AMNEAL PHARMACEUTICALS, INC., 10-Q filed on 8/5/2019
Quarterly Report
v3.19.2
Document And Entity Information - shares
6 Months Ended
Jun. 30, 2019
Jul. 23, 2019
Entity Information [Line Items]    
Entity Registrant Name Amneal Pharmaceuticals, Inc.  
Entity Central Index Key 0001723128  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Document Type 10-Q  
Document Period End Date Jun. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Current Reporting Yes  
Entity Shell Company false  
Class A Common Stock    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   128,150,558
Class B Common Stock    
Entity Information [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   170,940,707
v3.19.2
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Income Statement [Abstract]        
Net revenue $ 404,642 $ 413,787 $ 850,762 $ 688,976
Cost of goods sold 296,381 235,492 606,124 366,086
Cost of goods sold impairment charges 3,012 0 56,309 0
Gross profit 105,249 178,295 188,329 322,890
Selling, general and administrative 67,281 56,003 151,717 81,124
Research and development 48,016 50,335 101,874 94,544
In-process research and development impairment charges 0 0 22,787 0
Intellectual property legal development expenses 2,511 4,047 6,677 8,623
Legal settlement gains 0 (3,000) 0 (3,000)
Acquisition, transaction-related and integration expenses 3,519 207,507 9,551 214,642
Restructuring and other charges 2,835 44,465 8,996 44,465
Operating income (loss) (18,913) (181,062) (113,273) (117,508)
Other (expense) income:        
Interest expense, net (43,886) (36,622) (87,167) (57,673)
Foreign exchange gain (loss), net 8,311 (25,946) 2,847 (17,381)
Loss on extinguishment of debt 0 (19,667) 0 (19,667)
(Loss) gain on sale of international businesses, net (1,888) 0 6,930 0
Other income, net 149 791 1,256 1,739
Total other expense, net (37,314) (81,444) (76,134) (92,982)
Loss before income taxes (56,227) (262,506) (189,407) (210,490)
Benefit from income taxes (5,701) (12,416) (14,129) (12,052)
Net loss (50,526) (250,090) (175,278) (198,438)
Less: Net loss attributable to Amneal Pharmaceuticals LLC pre-Combination 0 200,341 0 148,806
Less: Net loss attributable to non-controlling interests 33,624 31,885 110,495 31,768
Net loss attributable to Amneal Pharmaceuticals, Inc. before accretion of redeemable non-controlling interest (16,902) (17,864) (64,783) (17,864)
Accretion of redeemable non-controlling interest 0 (1,240) 0 (1,240)
Net loss attributable to Amneal Pharmaceuticals, Inc. $ (16,902) $ (19,104) $ (64,783) $ (19,104)
Net loss per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders:        
Class A and Class B-1 basic and diluted (In USD per share) $ (0.13) $ (0.15) $ (0.51) $ (0.15)
Weighted-average common shares outstanding:        
Class A and Class B-1 basic and diluted (in shares) 128,016 127,112 127,852 127,112
v3.19.2
Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Statement of Other Comprehensive Income [Abstract]        
Net loss $ (50,526) $ (250,090) $ (175,278) $ (198,438)
Less: Net loss attributable to Amneal Pharmaceuticals LLC pre-Combination 0 200,341 0 148,806
Less: Net loss attributable to non-controlling interests 33,624 31,885 110,495 31,768
Net loss attributable to Amneal Pharmaceuticals, Inc. before accretion of redeemable non-controlling interest (16,902) (17,864) (64,783) (17,864)
Accretion of redeemable non-controlling interest 0 (1,240) 0 (1,240)
Net loss attributable to Amneal Pharmaceuticals, Inc. (16,902) (19,104) (64,783) (19,104)
Other comprehensive income (loss):        
Foreign currency translation adjustments arising during the period (6,219) 8,932 (983) (1,025)
Less: Reclassification of foreign currency translation adjustment included in net loss 40 0 3,413 0
Foreign currency translation adjustments, net (6,179) 8,932 2,430 (1,025)
Less: Other comprehensive income attributable to Amneal Pharmaceuticals LLC pre-Combination 0 (11,678) 0 (1,721)
Less: Other comprehensive loss (income) attributable to non-controlling interests 3,533 1,576 (1,394) 1,576
Other comprehensive (loss) income attributable to Amneal Pharmaceuticals, Inc. (2,646) (1,170) 1,036 (1,170)
Comprehensive loss attributable to Amneal Pharmaceuticals, Inc. $ (19,548) $ (20,274) $ (63,747) $ (20,274)
v3.19.2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 54,893 $ 213,394
Restricted cash 2,129 5,385
Trade accounts receivable, net 634,666 481,495
Inventories 414,627 457,219
Prepaid expenses and other current assets 77,062 128,321
Related party receivables 2,470 830
Total current assets 1,185,847 1,286,644
Property, plant and equipment, net 508,086 544,146
Goodwill 420,017 426,226
Intangible assets, net 1,553,330 1,654,969
Deferred tax asset, net 391,881 373,159
Operating lease right-of-use assets 76,931  
Other assets 63,459 67,592
Total assets 4,262,139 4,352,736
Current liabilities:    
Accounts payable and accrued expenses 505,143 514,440
Current portion of long-term debt, net 21,445 21,449
Related party payables 2,965 17,695
Total current liabilities 546,159 553,850
Long-term debt, net 2,619,788 2,630,598
Deferred income taxes 0 1,178
Liabilities under tax receivable agreement 193,499 192,884
Other liabilities 28,653 38,780
Total long-term liabilities 2,966,628 2,902,523
Commitments and contingencies (Notes 5, 11 and 13)
Stockholders' Equity    
Preferred stock, $0.01 par value, 2,000 shares authorized; none issued at both June 30, 2019 and December 31, 2018 0 0
Additional paid-in capital 544,161 530,438
Stockholders' accumulated deficit (80,746) (20,920)
Accumulated other comprehensive loss (6,750) (7,755)
Total Amneal Pharmaceuticals, Inc. stockholders' equity 459,656 504,750
Non-controlling interests 289,696 391,613
Total stockholders' equity 749,352 896,363
Total liabilities and stockholders' equity 4,262,139 4,352,736
Common Class A    
Stockholders' Equity    
Common stock 1,281 1,151
Common Class B    
Stockholders' Equity    
Common stock 1,710 1,713
Common Class B-1    
Stockholders' Equity    
Common stock 0 123
Excluding Related Party    
Current assets:    
Operating lease right-of-use assets 59,900  
Current liabilities:    
Current portion of operating lease liabilities 13,313  
Operating lease liabilities 47,836  
Related Party    
Current assets:    
Operating lease right-of-use assets 17,031  
Financing lease right-of-use assets - related party 62,588  
Current liabilities:    
Current portion of operating lease liabilities 2,258  
Current portion of operating and financing lease liabilities - related party 3,293  
Current portion of financing obligation - related party   266
Operating lease liabilities 14,862  
Financing lease liabilities - related party $ 61,990  
Financing obligation - related party   $ 39,083
v3.19.2
Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2019
Dec. 31, 2018
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (in shares) 2,000,000 2,000,000
Preferred stock, shares issued (in shares) 0 0
Class A Common Stock    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 900,000,000 900,000,000
Common stock, shares issued (in shares) 128,151,000 115,047,000
Common stock, shares outstanding (in shares) 128,151,000 115,047,000
Class B Common Stock    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 300,000,000 300,000,000
Common stock, shares issued (in shares) 170,941,000 171,261,000
Common stock, shares outstanding (in shares) 170,941,000 171,261,000
Class B-1 Common Stock    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 18,000,000 18,000,000
Common stock, shares issued (in shares) 0 12,329,000
Common stock, shares outstanding (in shares) 0 12,329,000
