AMNEAL PHARMACEUTICALS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

AMNEAL PHARMACEUTICALS, INC.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
Amneal Pharmaceuticals, Inc. (the "Company," "we," "us," or "our") is a
pharmaceutical company specializing in developing, manufacturing, marketing and
distributing high-value generic pharmaceutical products across a broad array of
dosage forms and therapeutic areas, as well as branded products and biosimilar
products. We operate principally in the United States, India, and Ireland, and
sell to wholesalers, distributors, hospitals, chain pharmacies and individual
pharmacies, either directly or indirectly.

The Company is a holding company, the principal assets of which are common units (“Amneal Common Units”) of Amneal Pharmaceuticals, LLC (“Amnéal”). In 2018, Amneal completed the acquisition of Impax Laboratories, Inc. (“Impax”), a generic and specialty pharmaceutical company.


The group of investors, together with their affiliates and certain assignees,
who owned Amneal when it was a private company (the "Members") held 50.1% of
Amneal Common Units and the Company held the remaining 49.9% as of September 30,
2022.

The following discussion and analysis contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under Item 1A. Risk Factors in our 2021
Annual Report on Form 10-K and under the heading Cautionary Note Regarding
Forward-Looking Statements included elsewhere in this Quarterly Report on Form
10-Q.

The following discussion and analysis for the three and nine months ended
September 30, 2022 should also be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements for the year ended December 31, 2021 included in our 2021 Annual Report on Form 10-K.

Overview

We have three reportable segments: generic, specialty and AvKARE.

generic


Our Generics segment includes over 250 product families covering an extensive
range of dosage forms and delivery systems, including both immediate and
extended release oral solids, powders, liquids, sterile injectables, nasal
sprays, inhalation and respiratory products, ophthalmics, films, transdermal
patches and topicals. We focus on developing products with substantial
barriers-to-entry resulting from complex drug formulations or manufacturing, or
legal or regulatory challenges. Generic products, particularly in the U.S.,
generally contribute most significantly to revenues and gross margins at the
time of their launch, and even more so in periods of market exclusivity, or in
periods of limited generic competition. As such, the timing of new product
introductions can have a significant impact on the Company's financial results.
The entrance into the market of additional competition generally has a negative
impact on the volume and / or pricing of the affected products. Additionally,
pricing is determined by market place dynamics and is often affected by factors
outside of the Company's control.

Specialty


Our Specialty segment is engaged in the development, promotion, sale and
distribution of proprietary branded pharmaceutical products, with a focus on
products addressing central nervous system ("CNS") disorders, including migraine
and Parkinson's disease. Our portfolio of products includes Rytary®, an extended
release oral capsule formulation of carbidopa-levodopa for the treatment of
Parkinson's disease, post-encephalitic parkinsonism, and parkinsonism that may
follow carbon monoxide intoxication or manganese intoxication. In addition to
Rytary®, our promoted Specialty portfolio includes Unithroid® (levothyroxine
sodium), for the treatment of hypothyroidism, which is sold under a license and
distribution agreement with Jerome Stevens Pharmaceuticals, Inc., and Emverm®
(mebendazole) 100 mg chewable tablets, for the treatment of pinworm, whipworm,
common roundworm, common hookworm and American hookworm in single or mixed
infections.

For Specialty products, the majority of the product's commercial value is
usually realized during the period in which the product has market exclusivity.
In the U.S. when market exclusivity expires and generic versions of a product
are approved and marketed, there can often be very substantial and rapid
declines in the branded product's sales. For example, the pediatric exclusivity
of the AstraZeneca patent licensed to Impax for Zomig® Nasal Spray expired in
May 2021, and we lost market exclusivity in the fourth quarter of 2021.
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AvKARE


Our AvKARE segment provides pharmaceuticals, medical and surgical products, and
services primarily to governmental agencies. AvKARE is a re-packager of bottle
and unit dose pharmaceuticals under the registered names of AvKARE and AvPAK,
which service the Department of Defense and Department of Veterans Affairs as
well as institutional customers. AvKARE is also a wholesale distributor of
pharmaceuticals, over the counter products and medical supplies to institutional
customers which are located throughout the United States of America focused
primarily on offering 340b-qualified entities products to provide consistency in
care and pricing.

The Pharmaceutical Industry

The pharmaceutical industry is highly competitive and highly regulated. As a
result, we face a number of industry-specific factors and challenges, which can
significantly impact our results. For a more detailed explanation of our
business and its risks, refer to our 2021 Annual Report on Form 10-K, as
supplemented by Part II, Item 1A "Risk Factors" of our subsequent Quarterly
Reports on Form 10-Q.

COVID-19 pandemic


In March 2020, the World Health Organization designated the outbreak of a novel
strain of coronavirus ("COVID-19") as a global pandemic. Governments and
businesses around the world took unprecedented actions to mitigate the spread of
COVID-19, including imposing restrictions on movement and travel such as
quarantines and shelter-in-place requirements, and restricting or prohibiting
outright some or all commercial and business activity, including the manufacture
and distribution of certain goods and the provision of non-essential services.

