforward of the major categories of sales-related deductions for the six months ended June 30, 2020 is as follows (in thousands):
Contract
Charge - Backs
and Sales
Volume
Allowances
Cash Discount
Allowances
Accrued
Returns
Allowance
Accrued
Medicaid and
Commercial
Rebates
Balance at December 31, 2019$829,807  $34,308  $150,361  $114,960  
Impact from the Acquisitions12,444  944  15,229  10  
Provision related to sales recorded in the period2,025,733  60,000  49,285  69,685  
Credits/payments issued during the period(2,197,368) (71,093) (52,202) (63,062) 
Balance at June 30, 2020$670,616  $24,159  $162,673  $121,593  
v3.20.2
Alliance and Collaboration
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Alliance and Collaboration Alliance and Collaboration
The Company has entered into several alliance, collaboration, license, distribution and similar agreements with respect to certain of its products and services with third-party pharmaceutical companies. The consolidated statements of operations include revenue recognized under agreements the Company has entered into to develop marketing and/or distribution relationships with its partners to fully leverage the technology platform and revenue recognized under development agreements which generally obligate the Company to provide research and development services over multiple periods. The Company's significant arrangements are discussed below.
Levothyroxine License and Supply Agreement; Transition Agreement
On August 16, 2018, the Company entered into a license and supply agreement with Jerome Stevens Pharmaceuticals, Inc. ("JSP") for levothyroxine sodium tablets ("Levothyroxine"). This agreement designated the Company as JSP's exclusive commercial partner for Levothyroxine in the U.S. market for a 10-year term commencing on March 22, 2019. Additionally, under this license and supply agreement, the Company accrued the up-front license payment of $50 million on March 22, 2019, which was paid in April 2019. The agreement also provides for the Company to pay a profit share to JSP based on net profits of the Company's sales of Levothyroxine, after considering product costs.
On November 9, 2018, the Company entered into a transition agreement ("Transition Agreement") with Lannett Company (“Lannett”) and JSP. Under the terms of the Transition Agreement, the Company assumed the distribution and marketing of Levothyroxine from Lannett beginning December 1, 2018 through March 22, 2019, ahead of the commencement date of the license and supply agreement with JSP described above.
In accordance with the terms of the Transition Agreement, the Company made $47 million of non-refundable payments to Lannett. For the six months ended June 30, 2019, $37 million, was expensed to cost of goods sold, as the Company sold Levothyroxine (none in the six months ended June 30, 2020). As of December 31, 2018 the Company had a $4 million transition contract liability, which was fully settled in February 2019.
Additionally, during the year ended December 31, 2019, the Company recorded $1 million in cost of sales related to reimbursement due to Lannett for certain of its unsold inventory at the end of the transition period, which was fully settled in March 2020.
Biosimilar Licensing and Supply Agreement
On May 7, 2018, the Company entered into a licensing and supply agreement, with Mabxience S.L., for its biosimilar candidate for Avastin® (bevacizumab). The Company will be the exclusive partner in the U.S. market. The Company will pay development and regulatory milestone payments as well as commercial milestone payments on reaching pre-agreed sales targets in the market to Mabxience, up to $72 million. For the six months ended June 30, 2019 the Company expensed a milestone payment of $1 million (none for the three months ended June 30, 2019) to research and development. For the three and six months ended June 30, 2020 the Company expensed a milestone payment of $5 million.