v3.19.2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Cash flows from operating activities:    
Net loss $ (175,278) $ (198,438)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 99,574 46,897
Amortization of Levothyroxine Transition Agreement asset 36,393 0
Unrealized foreign currency (gain) loss (3,695) 17,032
Amortization of debt issuance costs 3,218 2,577
Loss on extinguishment of debt 0 19,667
Gain on sale of international businesses, net (6,930) 0
Gain on termination of lease 0 (3,524)
Intangible asset impairment charges 79,096 0
Non-cash restructuring and asset-related charges 1,314 0
Deferred tax benefit (18,209) (14,993)
Stock-based compensation and PPU expense 10,571 160,401
Inventory provision 50,410 17,426
Other operating charges and credits, net 3,155 927
Changes in assets and liabilities:    
Trade accounts receivable, net (162,954) (60,051)
Inventories (19,658) (71,655)
Prepaid expenses, other current assets and other assets 28,614 (5,107)
Related party receivables (1,624) 11,017
Accounts payable, accrued expenses and other liabilities (13,538) 19,630
Related party payables 2,225 (13,356)
Net cash used in operating activities (87,316) (71,550)
Cash flows from investing activities:    
Purchases of property, plant and equipment (29,629) (36,600)
Acquisition of product rights and licenses (50,000) (3,000)
Acquisitions, net of cash acquired 0 (321,324)
Proceeds from sale of international businesses, net of cash sold 34,834 0
Net cash used in investing activities (44,795) (360,924)
Cash flows from financing activities:    
Payments of deferred financing costs and debt extinguishment costs 0 (54,955)
Proceeds from issuance of debt 0 1,325,383
Payments of principal on debt and capital leases (13,500) (603,551)
Payments on revolving credit line 0 (75,000)
Proceeds from exercise of stock options 1,385 1,977
Employee payroll tax withholding on restricted stock unit vesting (921) 0
Equity contributions 0 27,742
Capital contribution from non-controlling interest 0 360
Acquisition of non-controlling interest (3,543) 0
Tax distribution to non-controlling interest (13,494) 0
Distributions to members 0 (182,998)
Payments of principal on financing lease - related party (866)  
Repayment of related party note 0 (14,842)
Net cash (used in) provided by financing activities (30,939) 423,995
Effect of foreign exchange rate on cash 1,293 (853)
Net decrease in cash, cash equivalents, and restricted cash (161,757) (9,332)
Cash, cash equivalents, and restricted cash - beginning of period 218,779 77,922
Cash, cash equivalents, and restricted cash - end of period 57,022 68,590
Cash and cash equivalents - end of period 54,893 61,521
Restricted cash - end of period 2,129 7,069
Supplemental disclosure of cash flow information:    
Cash paid for interest 81,103 50,391
Cash received for income taxes 8,533 0
Supplemental disclosure of non-cash investing and financing activity:    
Distribution to members 0 8,562
Payable for acquisition of product rights and licenses 0 10,000
Related Party    
Cash flows from financing activities:    
Payments of principal on financing lease - related party (866) 0
Payments of financing obligation - related party $ 0 $ (121)
v3.19.2
Consolidated Statement of Stockholders' Equity / Members’ Deficit - USD ($)
shares in Thousands, $ in Thousands
Total
Class A Common Stock
Class B-1 Common Stock
Members' Equity
Common Stock
Class A Common Stock
Common Stock
Class B Common Stock
Common Stock
Class B-1 Common Stock
Additional Paid-in Capital
Members' and Stockholders' Accumulated Deficit
Accumulated Other Comprehensive (Loss) Income
Non-Controlling Interests
Members' equity beginning balance at Dec. 31, 2017 $ (375,582)     $ 2,716       $ 8,562 $ (382,785) $ (14,232) $ 10,157
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Net (loss) income, Period Prior to the Combination (148,806)                    
Net loss (198,438)                    
Foreign currency translation adjustment (1,025)                    
Shares ending balance (in shares) at Jun. 30, 2018         114,859 171,261 12,329        
Stockholders' equity ending balance at Jun. 30, 2018 939,486       $ 1,149 $ 1,713 $ 123 517,122 (19,104) (6,502) 444,985
Redeemable Noncontrolling Interest, balance at Dec. 31, 2017 0                    
Increase (Decrease) in Temporary Equity [Roll Forward]                      
Reclassification of redeemable non-controlling interest 11,858                    
Redeemable Noncontrolling Interest, balance at Jun. 30, 2018 11,858                    
Members' equity beginning balance at Mar. 31, 2018 (368,819)     $ 2,716         (357,980) (24,189) 10,634
Increase (Decrease) in Stockholders' Equity [Roll Forward]                      
Net (loss) income, Period Prior to the Combination (200,341)                    
Net loss (250,090)                    
Foreign currency translation adjustment 8,932                    
Shares ending balance (in shares) at Jun. 30, 2018         114,859 171,261 12,329        
Stockholders' equity ending balance at Jun. 30, 2018 939,486       $ 1,149 $ 1,713 $ 123 517,122 (19,104) (6,502) 444,985
Redeemable Noncontrolling Interest, balance at Mar. 31, 2018 0                    
Increase (Decrease) in Temporary Equity [Roll Forward]                      
Reclassification of redeemable non-controlling interest 11,858                    
Redeemable Noncontrolling Interest, balance at Jun. 30, 2018 11,858                    
Shares beginning balance (in shares) at Dec. 31, 2018         115,047 171,261 12,329        
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, Period Prior to the Combination 0                    
Net loss (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            
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            
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (921)       $ 2     6   (5) (924)
Redemption of Class B Common Stock (in shares)         320 320          
Redemption of Class B Common Stock 223       $ 3 $ (3)   1,124   (19) (882)
Conversion of Class B-1 Common Stock (in shares)         12,329   (12,329)        
Conversion of Class B-1 Common Stock         $ 123   $ (123)        
Tax distribution (82)                   (82)
Reclassification of foreign currency translation adjustment included in net loss 3,413                 1,461 1,952
Other 1,100             1,100      
Shares ending balance (in shares) at Jun. 30, 2019         128,151 170,941 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         115,564 170,941 12,329        
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, Period Prior to the Combination 0                    
Net loss (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            
Exercise of stock options 375       $ 0     174   0 201
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (in shares)         250            
Restricted stock unit vesting, net of shares withheld to cover payroll taxes (921)       $ 2     6   (5) (924)
Conversion of Class B-1 Common Stock (in shares)   12,300 (12,300)   12,329   (12,329)        
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         128,151 170,941 0        
Stockholders' equity ending balance at Jun. 30, 2019 $ 749,352       $ 1,281 $ 1,710 $ 0 $ 544,161 $ (80,746) $ (6,750) $ 289,696
v3.19.2
Nature of Operations
6 Months Ended
Jun. 30, 2019
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, Switzerland, India, and Ireland. Amneal divested its operations in the United Kingdom on March 30, 2019 and Germany on May 3, 2019. For additional information, refer to Note 3. Acquisitions and Divestitures. 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%.