To the extent that the pandemic (and variant strains) continues or worsens,
national, state, local and international governments may impose additional
restrictions or extend the restrictions already in place. The worsening of the
pandemic and the related safety and business operating restrictions could result
in a number of adverse impacts to our business, including, but not limited to,
additional disruption to the economy and our customers, additional work
restrictions, supply chains being interrupted or slowed, and rising supply
prices. Also, governments may impose other laws, regulations, or taxes that
could adversely impact our business, financial condition, or results of
operations. Further, depending on the extent to which our customers are
affected, they could delay or reduce purchases of products we provide. The
potential effects of the pandemic also could impact us in a number of other ways
including, but not limited to, reductions to our profitability, fluctuations in
foreign currency markets, the availability of future borrowings, the cost of
borrowings, credit risks of our customers and counterparties, and potential
impairment of the carrying amount of goodwill or other definite-lived assets.

Although not currently expected, any supply chain disruptions may significantly
impact our 2022 results of operations and cash flows. Increasing infection rates
and the introduction of new and more easily transmitted variants of COVID-19
could cause material disruptions to our global supply chains and cause labor
shortages, as well as reduce the number of physician visits in general.

We continue to actively monitor the situation and may take further precautionary
and preemptive actions as may be required by national, state, or local
authorities or that we determine are in the best interests of our employees,
customers, partners, suppliers, and shareholders. Until the ultimate extent and
duration of the pandemic is known, we cannot predict the ultimate effects the
pandemic may have on our business, in particular with respect to demand for our
products, our strategy, and our prospects, the effects on our customers, or the
impact on our financial results.

Inflation


While it is difficult to accurately measure the impact of inflation, we
currently expect an inflationary impact to income (loss) before income taxes of
approximately $30 million for the year ending December 31, 2022, excluding the
impact of rising interest rates. However, rising inflationary pressures due to
higher input costs, including higher material, transportation, labor and other
costs, could exceed our expectations, which would further adversely impact our
operating results in future periods.




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Results of Operations

Consolidated Results


The following table sets forth our summarized, consolidated results of
operations for the three and nine months ended September 30, 2022 and 2021 (in
thousands):

                                                                                                         Nine Months Ended
                                                         Three Months Ended September 30,                  September 30,
                                                             2022                2021                2022                 2021
Net revenue                                              $  545,557        

$528,593 $1,602,545 $1,556,773
cost of goods sold

                                          350,653            329,394            1,027,439              953,514
Cost of goods sold impairment charges                           674                688                5,786                  688
Gross profit                                                194,230            198,511              569,320              602,571
Selling, general and administrative                         100,071             91,397              297,542              268,280
Research and development                                     50,235             48,927              153,781              149,973
In-process research and development impairment charges            -                  -                    -                  710
Intellectual property legal development expenses              1,411              1,627                2,996                6,574
Acquisition, transaction-related and integration
expenses                                                         39                134                  714                7,219
Charges related to legal matters, net                           285             19,000              249,836               19,000

Charges (insurance recoveries) for property losses and associated expenses

                                               -              8,186               (1,911)               8,186
Restructuring and other charges                                 581                425                1,312                  788
Change in fair value of contingent consideration             (1,425)               300               (1,495)                 300
Other operating income                                       (1,320)                 -               (2,495)                   -
Operating income (loss)                                      44,353             28,515             (130,960)             141,541
Total other expense, net                                    (42,173)           (30,558)            (109,512)             (93,856)
Income (loss) before income taxes                             2,180             (2,043)            (240,472)              47,685
Provision for income taxes                                    4,570              4,049                8,459                7,056
Net (loss) income                                        $   (2,390)         $  (6,092)         $  (248,931)         $    40,629


Net Revenue

Net revenue for the three months ended September 30, 2022 was $545.6 million, an
increase of 3% as compared to $528.6 million for the three months ended
September 30, 2021. The increase from the prior year period was attributable to
the following:

•Growth in our Generics segment of $3.1 million was primarily due to volume
growth and an increase in new products launched in 2022 and 2021 of $4.3
million, partially offset by continued price erosion.
•Specialty segment net revenue decreased $3.3 million as growth in our promoted
products, including Rytary® and Unithroid® which increased 12% and 39%,
respectively, was driven by favorable pricing and volume growth that continues
to remain strong, offset by loss of exclusivity on Zomig® nasal spray and
declines in our non-promoted products.
•AvKARE segment net revenue grew $17.1 million as compared to the prior year
period due to growth in our distribution channel.

Net revenue for the nine months ended September 30, 2022 was $1,602.5 million,
an increase of 3% as compared to $1,556.8 million for the nine months ended
September 30, 2021. The increase from the prior year period was attributable to
the following:

•Growth in our Generics segment of $12.8 million was primarily due to new
products launched in 2022 and 2021 that contributed net revenue growth of $7.7
million, the favorable year-over-year impact of lower returns relating to
Oseltamivir (generic Tamiflu®), and volume growth. These increases were
partially offset by continued price erosion.
•Specialty segment net revenue decreased $5.7 million as compared to the prior
year period, driven by the loss of exclusivity of Zomig® nasal spray as well as
a decline in our other non-promoted products. Net revenue from our promoted
products, including Rytary® and Unithroid®, increased 7% and 33%, respectively
as prescription growth remained strong for both products.
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•AvKARE segment net income grew $38.7 million compared to the prior year period due to growth in our distribution channel.