Distribution, License, Development and Supply Agreement with AstraZeneca UK Limited
In January 2012, Impax entered into an agreement with AstraZeneca UK Limited ("AstraZeneca") to distribute branded products under the terms of a distribution, license, development and supply Agreement (the "AZ Agreement"). The parties subsequently entered into a First Amendment to the AZ Agreement dated May 31, 2016 (as amended, the "AZ Amendment"). Under the terms of the AZ Agreement, AstraZeneca granted to Impax an exclusive license to commercialize the tablet, orally disintegrating tablet and nasal spray formulations of Zomig® (zolmitriptan) products for the treatment of migraine headaches in the United States and in certain U.S. territories, except during an initial transition period when AstraZeneca fulfilled all orders of Zomig® products on Impax’s behalf and AstraZeneca paid to Impax the gross profit on such Zomig® products. Pursuant to the AZ Amendment, under certain conditions, and depending on the nature and terms of the study agreed to with the FDA, Impax agreed to conduct, at its own expense, the juvenile toxicity study and pediatric study required by the FDA under the Pediatric Research Equity Act ("PREA") for approval of the nasal formulation of Zomig ® for the acute treatment of migraine in pediatric patients ages six through eleven years old, as further described in the study protocol mutually agreed to by the parties (the "PREA Study"). In consideration for Impax conducting the PREA Study at its own expense, the AZ Amendment provides for the total royalty payments payable by Impax to AstraZeneca on net sales of Zomig ® products under the AZ Agreement to be reduced by an aggregate amount of $30 million to be received in quarterly amounts specified in the AZ Amendment beginning from the quarter ended June 30, 2016 and through the quarter ended December 31, 2020 . In the event the royalty reduction amounts exceed the royalty payments payable by Impax to AstraZeneca pursuant to the AZ Agreement in
any given quarter, AstraZeneca will be required to pay Impax an amount equal to the difference between the royalty reduction amount and the royalty payment payable by Impax to AstraZeneca. Impax’s commitment to perform the PREA Study may be terminated, without penalty, under certain circumstances as set forth in the AZ Amendment. The Company recognizes the amounts received from AstraZeneca for the PREA Study as a reduction to research and development expense.
In May 2013, Impax’s exclusivity period for branded Zomig® tablets and orally disintegrating tablets expired and Impax launched authorized generic versions of those products in the United States. As discussed above, pursuant to the AZ Amendment, the total royalty payments payable by Impax to AstraZeneca on net sales of Zomig ® products under the AZ Agreement is reduced by certain specified amounts beginning from the quarter ended June 30, 2016 and through the quarter ended December 31, 2020, with such reduced royalty amounts totaling an aggregate amount of $30 million. The Company recorded cost of sales for royalties under this agreement of $5 million and $9 million for the three and six months ended June 30, 2020, respectively, and $5 million and $9 million for the three and six ended June 30, 2019, respectively.
During the three months ended March 31, 2020, AstraZeneca and the Company agreed to terminate the AZ Agreement and subsequent AZ Amendment effective January 2021.
For detail on the Company’s related party agreements with Kashiv Biosciences, LLC, refer to Note 19. Related Party Transactions.
v3.20.2
Restructuring and Other Charges
6 Months Ended
Jun. 30, 2020
Restructuring and Related Activities [Abstract]  
Restructuring and Other Charges Restructuring and Other Charges
During the six months ended June 30, 2018, in connection with the Combination, the Company committed to a restructuring plan to achieve cost savings. The Company expected to integrate its operations and reduce its combined cost structure through workforce reductions that eliminated duplicative positions and consolidated certain administrative, manufacturing and research and development facilities. In connection with this plan, the Company announced on May 10, 2018 that it intended to close its Hayward, California-based operations.
On July 10, 2019, the Company announced a plan to restructure its operations that was intended to reduce costs and optimize its organizational and manufacturing infrastructure. Pursuant to the restructuring plan as revised, the Company expects to reduce its headcount by approximately 300 to 350 employees through December 31, 2020, primarily by ceasing manufacturing at its Hauppauge, NY facility.  Collectively these actions comprise the "Plans".
The following table sets forth the components of the Company's restructuring and other charges (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Employee restructuring separation charges (1)
$—  $516  $46  $2,420  
Asset-related charges (2)
—  900  —  1,314  
Total employee and asset-related restructuring charges—  1,416  46  3,734  
Other employee severance charges (3)
333  1,419  2,335  5,262  
Total restructuring and other charges$333  $2,835  $2,381  $8,996  
(1)Employee restructuring separation charges include the cost of benefits provided pursuant to the Company's severance programs for employees impacted by the Plans at the Company's Hauppauge, NY, Hayward, CA and other facilities.
(2)Asset-related charges are primarily associated with the write-off of property, plant and equipment in connection with the closing of the Company's Hayward, CA facilities.