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 December 31, 2018 and June 30, 2019, the overall interest percentage held by non-controlling interest holders was approximately 57%.

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, 2019, Holdings did not hold any equity interest in Amneal or the Company.

During the second quarter of 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 are 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).
v3.19.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2019
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, 2018 included in the Company’s 2018 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, 2019, cash flows for the six months ended June 30, 2019 and 2018 and the results of its operations, its comprehensive loss and changes in stockholders' equity for the three and six months ended June 30, 2019 and 2018. The consolidated balance sheet data at December 31, 2018 was derived from the Company's audited annual financial statements, but does not include all disclosures required by accounting principles generally accepted 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 2018 Annual Report on Form 10-K, except for the impact of the adoption of new accounting standards discussed under Recently Adopted Accounting Pronouncements.

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, allowances for accounts receivable, accrued liabilities, stock-based compensation, valuation of inventory balances, the determination of useful lives for product rights, allowances for deferred tax assets 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.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation.

Recently Adopted Accounting Pronouncements

Leases

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases, which was subsequently supplemented by clarifying guidance (collectively, "Topic 842") to improve financial reporting of leasing transactions. Topic 842 requires a lessee to recognize most leases, including those classified as operating, on its balance sheets as right of use ("ROU") assets and lease liabilities and requires disclose of additional key information about leases.
 
The Company elected to apply the modified retrospective transition provisions of Topic 842 on January 1, 2019, the date of adoption. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard. This allowed the Company to carry forward historical lease classifications. Adoption of this standard resulted in the recording of operating lease ROU assets and operating lease liabilities of $85 million and $86 million, respectively.

The transition guidance of Topic 842 also required the Company to de-recognize the build to suit accounting associated with a related party lease for integrated manufacturing and office space and recognize that transaction as a financing lease as of January 1, 2019. The resulting de-recognition reduced leasehold improvements and a financing obligation by $24 million and $39 million, respectively, and increased non-controlling interests and stockholders' accumulated deficit, net of income taxes, by $9 million and $5 million, respectively. The arrangement was then recognized as a financing lease with an ROU asset and lease liability of $64 million on January 1, 2019. Leases with related parties, the details of which are described in Note 15. Related Party Transactions, are presented separately in the Company's balance sheets.