Cost of goods sold and gross profit


Cost of goods sold, including impairment charges, increased 6%, or $21.2
million, to $351.3 million for the three months ended September 30, 2022 as
compared to $330.1 million for the three months ended September 30, 2021. The
increase in cost of goods sold, including impairment charges, was primarily due
to increased Generics and AvKARE volume and increased freight charges, partially
offset by the impact of the loss of exclusivity on Zomig® nasal spray.

Gross profit for the three months ended September 30, 2022 was $194.2 million
(36% of total net revenue) as compared to gross profit of $198.5 million (38% of
total net revenue) for the three months ended September 30, 2021. Our gross
profit as a percentage of net revenue decreased compared to the prior year
period primarily as a result of the factors discussed above.

Cost of goods sold, including impairment charges, increased 8%, or $79.0
million, to $1,033.2 million for the nine months ended September 30, 2022 as
compared to $954.2 million for the nine months ended September 30, 2021. The
increase in cost of goods sold was primarily due to increased Generics and
AvKARE volume, increased freight costs, a reduction in operating efficiency
benefits realized as compared to the prior year period, and a $5.1 million
period over period increase in intangible asset impairment charges.

Gross profit for the nine months ended September 30, 2022 was $569.3 million
(36% of total net revenue) as compared to gross profit of $602.6 million (39% of
total net revenue) for the nine months ended September 30, 2021. Our gross
profit as a percentage of net revenue decreased compared to the prior year
period primarily as a result of the factors discussed above.

General and administrative salesman


Selling, general, and administrative ("SG&A") expenses for the three months
ended September 30, 2022 was $100.1 million, as compared to $91.4 million for
the three months ended September 30, 2021. The $8.7 million increase from the
prior year period was primarily due to $6.9 million of costs associated with our
biosimilar launches, including the Saol Acquisition (as defined in Note 3.
Acquisitions to the financial statements included in this Form 10-Q), an
increase in employee compensation, and increased freight charges as fuel costs
increased.

SG&A expenses for the nine months ended September 30, 2022 were $297.5 million,
as compared to $268.3 million for the prior year period. The $29.3 million
increase from the prior year period was primarily due to $16.4 million of costs
associated with our biosimilar launches, including the Saol Acquisition and a
$5.0 million expense associated with a biosimilar regulatory approval, an
increase in employee compensation, and increased freight charges as fuel costs
increased.

Research and Development

Research and development ("R&D") expenses for the three months ended
September 30, 2022 were $50.2 million, as compared to $48.9 million for the
three months ended September 30, 2021. The $1.3 million increase compared to the
prior year period was primarily attributable to costs of $2.8 million associated
with acquired businesses in 2021, partially offset by operating efficiencies.

R&D expenses for the nine months ended September 30, 2022 were $153.8 million,
as compared to $150.0 million for the nine months ended September 30, 2021. The
$3.8 million increase compared to the prior year period was primarily
attributable to increased compensation and other costs, including $15.6 million
of costs associated with businesses acquired in 2021, partially offset by
decreases in in-licensing and upfront milestone payments of $12.4 million.

Intellectual Property Legal Development Expenses


Intellectual property legal development expenses include, but are not limited
to, costs associated with formulation assessments, patent challenge opinions and
strategy, and litigation expenses to defend our intellectual property.
Intellectual property legal development expenses for the three months ended
September 30, 2022 and 2021 were $1.4 million and $1.6 million, respectively.
Expenses may vary based on the number of individual cases and corresponding
litigation outstanding in a particular period.

Intellectual property legal development expenses for the nine months ended
September 30, 2022 and 2021 were $3.0 million and $6.6 million, respectively.
The period-over-period decrease of $3.6 million was due to the timing of
specific cases. Expenses may vary based on the number of individual cases and
corresponding litigation outstanding in a particular period.
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Acquisition, transaction-related and integration expenses


Acquisition, transaction-related and integration expenses were immaterial for
the three months ended September 30, 2022 and 2021. Acquisition,
transaction-related and integration expenses were $0.7 million for the nine
months ended September 30, 2022 as compared to $7.2 million for the nine months
ended September 30, 2021.

Acquisition, transaction-related and integration expenses for the nine months
ended September 30, 2022 were primarily related to the Saol Acquisition, which
closed on February 9, 2022. For the nine months ended September 30, 2021,
acquisition, transaction-related and integration expenses were primarily related
to the KSP Acquisition, which closed on April 2, 2021, and integration expenses
related to the businesses that comprise our AvKARE segment. Refer to Note 3.
Acquisitions for additional information.