(3)Other employee severance charges are primarily associated with the cost of benefits for former senior executives.
The charges related to restructuring impacted segment earnings as follows (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Generics$—  $1,317  $46  $2,313  
Specialty—  —  —  178  
Corporate—  99  —  1,243  
Total employee and asset-related restructuring charges$—  $1,416  $46  $3,734  
The following table shows the change in the employee separation-related liability associated with the Plans, which is included in accounts payable and accrued expenses (in thousands):
Employee
Restructuring
Balance at December 31, 2019$3,900  
Charges to income46  
Payments(2,185) 
Balance at June 30, 2020$1,761  
v3.20.2
(Loss) Earnings per Share
6 Months Ended
Jun. 30, 2020
Earnings Per Share [Abstract]  
(Loss) Earnings per Share (Loss) Earnings per Share
Basic (loss) earnings per share of Class A and Class B-1 Common Stock is computed by dividing net (loss) income attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of Class A and Class B-1 Common Stock outstanding during the period. Diluted (loss) earnings per share of Class A and Class B-1 Common Stock is computed by dividing net (loss) income attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of Class A and Class B-1 Common Stock outstanding, adjusted to give effect to potentially dilutive securities.
The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted (loss) earnings per share of Class A and Class B-1 Common Stock (in thousands, except per share amounts):
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Numerator:
Net (loss) income attributable to Amneal Pharmaceuticals, Inc.$(11,996) $(16,902) $103,071  $(64,783) 
Denominator:
Weighted-average shares outstanding - basic (1)
147,392  128,016  147,286  127,852  
Effect of dilutive securities:
Stock options—  —  278  —  
Restricted stock units—  —  745  —  
Weighted-average shares outstanding - diluted
147,392  128,016  148,309  127,852  
Net (loss) earnings per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders:
Class A and Class B-1 basic$(0.08) $(0.13) $0.70  $(0.51) 
Class A and Class B-1 diluted$(0.08) $(0.13) $0.69  $(0.51) 
(1) During the three months ended June 30, 2019, pursuant to the Company’s certificate of incorporation, the Company converted all 12.3 million of its issued and outstanding shares of Class B-1 Common Stock and such shares of Class B-1 Common Stock have been retired and may not be reissued by the Company. The weighted-average shares for the three and six months ended June 30, 2020 do not include Class B-1 Common Stock.
Shares of the Company's Class B Common Stock do not share in the earnings or losses of the Company and, therefore, are not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B Common Stock under the two-class method has not been presented.
The following table presents potentially dilutive securities excluded from the computations of diluted earnings per share of Class A and Class B-1 Common Stock (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Stock options
4,008  
(4)
8,407  
(4)
671  
(1)
8,407  
(4)
Restricted stock units
9,372  
(4)
2,894  
(4)
—  2,894  
(4)
Performance stock units
3,054  
(4)
465  
(4)
3,054  
(2)
465  
(4)
Shares of Class B Common Stock
152,117  
(3)
170,941  
(3)
152,117  
(3)
170,941  
(3)
(1)Excluded from the computation of diluted earnings per share of Class A Common Stock because the exercise price of the stock options exceeded the average market price of the Class A Common Stock during the period (out-of-the-money).
(2)Excluded from the computation of diluted earnings per share of Class A Common Stock because the performance vesting conditions were not met for the six months ended June 30, 2020.
(3)Shares of Class B Common Stock are considered potentially dilutive shares of Class A and Class B-1 Common Stock. Shares of Class B Common Stock have been excluded from the computations of diluted earnings per share of Class A and Class B-1 Common Stock because the effect of their inclusion would have been anti-dilutive under the if-converted method. As noted above, the weighted-average shares for the three and six months ended June 30, 2020 do not include Class B-1 Common Stock.  
(4)Excluded from the computation of diluted loss per share of Class A and Class B-1 Common Stock because the effect of their inclusion would have been anti-dilutive since there was a net loss attributable to the Company for three months ended June 30, 2020 and the three and six months ended June 30, 2019. As noted above, the weighted-average shares for the three and six months ended June 30, 2020 do not include Class B-1 Common Stock.
v3.20.2
Income Taxes
6 Months Ended
Jun. 30, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
For the three months ended June 30, 2020 and 2019, the Company's provision for (benefit from) income taxes and effective tax rates were $2 million and (10.0)% and $(6) million and 10.1%, respectively.