The adoption of Topic 842 did not have a material impact on the Company's consolidated statements of operations. ROU assets and lease liabilities for reporting periods beginning on or after January 1, 2019 are presented under the new guidance, while prior periods amounts were not adjusted and continue to be reported in accordance with previous guidance.

All significant lease arrangements after January 1, 2019 are recognized as ROU assets and lease liabilities at lease commencement. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the present value of the future lease payments using the Company's incremental borrowing rate, which is assessed quarterly.

Operating lease expense is recognized on a straight-line basis over the lease term. At each balance sheet date, operating and financing lease liabilities continue to represent the present value of the future payments. Financing lease ROU assets are expensed using the straight-line method, unless another basis is more representative of the pattern of economic benefit, to lease expense. Interest on financing lease liabilities is recognized in interest expense.

Leases with an initial term of 12 months or less (short-term leases) are not recognized in the balance sheet and the related lease payments are recognized as incurred over the lease term. The Company separates lease and non-lease components. A portion of the Company's real estate leases are subject to periodic changes in the Consumer Price Index ("CPI"). The changes to the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.

For further details regarding the Company's leases, refer to Note 11. Leases.
Financial Instruments

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted ASU 2016-01 as of January 1, 2019 and it did not have a material impact on the Company's consolidated financial statements.

Goodwill

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of today’s goodwill impairment test) to measure a goodwill impairment charge. The Company adopted ASU 2017-04 as of April 1, 2019 on a prospective basis and it did not have a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued 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 guidance is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, and early adoption is permitted. The Company is evaluating the impact of this new guidance on its 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 guidance is effective for the Company for the annual period beginning after December 15, 2019. The Company is evaluating the impact of this new guidance on its consolidated financial statements.
v3.19.2
Acquisitions and Divestitures
6 Months Ended
Jun. 30, 2019
Business Combinations [Abstract]  
Acquisitions and Divestitures
Acquisitions and Divestitures

Acquisitions

Impax Acquisition

On May 4, 2018, the Company completed the Combination, as described in Note 1. Nature of Operations. For the three and six months ended June 30, 2018, transaction costs associated with the Impax acquisition of $16 million and $23 million, respectively, were recorded in acquisition, transaction-related and integration expenses (none for the three and six months ended June 30, 2019).

The Impax acquisition was accounted for under the acquisition method of accounting, with Amneal as the accounting acquirer of Impax. Amneal was identified as the accounting acquirer because: (i) Amneal exchanged Amneal Common Units with the Company for the Company’s interest in Impax, (ii) 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 their ownership of Class B Common Stock, and (iii) a majority of the directors on the Company's current board of directors were designated by Holdings. As such, the cost to acquire Impax was allocated to the respective assets acquired and liabilities assumed based on their estimated fair values as of the closing date of the Combination.

The measurement of the consideration transferred by Amneal for its interest in Impax is based on the fair value of the equity interest that Amneal would have had to issue to give the Impax shareholders the same percentage equity interest in the Company, which is equal to approximately 25% of Amneal, on May 4, 2018. However, the fair value of Impax's common stock was used to calculate the consideration for the Combination because Impax's common stock had a quoted market price and the Combination involved only the exchange of equity.

The purchase price, net of cash acquired, is calculated as follows (in thousands, except share amount and price per share):

Fully diluted Impax share number (1)
73,288,792

Closing quoted market price of an Impax common share on May 4, 2018
$
18.30

Equity consideration - subtotal
$
1,341,185

Add: Fair value of Impax stock options as of May 4, 2018 (2)
22,610

Total equity consideration
1,363,795

Add: Extinguishment of certain Impax obligations, including accrued and unpaid interest
320,290

Less: Cash acquired
(37,907
)
Purchase price, net of cash acquired
$
1,646,178

 
 
(1) Represents shares of Impax Common Stock issued and outstanding immediately prior to the Combination.
(2) Represents the fair value of 3.0 million fully vested Impax stock options valued using the Black-Scholes options pricing model.


The following is a summary of the purchase price allocation for the Impax acquisition (in thousands):

 
 
Final Fair Values
As of June 30, 2019
Trade accounts receivable, net
 
$
210,820

Inventories
 
183,088

Prepaid expenses and other current assets
 
91,430

Property, plant and equipment
 
87,472

Goodwill
 
398,733

Intangible assets
 
1,574,929

Other
 
55,790

   Total assets acquired
 
2,602,262

Accounts payable
 
47,912

Accrued expenses and other current liabilities
 
274,979

Long-term debt
 
599,400

Other long-term liabilities
 
33,793

   Total liabilities assumed
 
956,084

Net assets acquired
 
$
1,646,178



Intangible Assets

The acquired intangible assets are being amortized over their estimated useful lives as follows (in thousands):

 
 
Final Fair Values
 
Weighted-Average Useful Life (Years)
Marketed product rights
 
$
1,045,617

 
12.9


In addition to the amortizable intangible assets noted above, $529 million was allocated to in-process research and development ("IPR&D"), which is currently not subject to amortization.

The estimated fair value of the IPR&D and identifiable intangible assets was determined using the "income approach," which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. The assumptions, including the expected projected cash flows, utilized in the purchase price allocation and in determining the purchase price were based on management's best estimates as of the closing date of the Combination on May 4, 2018.

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 or product (including net revenues, cost of sales, research and development costs, 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, the potential regulatory and commercial success risks, 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.