Charges Related to Legal Matters, Net


For the three and nine months ended September 30, 2022, we recorded charges
related to legal matters, net, of $0.3 million and $249.8 million, respectively.
The net charges for the nine months ended September 30, 2022 were primarily
comprised of charges associated with Opana® ER antitrust litigation, net of
insurance recoveries associated with securities class actions. For the three and
nine months ended September 30, 2021, we recorded charges of $19.0 million for
securities class actions. Refer to Note 13. Commitments and Contingencies for
additional information.

(Insurance Recoveries) Property Losses and Associated Expenses


On September 1, 2021, Tropical Storm Ida brought extreme rainfall and flash
flooding to New Jersey that caused damage to two of our facilities. The Company
concluded that all inventory on-hand at the time of the flooding was damaged and
unsellable and that a majority of the equipment was damaged beyond repair. In
addition, the Company incurred significant costs to repair both facilities.
Accordingly, the Company recorded $8.2 million of charges for property losses
and associated expenses for both of the three and nine months ended September
30, 2021.

During the nine months ended September 30, 2022, insurance recoveries of $1.9
million associated with property damage and inventory losses were received and
recorded in charges (insurance recoveries) for property losses and associated
expenses.

Other Operating Income

Other operating income for the three and nine month periods ended September 30,
2022 of $1.3 million and $2.5 million, respectively, was comprised of income
earned from the India Production Linked Incentive Scheme for the Pharmaceutical
Sector. Refer to Note 19. Government Grants for additional information.

Total Other Expenses, Net


Total other expense, net was $42.2 million for the three months ended
September 30, 2022 as compared to $30.6 million for the three months ended
September 30, 2021. Overall, the increase from the prior year period was driven
by a $5.5 million unfavorable period-over-period impact of net foreign exchange
gains and losses and higher interest expense, partially offset by an increase in
the benefit related to a previously outstanding contingent liability.

Total other expense, net was $109.5 million for the nine months ended
September 30, 2022 as compared to $93.9 million for the nine months ended
September 30, 2021. Overall, the increase from the prior year period was driven
by a $12.7 million unfavorable period-over-period impact of net foreign exchange
gains and losses and higher interest expense, partially offset by an increase in
the benefit related to a previously outstanding contingent liability.

Provision for income taxes


For the three months ended September 30, 2022 and 2021, our provision for income
taxes and effective tax rates were $4.6 million and 209.6% and $4.0 million and
(198.2)%, respectively. The period-over-period change in the provision for
income taxes was primarily related to a change in the mix of foreign income.

For the nine months ended September 30, 2022 and 2021, our provision for income
taxes and effective tax rates were $8.5 million and (3.5)% and $7.1 million and
14.8%, respectively. The period-over-period change in the provision for income
taxes was primarily related to a change in the mix of foreign income and a
discrete benefit as a result of the completion of an Internal
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Tax Service examination and Joint Committee review of 2012-2018 federal income tax returns, which allowed the Company to recognize previously unrecognized tax benefits.

Net income (loss)

We recognized a net loss for the three months ended September 30, 2022 of $2.4 million compared to the net loss of $6.1 million for the three months ended
September 30, 2021. The change from one period to another was attributable to the factors discussed above.


We recognized a net loss for the nine months ended September 30, 2022 of $248.9
million as compared to net income of $40.6 million for the nine months ended
September 30, 2021. The period-over-period change was attributable to the
factors discussed above, including the charge for the nine months ended
September 30, 2022 related to legal matters of $262.8 million associated with
the Opana® ER antitrust litigation.

generic


The following table sets forth results of operations for our Generics segment
for the three and nine months ended September 30, 2022 and 2021 (in thousands):

                                                              Three Months Ended
                                                                 September 30,                     Nine Months Ended September 30,
                                                            2022               2021                   2022                    2021
Net revenue                                             $ 350,266          $ 347,127          $       1,032,908          $ 1,020,072
Cost of goods sold                                        217,997            208,670                    640,450              598,122
Cost of goods sold impairment charges                         674                688                      5,786                  688
Gross profit                                              131,595            137,769                    386,672              421,262
Selling, general and administrative                        30,259             15,941                     84,410               46,500
Research and development                                   41,987             34,999                    129,382              114,547

Impairment charges for research and development in progress –

        -                          -                  710
Intellectual property legal development expenses            1,369              1,584                      2,919                6,506
Acquisition, transaction-related and integration
expenses                                                       16                  -                         24                    -
Charges related to legal matters, net                         285                  -                      2,442                    -

Charges (insurance recoveries) for property losses and associated expenses

                                             -              8,186                     (1,911)               8,186
Restructuring and other charges                               507                  -                        713                   80
Other operating income                                     (1,320)                 -                     (2,495)                   -
Operating income (loss)                                 $  58,492          $  77,059          $         171,188          $   244,733


Net Revenue

Generics net revenue was $350.3 million for the three months ended September 30,
2022, an increase of $3.1 million as compared to the prior year period,
primarily due to volume growth and an increase in new products launched in 2022
and 2021 of $4.3 million, partially offset by continued price erosion.

Generics net revenue was $1,032.9 million for the nine months ended
September 30, 2022, an increase of $12.8 million as compared to the prior year
period. The increase primarily related to new products launched in 2022 and 2021
that contributed revenue growth of $7.7 million, the favorable year-over-year
impact of lower returns relating to Oseltamivir (generic Tamiflu®), and volume
growth. These increases were partially offset by continued price erosion.