For the six months ended June 30, 2020 and 2019, the Company's benefit from income taxes and effective tax rates were $(106) million and 1259.7% and $(14) million and 7.5%, respectively. The year over year change in benefit from income taxes was primarily related to the Company’s full valuation allowance and the effects of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).
As of September 30, 2019, the Company established a valuation allowance 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. The Company estimated that as of September 30, 2019 it had generated a cumulative consolidated three-year pre-tax loss, which continued as of December 31, 2019.  As a result of the initial September 30, 2019 and December 31, 2019 analyses, the Company determined that it remained more likely than not that it would not realize the benefits of its gross deferred tax assets (" DTAs") and therefore recorded an additional valuation allowance of $428 million for the year ended December 31, 2019 to reduce the carrying value of these gross DTAs, net of the impact of the reversal of taxable temporary differences, to zero. As of June 30, 2020, based on its evaluation of available positive and negative evidence, the Company has maintained its position with respect to the valuation allowance.
On March 27, 2020, President Trump signed into law the CARES Act. The CARES Act is an emergency economic stimulus package in response to the COVID-19 pandemic which, among other things, includes provisions relating to income and non-income-based tax laws. Some of the key income tax-related provisions include net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. Some of these tax provisions are effective retroactively for years ending before the date of enactment. Other non-income-based tax provisions include deferral of the employer share of Social Security payroll taxes due from the CARES Act date of enactment through December 31, 2020, and a potential 50% credit on qualified wages against employment taxes each quarter with any excess credits eligible for refunds.
The CARES Act permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs originating in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate refunds of previously paid income taxes. As a result of the CARES Act, the Company carried back approximately $345 million in NOLs generated in 2018 to prior taxable income years.
ASC 740, Income Taxes, requires the effect from adjusting deferred tax assets or changes to valuation allowances due to the CARES Act to be recognized as a component of income taxes expense or benefit in the interim period that includes the period in which the new legislation is enacted (quarter ended March 31, 2020), and it cannot be allocated to subsequent interim periods by an adjustment of the estimated annual effective tax rate. In the three months ended March 31, 2020, the Company reclassified the 2018 NOL carryback amount for previously paid income taxes to income tax receivable and reversed the corresponding valuation allowance. In carrying back the 2018 loss to an earlier year, the Company is able to benefit the losses at a 35% tax rate rather than the current U.S. corporate tax rate of 21%.  Accordingly, the Company recorded a discrete income tax benefit of $110 million for the six months ended June 30, 2020. During July 2020, the Company received a cash refund for $106 million of the $110 million carryback, with the remainder expected to be received before December 31, 2020. 
In connection with the Combination, the Company entered into a tax receivable agreement (“TRA”) for which it is generally required to pay the other holders of Amneal Common Units 85% of the applicable tax savings, if any, in U.S. federal and state income tax that it is deemed to realize as a result of certain tax attributes of their Amneal Common Units sold to the Company (or exchanged in a taxable sale) and that are created as a result of (i) the sales of their Amneal Common Units for shares of Class A Common Stock and (ii) tax benefits attributable to payments made under the TRA.  In conjunction with the valuation allowance recorded on the DTAs at September 30, 2019, the Company reversed the TRA liability, which had been recorded at the time of the Combination.
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 contigent 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 June 30, 2020, 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, which amounts to approximately $202 million as of June 30, 2020 as a result of basis adjustments under Internal Revenue Code Section 754.
The timing and amount of any payments under the TRA may vary, depending upon a number of factors including the timing and number of Amneal common units sold or exchanged for the Company's Class A Common Stock, the price of the Company's Class A Common Stock on the date of sale or exchange, the timing and amount of the Company's taxable income, and the tax rate in effect at the time of realization of the Company's taxable income (the TRA liability is determined based on a percentage of the corporate tax savings from the use of the TRA's attributes). Further sales or exchanges occurring subsequent to June 30, 2020 could result in future Amneal tax deductions and obligations to pay 85% of such benefits to the holders of Amneal common units. These obligations could be incremental to and substantially larger than the approximate $202 million contingent liability as of June 30, 2020 described above. Under certain conditions, such as a change of control or other early termination event, the Company could be obligated to make TRA payments in advance of tax benefits being realized.