Goodwill

Of the total goodwill acquired in connection with the Impax acquisition, approximately $360 million has been allocated to the Company’s Specialty segment and approximately $39 million has been allocated to the Generics segment. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined company. Factors that contributed to the Company’s recognition of goodwill include the Company’s intent to expand its generic and specialty product portfolios and to acquire certain benefits from the Impax product pipelines, in addition to the anticipated synergies that the Company expects to generate from the acquisition.

The Company made an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities.  The Company obtained this information during due diligence and through other sources.  In the months after closing, as the Company obtained additional information about these assets and liabilities and learned more about the newly acquired business, it was 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. 

Unaudited Pro Forma Information

The unaudited pro forma combined results of operations for the three and six months ended June 30, 2018 (assuming the closing of the Combination occurred on January 1, 2017) are as follows (in thousands):
 
Three Months Ended June 30, 2018
 
Six Months Ended June 30, 2018
Net revenue
$
447,524

 
$
865,068

Net loss
$
(86,621
)
 
$
(161,050
)
Net loss attributable to Amneal Pharmaceuticals, Inc.
$
(19,759
)
 
$
(28,454
)


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 Combination taken place on January 1, 2017. Furthermore, the pro forma results do not purport to project the future results of operations of the Company.

The unaudited pro forma information reflects primarily the following non-recurring adjustments (all of which were adjusted for the applicable tax impact):
Adjustments to costs of goods sold related to the inventory acquired; and
Adjustments to selling, general and administrative expense related to transaction costs directly attributable to the transactions. 

UK 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 (loss) gain on sale of international business for the six months ended June 30, 2019. 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 ("ADG"), 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 (loss) gain on sale of international business 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.
v3.19.2
Revenue Recognition
6 Months Ended
Jun. 30, 2019
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
Revenue Recognition

Performance Obligations

The Company’s performance obligation is the supply of finished pharmaceutical products to its customers. The Company’s customers consist primarily of major wholesalers, retail pharmacies, managed care organizations, purchasing co-ops, hospitals, government agencies 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 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, upon 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, 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 81% and 80% of total gross sales of products for the three and six months ended June 30, 2019, respectively. The Company's three largest customers account for approximately 82% and 80% of total gross sales of products for the and three and six months ended June 30, 2018, respectively.

Significant Products
The Company generally consolidates net revenue by "product family," meaning that it consolidates net revenue from products containing the same active ingredient(s) irrespective of dosage strength, delivery method or packaging size. The Company's significant product families, as determined based on net revenue, and their percentage of the Company's consolidated net revenue for each of the three and six months ended June 30, 2019 and 2018 are set forth below (in thousands, except for percentages):

Segment
 
Product Family
 
Three Months Ended June 30, 2019
 
 
 
 
$
 
%
Generics
 
Levothyroxine Sodium
 
$
46,459

 
11%
Specialty
 
Rytary®
 
33,000

 
8%
Generics
 
Diclofenac Sodium Gel
 
25,010

 
6%
Generics
 
Epinephrine Auto-Injector (generic Adrenaclick®)
 
15,959

 
4%
Generics
 
Yuvafem-Estradiol
 
$
14,022

 
3%

Segment
 
Product Family
 
Three Months Ended June 30, 2018
 
 
 
 
$
 
%
Generics
 
Diclofenac Sodium Gel
 
$
31,820

 
8%
Generics
 
Yuvafem-Estradiol
 
30,827

 
7%
Generics
 
Aspirin; Dipyridamole ER Capsule
 
27,919

 
7%
Specialty
 
Rytary®
 
20,520

 
5%
Generics
 
Epinephrine Auto-Injector (generic Adrenaclick®)
 
$
19,166

 
5%


Segment
 
Product Family
 
Six Months Ended June 30, 2019
 
 
 
 
$
 
%
Generics
 
Levothyroxine Sodium
 
$
95,453

 
11%
Specialty
 
Rytary®
 
61,828

 
7%
Generics
 
Diclofenac Sodium Gel
 
48,477

 
6%
Generics
 
Yuvafem-Estradiol
 
32,761

 
4%
Generics
 
Epinephrine Auto-Injector (generic Adrenaclick®)
 
$
31,154

 
4%

Segment
 
Product Family
 
Six Months Ended June 30, 2018
 
 
 
 
$
 
%
Generics
 
Diclofenac Sodium Gel
 
$
52,096

 
8%
Generics
 
Yuvafem-Estradiol
 
50,094

 
7%
Generics
 
Aspirin; Dipyridamole ER Capsule
 
44,941

 
7%
Generics
 
Oseltamivir
 
39,634

 
6%
Specialty
 
Rytary®
 
$
20,520

 
3%




A rollforward of the major categories of sales-related deductions for the six months ended June 30, 2019 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, 2018
 
$
829,596

 
$
36,157

 
$
154,503

 
$
74,202

Provision related to sales recorded in the period
 
2,294,169

 
68,883

 
41,682

 
82,981

Credits/payments issued during the period
 
(2,333,025
)
 
(78,111
)
 
(55,500
)
 
(65,524
)
Balance at June 30, 2019
 
$
790,740

 
$
26,929

 
$
140,685

 
$
91,659

v3.19.2
Alliance and Collaboration
6 Months Ended
Jun. 30, 2019
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. Under this license and supply agreement with JSP, 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 and the year ended December 31, 2018, $37 million and $10 million, respectively, were expensed to cost of goods sold, as the Company sold Levothyroxine (none in the three months ended June 30, 2019). As of December 31, 2018, the Company had a $4 million transition contract liability, which was fully settled in February 2019.

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 three and six months ended June 30, 2019, the Company expensed a milestone payment of nil and $1 million, respectively, to research and development. For both the three and six months ended June 30, 2018, the Company expensed a milestone payment of $0.5 million in research and development.

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, 2019, respectively, and $1 million for both the three and six months ended June 30, 2018.