Cost of goods sold and gross profit


Generics cost of goods sold, including impairment charges, for the three months
ended September 30, 2022 was $218.7 million, an increase of $9.3 million
compared the prior year period. The increase in cost of goods sold was primarily
attributable to increased volume and inflationary pressure on freight.

Generics gross profit for the three months ended September 30, 2022 was $131.6
million (38% of net revenue) as compared to gross profit of $137.8 million (40%
of net revenue) for the three months ended September 30, 2021 as a result of the
factors described above.
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Generics cost of goods sold, including impairment charges, for the nine months
ended September 30, 2022 was $646.2 million, an increase of $47.4 million as
compared to the nine months ended September 30, 2021. The increase in cost of
goods sold was primarily attributable to increased volume, increased freight
costs, and a reduction in operating efficiencies period-over-period.

Generics gross profit for the nine months ended September 30, 2022 was $386.7
million (37% of net revenue) as compared to gross profit of $421.3 million (41%
of net revenue) for the nine months ended September 30, 2021 as a result of the
factors described above.

General and administrative salesman


Generics SG&A expense for the three months ended September 30, 2022 was $30.3
million, as compared to $15.9 million for the three months ended September 30,
2021. The increase over the prior year period was primarily due to $6.9 million
of costs associated with our biosimilar launches, including the Saol
Acquisition, an increase in employee compensation, and increased freight charges
as fuel costs increased.

Generics SG&A expense for the nine months ended September 30, 2022 was $84.4
million, as compared to $46.5 million for the nine months ended September 30,
2021. The increase over the prior year period was primarily attributed to $16.4
million of costs associated with our biosimilar launches, including the Saol
Acquisition and a $5.0 million expense associated with a biosimilar regulatory
approval, an increase in employee compensation, increased freight charges due to
rising fuel costs, and increased legal fees.

Investigation and development


Generics R&D expenses for the three months ended September 30, 2022 was $42.0
million, an increase of $7.0 million compared to the three months ended
September 30, 2021. The increase was primarily associated with increased project
spending as our complex portfolio continued to advance, inflationary pressures
and the costs associated with acquired businesses in 2021 of $3.0 million
relating to complex generics, offset, in part, by a decrease in in-licensing and
upfront milestone payments of $1.0 million.

Generics R&D expenses for the nine months ended September 30, 2022 was $129.4
million, an increase of $14.8 million as compared to the nine months ended
September 30, 2021. The increase was primarily associated with increased project
spending as our complex portfolio continued to advance, inflationary pressures
and the costs associated with acquired businesses in 2021 of $12.5 million
relating to complex generics, offset, in part, by a decrease in in-licensing and
upfront milestone payments of $9.5 million.

Intellectual Property Legal Development Expenses


Intellectual property legal development expenses include, but are not limited
to, costs associated with formulation assessments, patent challenge opinions and
strategy, and litigation expenses to defend our intellectual property.
Intellectual property legal development expenses for the three months ended
September 30, 2022 and 2021 were $1.4 million and $1.6 million, respectively.
Expenses may vary based on the number of individual cases and corresponding
litigation outstanding in a particular period.

Intellectual property legal development expenses for the nine months ended
September 30, 2022 and 2021 were $2.9 million and $6.5 million, respectively.
The period-over-period decrease of $3.6 million was due to the timing of
specific cases. Expenses may vary based on the number of individual cases and
corresponding litigation outstanding in a particular period.

Charges (insurance recoveries) for property losses and associated expenses


On September 1, 2021, Tropical Storm Ida brought extreme rainfall and flash
flooding to New Jersey that caused damage to two of our facilities. The Company
concluded that all inventory on-hand at the time of the flooding was damaged and
unsellable and that a majority of the equipment was damaged beyond repair. In
addition, the Company incurred significant costs to repair both facilities.
Accordingly, the Company recorded $8.2 million of charges for property losses
and associated expenses for both of the three and nine months ended September
30, 2021.

During the nine months ended September 30, 2022, insurance recoveries of $1.9
million associated with property damage and inventory losses were received and
recorded in charges (insurance recoveries) for property losses and associated
expenses.



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Other operating income


Other operating income for the three and nine month periods ended September 30,
2022 of $1.3 million and $2.5 million, respectively, was comprised of income
earned from the India Production Linked Incentive Scheme for the Pharmaceutical
Sector. Refer to Note 19. Government Grants for additional information.