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.  Should the Company determine that a DTA with a valuation allowance is realizable in a subsequent period, the related valuation allowance will be released and if a resulting TRA payment is determined to be probable, a corresponding TRA liability will be recorded.
v3.20.2
Trade Accounts Receivable, Net
6 Months Ended
Jun. 30, 2020
Receivables [Abstract]  
Trade Accounts Receivable, Net Trade Accounts Receivable, Net
Trade accounts receivable, net is comprised of the following (in thousands):
June 30,
2020
December 31,
2019
Gross accounts receivable$1,280,380  $1,470,706  
Allowance for doubtful accounts(2,871) (2,201) 
Contract charge-backs and sales volume allowances(670,616) (829,807) 
Cash discount allowances(24,159) (34,308) 
Subtotal(697,646) (866,316) 
Trade accounts receivable, net$582,734  $604,390  
Receivables from customers representing 10% or more of the Company’s gross trade accounts receivable reflected three customers at June 30, 2020, equal to 37%, 25%, and 25%, respectively.  Receivables from customers representing 10% or more of the Company’s gross trade accounts receivable reflected three customers at December 31, 2019, equal to 39%, 25%, and 25%, respectively.
v3.20.2
Inventories
6 Months Ended
Jun. 30, 2020
Inventory Disclosure [Abstract]  
Inventories InventoriesInventories, net of reserves, are comprised of the following (in thousands):
June 30,
2020
December 31,
2019
Raw materials
$173,102  $172,159  
Work in process
47,435  58,188  
Finished goods
223,419  150,720  
Total inventories$443,956  $381,067  
v3.20.2
Prepaid and Other Current Assets
6 Months Ended
Jun. 30, 2020
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Prepaid and Other Current Assets Prepaid and Other Current Assets
Prepaid expenses and other current assets are comprised of the following (in thousands):
June 30,
2020
December 31,
2019
Deposits and advances$2,805  $1,123  
Prepaid insurance1,768  3,858  
Prepaid regulatory fees1,387  4,016  
Income and other tax receivables (1)
124,208  13,740  
Prepaid taxes3,503  3,255  
Other current receivables12,650  15,996  
Other prepaid assets38,427  28,176  
Total prepaid expenses and other current assets$184,748  $70,164  
(1)On March 27, 2020, President Trump signed into law the CARES Act. The CARES Act is an emergency economic stimulus package in response to the COVID-19 pandemic which, among other things, includes provisions relating to income and non-income-based tax laws.  Amneal recorded a U.S. federal income tax receivable of $110 million related to benefits associated with the CARES Act, of which $106 million was received in July 2020 and the remainder is expected to be received before December 31, 2020.  For further details, refer to Note 8. Income Taxes.
v3.20.2
Other Assets
6 Months Ended
Jun. 30, 2020
Other Assets [Abstract]  
Other Assets Other Assets
Other assets are comprised of the following (in thousands):
June 30,
2020
December 31,
2019
Deferred revolving credit facility costs$3,174  $3,099  
Security deposits2,123  1,938  
Long-term prepaid expenses5,801  6,438  
Interest rate swap—  16,373  
Financing lease right-of-use assets10,222  11,442  
Other long-term assets7,411  4,980  
Total other assets$28,731  $44,270  
v3.20.2
Debt
6 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
Debt DebtThe following is a summary of the Company's long-term debt (in thousands):
June 30,
2020
December 31,
2019
Term Loan due May 2025$2,645,376  $2,658,876  
Rondo Term Loan due January 2025177,750  —  
Other624  624  
Total long-term debt2,823,750  2,659,500  
Less: debt issuance costs(29,416) (28,975) 
Total debt, net of debt issuance costs2,794,334  2,630,525  
Less: current portion of long-term debt(29,756) (21,479) 
Total long-term debt, net$