Adello License and Commercialization Agreement

On October 1, 2017, Amneal and Adello Biologics, LLC ("Adello"), a related party, entered into a license and commercialization agreement. Adello granted Amneal an exclusive license, under its New Drug Application, to distribute and sell two bio-similar products in the U.S. Adello is responsible for development, regulatory filings, obtaining FDA approval, and manufacturing, and Amneal is responsible for marketing, selling and pricing activities. The term of the agreement is 10-years from the respective product’s launch date. In connection with the agreement, Amneal paid an upfront amount of $2 million in October 2017 for execution of the agreement which was expensed in research and development. The agreement also provides for potential future milestone payments to Adello of (i) up to $21 million relating to regulatory approval, (ii) up to $43 million for successful delivery of commercial launch inventory, (iii) between $20 million and $50 million relating to number of competitors at launch for one product, and (iv) between $15 million and $68 million for the achievement of cumulative net sales for both products. The milestones are subject to certain performance conditions which may or may not be achieved, including FDA filing, FDA approval, launch activities and commercial sales volume objectives. In addition, the agreement provides for Amneal to pay a profit share equal to 50% of net profits, after considering manufacturing and marketing costs. The research and development expenses for payments made to Adello during the years ended December 31, 2018 and 2017 were immaterial.
v3.19.2
Restructuring and Other Charges
6 Months Ended
Jun. 30, 2019
Restructuring and Related Activities [Abstract]  
Restructuring and Other Charges
Restructuring and Other Charges

During the second quarter of 2018, in connection with the Combination, the Company committed to a restructuring plan to achieve cost savings. The Company expects to integrate its operations and reduce its combined cost structure through workforce reductions that eliminate duplicative positions and the consolidation of 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 (collectively these actions comprise the "Plan").

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,
 
2019
 
2018
 
2019
 
2018
Employee restructuring separation charges (1)
$
516

 
$
44,465

 
$
2,420

 
$
44,465

Asset-related charges(2)
900

 

 
1,314

 

Total employee and asset-related restructuring charges
1,416

 
44,465

 
3,734

 
44,465

Other employee severance charges
1,419

 

 
5,262

 

Total restructuring and other charges
$
2,835

 
$
44,465

 
$
8,996

 
$
44,465


(1) Employee restructuring separation charges include the cost of benefits provided pursuant to the Company's severance programs for employees impacted by the Plan at the Company's 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.

The charges related to restructuring impacted segment earnings as follows (in thousands):

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Generics
$
1,317

 
$
24,797

 
$
2,313

 
$
24,797

Specialty

 
2,421

 
178

 
2,421

Corporate
99

 
17,247

 
1,243

 
17,247

Total employee and asset-related restructuring charges
$
1,416

 
$
44,465

 
$
3,734

 
$
44,465


The following table shows the change in the employee separation-related liability associated with the Company's restructuring programs, which is included in accounts payable and accrued expenses (in thousands):

 
Employee Restructuring
Balance at December 31, 2018
$
22,112

Charges to income
2,420

Payments
(22,075
)
Balance at June 30, 2019
$
2,457



See Note 18. Subsequent Events for a discussion of a restructuring plan announced July 10, 2019.
v3.19.2
Loss per Share
6 Months Ended
Jun. 30, 2019
Earnings Per Share [Abstract]  
Loss per Share
Loss per Share

Basic loss per share of Class A Common Stock and Class B-1 Common Stock is computed by dividing net loss attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of Class A Common Stock and Class B-1 Common Stock outstanding during the period. Diluted loss per share of Class A Common Stock and Class B-1 Common Stock is computed by dividing net loss attributable to Amneal Pharmaceuticals, Inc. by the weighted-average number of shares of Class A Common Stock 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 per share of Class A Common Stock and Class B-1 Common Stock (in thousands, except per share amounts):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Net loss attributable to Amneal Pharmaceuticals, Inc.
$
(16,902
)
 
$
(19,104
)
 
$
(64,783
)
 
$
(19,104
)
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average shares of Class A Common Stock and Class B-1 Common Stock outstanding - basic and diluted
128,016

 
127,112

 
127,852

 
127,112

 
 
 
 
 
 
 
 
Net loss per share attributable to Amneal Pharmaceuticals, Inc.'s common stockholders:
 
 
 
 
 
 
 
Class A and Class B-1 basic and diluted
$
(0.13
)
 
$
(0.15
)
 
$
(0.51
)
 
$
(0.15
)


The allocation of net loss to the holders of shares of Class A Common Stock and Class B-1 Common Stock began following the closing of the Combination on May 4, 2018. Therefore, loss per share is the same for the three and six months ended June 30, 2018.

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 Common Stock and Class B-1 Common Stock (in thousands):

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Stock options(1)
8,407

 
6,028

 
8,407

 
6,028

Restricted stock units(1)
2,894

 
1,320

 
2,894

 
1,320

Performance stock units(1)
465

 

 
465

 

Shares of Class B Common Stock(2)
170,941

 
171,261

 
170,941

 
171,261


(1) Excluded from the computation of diluted loss per share of Class A Common Stock 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 the three and six months ended June 30, 2019 and 2018.