Specialty


The following table sets forth results of operations for our Specialty segment
for the three and nine months ended September 30, 2022 and 2021 (in thousands):

                                                              Three Months Ended
                                                                 September 30,                Nine Months Ended September 30,
                                                            2022               2021               2022                2021
Net revenue                                             $   89,484          $ 92,745          $  271,571          $ 277,311
Cost of goods sold                                          43,719            47,303             130,363            144,184
Gross profit                                                45,765            45,442             141,208            133,127
Selling, general and administrative                         22,201            22,211              69,772             62,748
Research and development                                     8,248            13,928              24,399             35,426
Intellectual property legal development expenses                42                43                  77                 68
Acquisition, transaction-related and integration
expenses                                                        15                 -                  47                 16
Change in fair value of contingent consideration            (1,425)              300              (1,495)               300
Operating income                                        $   16,684          $  8,960          $   48,408          $  34,569


Net Revenue

Specialty net revenue for the three months ended September 30, 2022 was $89.5
million, a decrease of $3.3 million as compared to the three months ended
September 30, 2021, driven by the loss of exclusivity of Zomig® nasal spray and
a decline in our other non-promoted products. Net revenue from our promoted
products, including Rytary® and Unithroid®, increased 12% and 39%, respectively
as prescription growth remained strong for both products.

Specialty net revenue for the nine months ended September 30, 2022 was $271.6
million, a decrease of $5.7 million as compared to the nine months ended
September 30, 2021, driven by the loss of exclusivity of Zomig® nasal spray and
a decline in our other non-promoted products. Net revenue from our promoted
products, including Rytary® and Unithroid®, increased 7% and 33%, respectively
as prescription growth remained strong for both products.

Cost of Goods Sold and Gross Profit
Specialty cost of goods sold for the three months ended September 30, 2022 was
$43.7 million as compared to $47.3 million for the three months ended
September 30, 2021. Specialty gross profit for the three months ended
September 30, 2022 was $45.8 million (51% of net revenue) as compared to gross
profit of $45.4 million (49% of net revenue) for the three months ended
September 30, 2021. The increase in gross profit primarily related to the
decrease in revenues, offset by product mix, including the loss of exclusivity
on Zomig® nasal spray, which had lower margin.

Specialty cost of goods sold for the nine months ended September 30, 2022 was
$130.4 million as compared to $144.2 million for the nine months ended
September 30, 2021. Specialty gross profit for the nine months ended
September 30, 2022 was $141.2 million (52% of net revenue) as compared to gross
profit of $133.1 million (48% of net revenue) for the nine months ended
September 30, 2021. The increase in gross profit primarily related to the
decrease in revenues, offset by product mix, including the loss of exclusivity
on Zomig® Nasal Spray which had lower margin.
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General and administrative salesman

Selling, general and special administrative expenses were $22.2 million both for the three months ended
September 30, 2022 and 2021, as operating efficiencies offset inflationary pressures.


Specialty SG&A expense was $69.8 million for the nine months ended September 30,
2022, an increase of $7.0 million compared to the nine months ended
September 30, 2021. The increase was driven by an increase in in-person sales
and marketing efforts following the onset of the COVID-19 pandemic.

Investigation and development


Specialty R&D expenses for the three months ended September 30, 2022 were $8.2
million, as compared to $13.9 million for the three months ended September 30,
2021. The $5.7 million decrease from the prior year period was primarily
attributable to a decrease in project spend as the IPX study wound down.

Specialty R&D expenses for the nine months ended September 30, 2022 were $24.4
million, as compared to $35.4 million for the nine months ended September 30,
2021. The $11.0 million decrease from the prior year period was primarily
attributable to a decrease in project costs as our IPX203 study wound down and a
decrease in in-licensing and upfront milestone payments of $2.9 million.

AvKARE

The following table shows the results of the operations of our AvKARE segment for the three and nine months ended September 30, 2022 and 2021 (in thousands):


                                                            Three Months Ended
                                                               September 30,                Nine Months Ended September 30,
                                                          2022               2021               2022                2021
Net revenue                                           $  105,807          $ 88,721          $  298,066          $ 259,390
Cost of goods sold                                        88,937            73,421             256,626            211,208
Gross profit                                              16,870            15,300              41,440             48,182
Selling, general and administrative                       13,216            14,683              39,361             41,986
Acquisition, transaction-related and integration
expenses                                                       -                 -                   -              1,422
Operating income                                      $    3,654          $    617          $    2,079          $   4,774


Net Revenue

AvKARE net income for the three months ended September 30, 2022 I was $105.8 millionan increase of $17.1 million compared to the three months ended
September 30, 2022driven by growth in our distribution channel.

AvKARE net income for the nine months ended September 30, 2022 I was $298.1 millionan increase of $38.7 million compared to the nine months ended
September 30, 2021driven by growth in our distribution channel.

Cost of goods sold and gross profit


AvKARE cost of goods sold for the three months ended September 30, 2022 was
$88.9 million as compared to $73.4 million for the three months ended
September 30, 2021. AvKARE gross profit for the three months ended September 30,
2022 was $16.9 million (16% of net revenue) as compared to gross profit of $15.3
million (17% of net revenue) for the three months ended September 30, 2021. The
decrease in gross profit as a percentage of revenue primarily related to the
increase in sales through our lower margin distribution channel.

AvKARE cost of goods sold for the nine months ended September 30, 2022 was
$256.6 million as compared to $211.2 million for the nine months ended
September 30, 2021. AvKARE gross profit for the nine months ended September 30,
2022 was $41.4 million (14% of net revenue) as compared to gross profit of $48.2
million (19% of net revenue) for the nine months ended September 30, 2021. The
decrease in gross profit primarily related to the increase in sales through our
lower margin distribution channel and a decrease in sales through our higher
margin governmental label channel.
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General and administrative salesman

AvKARE selling, general and administrative expenses were $13.2 million for the three months ended September 30, 2022 in comparison with $14.7 million in the previous year period. Selling, general and administrative expenses decreased from one period to another mainly due to a decrease in amortization expenses.

AvKARE selling, general and administrative expenses were $39.4 million for the nine months ended September 30, 2022 in comparison with $42.0 million for the prior year period. Selling, general and administrative expenses decreased from one period to another mainly due to a decrease in amortization expenses.

Liquidity and Capital Resources


On June 2, 2022, the Company entered into a revolving credit agreement (the "New
Credit Agreement"), which amended the existing senior secured asset based
revolving credit facility (the "Revolving Credit Facility"). The New Credit
Agreement (i) replaced the Revolving Credit Facility with a $350.0 million
senior secured revolving credit facility (the "New Revolving Credit Facility")
that matures on June 2, 2027, (ii) provides for up to $25.0 million of the New
Revolving Credit Facility to be available for the purpose of issuing letters of
credit; (iii) provides for up to $35.0 million of the New Revolving Credit
Facility to be available for the purpose of issuing swingline loans; (iv) allows
the the Company to request an incremental increase in the revolving facility
commitments by up to $150.0 million; and (v) terminated the revolving credit
facility commitments of lenders under the Revolving Credit Facility.

Interest is payable on the New Revolving Credit Facility at a rate equal to the
alternate base rate ("ABR") or the secured overnight financing rate ("SOFR"),
plus an applicable margin, in each case, subject to a ABR floor of 1.00% or a
SOFR floor of 0.00%, as applicable. The applicable margin for the New Revolving
Credit Facility is initially 0.25% per annum for ABR loans and 1.25% per annum
for SOFR loans. The applicable margin on borrowings under the New Revolving
Credit Facility thereafter will adjust ranging from 0.25% to 0.50% per annum for
ABR loans and from 1.25% to 1.50% per annum for SOFR loans determined by the
average historical excess availability. The proceeds of any loans made under the
New Revolving Credit Facility can be used for capital expenditures,
acquisitions, working capital needs and other general purposes, subject to
covenants as described below. The Borrower pays a commitment fee based on the
average daily unused amount of the New Revolving Credit Facility at a rate of
0.25% per annum.

Our primary source of liquidity is cash generated from operations, available
cash on hand and borrowings under debt financing arrangements, including
$285.9 million of available capacity on our New Revolving Credit facility as of
September 30, 2022. Refer to Note 17. Debt in our 2021 Annual Report on Form
10-K for additional information. We believe these sources are sufficient to fund
our planned operations, meet our interest and contractual obligations, including
acquisitions, and provide sufficient liquidity over the next 12 months from the
date of filing of this Form 10-Q. However, our ability to satisfy our working
capital requirements and debt obligations will depend upon economic conditions,
the impact of the COVID-19 pandemic, and demand for our products, which are
factors that may be out of our control.

Our primary uses of capital resources are to fund operating activities,
including research and development expenses associated with new product filings,
and pharmaceutical product manufacturing expenses, license payments, spending on
production facility expansions and capital equipment, acquisitions, and
settlements of litigation. As the impact of the COVID-19 pandemic on the economy
and our operations evolves, we will continue to assess our liquidity needs. A
continued worldwide disruption could materially affect our future access to
sources of liquidity, particularly our cash flows from operations, and financial
condition. In the event of a sustained market deterioration, we may need
additional liquidity, which would require us to evaluate available alternatives
and take appropriate actions.

We estimate that we will invest approximately $65.0 million a $75.0 million
during 2022 for capital expenditures to support and grow our existing operations, primarily related to investments in manufacturing equipment, information technology and facilities.


Over the next 12 months, we expect to make substantial payments, including
$100.0 million in payments associated with the Preliminary Settlement Agreements
for the Opana® ER antitrust litigation (refer to Note 13. Commitments and
Contingencies), monthly interest and quarterly principal amounts due for our
debt instruments, including our Term Loan and Rondo Term Loan, as well as
contractual payments for leased premises. Refer to Note 17. Debt and Note 12.
Leases in our 2021 Annual Report on Form 10-K for additional information on our
indebtedness and leases, respectively.

We are party to a tax receivable agreement ("TRA") that requires us to make cash
payments to the Members other than the Company, in respect of certain tax
benefits that we may realize or may be deemed to realize as a result of sales or
exchanges of Amneal Common Units by the Members (refer to Note 1. Nature of
Operations). The timing and amount of any payments under the TRA will also vary,
depending upon a number of factors including the timing and number of Amneal
Common Units sold
                                       56
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or exchanged for our class A common stock, the price of our class A common stock
on the date of sale or exchange, the timing and amount of our taxable income,
and the tax rate in effect at the time of realization of our taxable income. The
tax receivable agreement also requires that we make an accelerated payment to
the Members equal to the present value of all future payments due under the
agreement upon certain change of control and similar transactions. Further sales
or exchanges occurring subsequent to September 30, 2022 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 $206.3 million contingent liability as
of September 30, 2022 (refer to Note 7. Income Taxes). As a result of the
foregoing, our obligations under the tax receivable agreement could have a
substantial negative impact on our liquidity. For further details, refer to Item
1A. Risk Factors in our 2021 Annual Report on Form 10-K.