(2) Shares of Class B Common Stock are considered potentially dilutive shares of Class A Common Stock 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 Common Stock and Class B-1 Common Stock because the effect of their inclusion would have been anti-dilutive under the if-converted method.
v3.19.2
Income taxes
6 Months Ended
Jun. 30, 2019
Income Tax Disclosure [Abstract]  
Income taxes
Income taxes

As a result of the Combination (refer to Note 1. Nature of Operations), the Company became the sole managing member of Amneal, with Amneal being the accounting predecessor for accounting purposes. Amneal is a limited liability company that is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Amneal is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Amneal is passed through to and included in the taxable income or loss of its members, including the Company, on a pro rata basis subject to applicable tax regulations. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of Amneal, as well as any stand-alone income or loss generated by the Company. Amneal provides for income taxes in the various foreign jurisdictions in which it operates.
The Company records its valuation allowances against its deferred tax assets when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company routinely evaluates the realizability of its deferred tax assets by assessing the likelihood that its deferred tax assets will be recovered based on all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, estimates of future taxable income, tax planning strategies and results of operations. Estimating future taxable income is inherently uncertain and requires judgment. In projecting future taxable income, the Company considers its historical results and incorporates certain assumptions, including projected new product launches, revenue growth, and operating margins, among others.
As of June 30, 2019, the Company had approximately $392 million in net deferred tax assets ("DTAs"), which included a U.S. net DTA of $386 million and foreign net DTAs of $6 million. These DTAs include U.S. deferred taxes on the Company's investment in Amneal totaling $240 million that can be used to offset taxable income in future periods and reduce the Company's income taxes payable in those future periods. These DTAs also include net operating loss ("NOL") carryforwards which have no expiration. At this time, the Company considers it more likely than not that it will have sufficient taxable income in the future that will allow it to realize these DTAs. As such, no additional valuation allowance was recognized as of June 30, 2019. However, if the Company is unable to generate sufficient taxable income from its future operations, a substantial valuation allowance to reduce the Company's DTAs may be required, which could materially increase the Company's income tax expense in the period the valuation allowance is recognized and have a material adverse effect on its results of operations and financial condition.
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 (including imputed interest). The Company did not record an additional TRA liability during the three months ended June 30, 2019 as there were no exchanges during that period. The Company's TRA liability payable was $193 million as of both June 30, 2019 and December 31, 2018. Such amounts will be paid when such deferred tax assets are realized as a reduction to income taxes due or payable.
For the three months ended June 30, 2019 and 2018, the Company's benefit from income taxes and effective tax rates were $6 million and 10.1% and $12 million and 4.7%, respectively. The Company’s benefit from income taxes and effective tax rate were $14 million and 7.5% and $12 million and 5.7%, for the six months ended June 30, 2019 and 2018, respectively.
The change in income taxes is primarily due to the change in the Company's legal structure subsequent to the Combination. Prior to the Combination, as a limited liability company, income taxes were only provided for the international subsidiaries as all domestic taxes flowed to the members. Subsequent to May 4, 2018, domestic income taxes were also provided for the Company's allocable share of income or losses from Amneal at the prevailing U.S. federal, state, and local corporate income tax rates.
The change in income tax benefit for the three and six months ended June 30, 2019 is also impacted by the year-over-year decline in pre-tax loss.  For the three and six months ended June 30, 2019, the decline in pre-tax loss was primarily attributable to a $204 million and $205 million, respectively, decline in acquisition, transaction-related and integration expenses as well as a $41 million and $35 million, respectively, decline in restructuring and other charges associated with severance benefits.
The Company and its subsidiaries file income tax returns in the U.S. federal, and various state, local and foreign jurisdictions. The Company is not currently under income tax audit in any jurisdiction, and it will file its first income tax returns for the period ended December 31, 2018. Impax's federal tax filings for the 2015, 2016 and 2017 tax years are currently under audit and these are the only tax years open under the IRS statue of limitations for Impax. If there were adjustments to the attributes of Impax, they could impact the carryforward losses at the Company, which is the successor in interest to Impax. The Amneal partnership was audited for the tax year ended December 31, 2015 without any adjustments to taxable income. Income tax returns are generally subject to examination for a period of 3 years in the U.S. The statute of limitations for the 2016 and 2017 tax years will, therefore, expire no earlier than 2020. However, any adjustments to the 2016 or 2017 tax years would be pre-transaction when the Company had no ownership interest in Amneal. Under the partnership income tax regulations and audit guidelines, the Company is not responsible for any hypothetical pre-transaction income tax liabilities which pass through to the owners as of the year of any potential income tax adjustment. Neither the Company nor any of its other affiliates is currently under audit for state income tax.
v3.19.2
Trade Accounts Receivable, Net
6 Months Ended
Jun. 30, 2019
Receivables [Abstract]  
Trade Accounts Receivable, Net
Trade Accounts Receivable, Net

Trade accounts receivable, net is comprised of the following (in thousands):

 
June 30, 2019
 
December 31, 2018
Gross accounts receivable
$
1,454,294

 
$
1,349,588

 
 
 
 
Allowance for doubtful accounts
(1,959
)
 
(2,340
)
Contract charge-backs and sales volume allowances
(790,740
)
 
(829,596
)
Cash discount allowances
(26,929
)
 
(36,157
)
Subtotal
(819,628
)
 
(868,093
)
Trade accounts receivable, net
$
634,666

 
$
481,495



Receivables from customers representing 10% or more of the Company’s gross trade accounts receivable reflected three customers at June 30, 2019, equal to 32%, 29%, and 22%, respectively. Receivables from customers representing 10% or more of the Company’s gross trade accounts receivable reflected three customers at December 31, 2018, equal to 30%, 28%, and 24%, respectively.
v3.19.2
Inventories
6 Months Ended
Jun. 30, 2019
Inventory Disclosure [Abstract]  
Inventories
Inventories

Inventories, net of reserves, are comprised of the following (in thousands):


June 30, 2019
 
December 31, 2018
Raw materials
$
180,188

 
$
181,654

Work in process
38,376

 
54,152

Finished goods
196,063

 
221,413

Total inventories
$
414,627

 
$
457,219

v3.19.2
Leases
6 Months Ended
Jun. 30, 2019
Leases [Abstract]  
Leases
Leases

The majority of the Company's operating and financing lease portfolio consists of corporate offices, manufacturing sites, warehouse space, research and development facilities and manufacturing equipment. The Company's leases have remaining lease terms of 1 year to 25 years. Rent expense for the three and six months ended June 30, 2019 was $6 million and $12 million, respectively. Rent expense for the three and six months ended June 30, 2018 was $4 million and $5 million, respectively.