In addition, pursuant to the limited liability operating agreement of Amneal, as
amended, in connection with any tax period, we will be required to make
distributions to Amneal's members, on a pro rata basis in proportion to the
number of Amneal Common Units held by each member, of cash until each member
(other than Amneal) has received an amount at least equal to its assumed tax
liability and Amneal has received an amount sufficient to enable it to timely
satisfy all of its U.S. federal, state and local and non-U.S. tax liabilities,
and meet its obligations pursuant to the TRA. During the nine months ended
September 30, 2022 and September 30, 2021, we made tax distributions of $3.3
million and $2.2 million, respectively, to the Members.

As of September 30, 2022, our cash and cash equivalents consist of cash on
deposit and highly liquid investments. A portion of our cash flows are derived
outside the United States. As a result, we are subject to market risk associated
with changes in foreign exchange rates. We maintain cash balances at both U.S.
based and foreign country based commercial banks. At various times during the
year, our cash balances held in the United States may exceed amounts that are
insured by the Federal Deposit Insurance Corporation (FDIC). We make our
investments in accordance with our investment policy. The primary objectives of
our investment policy are liquidity and safety of principal.

Cash Flows
(in thousands)

                                                                    Nine Months Ended
                                                                      September 30,
                                                                   2022           2021
Cash provided by (used in):
Operating activities                                           $   88,392      $ 178,559
Investing activities                                             (162,843)      (107,213)
Financing activities                                              (84,453)      (107,772)
Effect of exchange rate changes on cash                            (1,944)  

(76)

Net decrease in cash, cash equivalents and restricted cash $(160,848)

$(36,502)

Cash flows from operating activities


Net cash provided by operating activities was $88.4 million for the nine months
ended September 30, 2022 as compared to $178.6 million for the nine months ended
September 30, 2021. The decrease in operating cash flows from the prior year
period was primarily driven by payments of $115.0 million into an escrow account
associated with the Opana® ER antitrust litigation settlement agreements and
Preliminary Settlement Agreements. Refer to Note 13. Commitments and
Contingencies.

Cash flows from investing activities


Net cash used in investing activities for the nine months ended September 30,
2022 was $162.8 million as compared to $107.2 million for the nine months ended
September 30, 2021. The increase from the prior year period of $55.6 million was
primarily due to an increase in cash paid for intangible assets associated with
marketed product licenses and business acquisitions.

Cash flows from financing activities


Net cash used in financing activities was $84.5 million for the nine months
ended September 30, 2022 as compared to $107.8 million for the nine months ended
September 30, 2021. The decrease from the prior year period of $23.3 million was
primarily due to $85.0 million in borrowings under the New Revolving Credit
Facility (refer to Note 20. Debt) and a $23.5 million decrease in tax
distributions, partially offset by $44.5 million paid for deferred consideration
associated with the KSP
                                       57
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Acquisition and the Puniska Acquisition (see Note 3. Acquisitions) and an increase in principal payments made on loans from $37.4 million.

Commitments and Contractual Obligations


The contractual obligations of the Company are set forth in Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's 2021 Annual Report on Form 10-K. Other than the
contractual obligations noted below (shown in thousands), there have been no
material changes to the disclosure presented in our 2021 Annual Report on Form
10-K.

                                                                  Payments Due by Period
                                                    Less than 1
Contractual Obligations                  Total          Year        1-3 Years       3-5 Years      More than 5 Years
Opana ER® antitrust litigation
Preliminary Settlement Agreements(1) $  150,000    $   100,000    $    50,000    $          -    $                -
Interest associated with the Opana
ER® antitrust litigation Preliminary
Settlement Agreements (1)                 4,220          1,805          2,415               -                     -
Total                                $  154,220    $   101,805    $    52,415    $          -    $                -

(1) See Note 13. Commitments and Contingencies for additional information.


The foregoing table does not include milestone payments potentially payable by
the Company under its collaboration agreements and licenses. Such milestone
payments are dependent upon the occurrence of specific and contingent events,
and not the passage of time. A discussion of our significant contingent
milestones is contained in Note 5. Alliance and Collaboration and Note 24.
Related Party Transactions in our 2021 Annual Report on Form 10-K and Note 6.
Alliance and Collaboration and Note 15. Related Party Transactions in this Form
10-Q.

Off-Balance Arrangements

We had no off-balance sheet deals as of September 30, 2022.

Critical Accounting Policies and Estimates


For a discussion of the Company's critical accounting policies and estimates,
see Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations in our 2021 Annual Report on Form 10-K. There have been no
material changes to the disclosures presented in our 2021 Annual Report on Form
10-K.

Recently issued accounting standards

Recently issued accounting standards are discussed in Note 2. Summary of Significant Accounting Policies.

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