The components of total lease costs were as follows (in thousands):

 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Operating lease cost(1)
$
4,950

 
$
10,890

 

 

Finance lease cost:

 

   Amortization of right-of-use assets
652

 
1,304

   Interest on lease liabilities
1,119

 
2,243

Total finance lease cost
1,771

 
3,547

 
 
 
 
Total lease cost
$
6,721

 
$
14,437


(1) Includes variable and short-term lease costs.

Supplemental balance sheet information related to the Company's leases was as follows (in thousands):

Operating leases
June 30, 2019
Operating lease right-of-use assets
$
59,900

Operating lease right-of-use assets - related party
17,031

Total operating lease right-of-use assets
$
76,931

 
 
Operating lease liabilities
$
47,836

Operating lease liabilities - related party
14,862

Current portion of operating lease liabilities
13,313

Current portion of operating and financing lease liabilities - related party
2,258

Total operating lease liabilities
$
78,269

 
 
Financing leases
 
Financing lease right of use assets - related party
$
62,588

 
 
Financing lease liabilities - related party
$
61,990

Current portion of operating and financing lease liabilities - related party
1,035

Total financing lease liabilities
$
63,025



Supplemental cash flow information related to leases was as follows (in thousands):

 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
   Operating cash flows from finance leases
$
1,120

 
$
1,870

   Operating cash flows from operating leases
5,107

 
10,004

   Financing cash flows from finance leases
247

 
866

 
 
 
 
Non-cash activity:
 
 
 
Right-of-use assets obtained in exchange for new operating lease liabilities
$

 
$
360



The table below reflects the weighted average remaining lease term and weighted average discount rate for the Company's operating and finance leases as of June 30, 2019.

 
June 30, 2019
Weighted average remaining lease term - operating leases
6 years
Weighted average remaining lease term - finance leases
23 years
 
 
Weighted average discount rate - operating leases
6.1%
Weighted average discount rate - finance leases
7.0%


Maturities of lease liabilities as of June 30, 2019 were as follows (in thousands):

 
Operating Leases
 
Financing Leases
2019(1)
$
9,990

 
$
2,736

2020
19,826

 
5,474

2021
16,187

 
5,474

2022
12,342

 
5,474

2023
10,054

 
5,474

Thereafter
26,947

 
106,740

Total lease payments
95,346

 
131,372

Less: Imputed interest
(17,077
)
 
(68,347
)
Total
$
78,269

 
$
63,025


(1) Excludes the six months ended June 30, 2019.

As disclosed in the Company's 2018 Annual Report on Form 10-K, under the previous lease accounting standard, the table below reflects the future minimum lease payments, including reasonably assured renewals, due under non-cancelable leases and a financing obligation as of December 31, 2018 (in thousands):

 
Operating Leases
 
Financing Obligation
2019
$
25,885

 
$
5,474

2020
12,071

 
5,474

2021
11,105

 
5,474

2022
10,329

 
5,474

2023
10,043

 
5,474

Thereafter
28,128

 
107,196

Total lease payments
97,561

 
134,566

Less: Imputed interest

 
(95,217
)
Total
$
97,561

 
$
39,349



For additional information regarding lease transactions between related parties, refer to Note 15. Related Party Transactions.
Leases
Leases

The majority of the Company's operating and financing lease portfolio consists of corporate offices, manufacturing sites, warehouse space, research and development facilities and manufacturing equipment. The Company's leases have remaining lease terms of 1 year to 25 years. Rent expense for the three and six months ended June 30, 2019 was $6 million and $12 million, respectively. Rent expense for the three and six months ended June 30, 2018 was $4 million and $5 million, respectively.

The components of total lease costs were as follows (in thousands):

 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Operating lease cost(1)
$
4,950

 
$
10,890

 

 

Finance lease cost:

 

   Amortization of right-of-use assets
652

 
1,304

   Interest on lease liabilities
1,119

 
2,243

Total finance lease cost
1,771

 
3,547

 
 
 
 
Total lease cost
$
6,721

 
$
14,437


(1) Includes variable and short-term lease costs.

Supplemental balance sheet information related to the Company's leases was as follows (in thousands):

Operating leases
June 30, 2019
Operating lease right-of-use assets
$
59,900

Operating lease right-of-use assets - related party
17,031

Total operating lease right-of-use assets
$
76,931

 
 
Operating lease liabilities
$
47,836

Operating lease liabilities - related party
14,862

Current portion of operating lease liabilities
13,313

Current portion of operating and financing lease liabilities - related party
2,258

Total operating lease liabilities
$
78,269

 
 
Financing leases
 
Financing lease right of use assets - related party
$
62,588

 
 
Financing lease liabilities - related party
$
61,990

Current portion of operating and financing lease liabilities - related party
1,035

Total financing lease liabilities
$
63,025



Supplemental cash flow information related to leases was as follows (in thousands):

 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
   Operating cash flows from finance leases
$
1,120

 
$
1,870

   Operating cash flows from operating leases
5,107

 
10,004

   Financing cash flows from finance leases
247

 
866

 
 
 
 
Non-cash activity:
 
 
 
Right-of-use assets obtained in exchange for new operating lease liabilities
$