We derive our revenues primarily from sales of generic and branded pharmaceutical products. Revenue is recognized when our obligations under the terms of our contracts with customers are satisfied, which generally

occurs when control of the products we sell is transferred to the customer. We estimate variable consideration after considering applicable information that is reasonably available. We generally do not have incremental costs to obtain contracts that would otherwise not have been incurred. We do not adjust revenue for the promised amount of consideration for the effects of a significant financing component because our customers generally pay us within 100 days.

All revenue recognized in the accompanying unaudited interim condensed consolidated statements of operations is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue:


	Three Months Ended
Products and Services	March 31,		March 31,
(in thousands)	2021		2020
Sales of generic pharmaceutical products	$	32,988	$	37,495
Sales of branded pharmaceutical products		7,517		9,157
Sales of contract manufactured products		2,573		1,974
Royalties from licensing agreements		11,210		290
Product development services		158		577
Other		75		281
Total net revenues	$	54,521	$	49,774


	Three Months Ended
Timing of Revenue Recognition	March 31,		March 31,
(in thousands)	2021		2020
Performance obligations transferred at a point in time	$	54,363	$	49,197
Performance obligations transferred over time		158		577
Total	$	54,521	$	49,774

In the three months ended March 31, 2021 and 2020, we did not incur, and therefore did not defer, any material incremental costs to fulfill contracts. We recognized an increase of $10.7 million to net revenue from performance obligations satisfied in prior periods during the three months ended March 31, 2021, consisting primarily of a final royalty revenue related to the Kite license agreement pursuant to the Tripartite Agreement as described herein in Royalties from Licensing Agreements. We recognized a decrease of $2.4 million of net revenue from performance obligations satisfied in prior periods during the three months ended March 31, 2020, consisting primarily of revised estimates for variable consideration, including chargebacks, rebates, returns, and other allowances, related to prior period sales, partially offset by royalties from licensing agreements. We provide technical transfer services to customers, for which services are transferred over time. As of March 31, 2021 and December 31, 2020, we did not have any contract assets related to revenue recognized based on percentage of completion but not yet billed. We had $0.1 million of deferred revenue at March 31, 2021 and December 31, 2020. For the three months ended March 31, 2021, we recognized less than $0.1 million of revenue that was included in deferred revenue as of December 31, 2020. For the three months ended March 31, 2020, we recognized $0.1 million of revenue that was included in deferred revenue as of December 31, 2019.

Revenue from Sales of Generic and Branded Pharmaceutical Products

Product sales consists of sales of our generic and brand pharmaceutical products. Our sole performance obligation in our contracts is to provide pharmaceutical products to customers. Our products are sold at pre-determined standalone selling prices and our performance obligation is considered to be satisfied when control of the product is transferred to the customer. Control is transferred to the customer upon delivery of the product to the customer, as our pharmaceutical products are sold on an FOB destination basis and because inventory risk and risk of ownership passes to the customer upon delivery. Payment terms for these sales are generally less than 100 days.

Sales of our pharmaceutical products are subject to variable consideration due to chargebacks, government rebates, returns, administrative and other rebates, and cash discounts. Estimates for these elements of variable consideration require significant judgment. A comprehensive discussion of variable consideration is included in Part II, Item 8. Consolidated Financial Statements, Note 1, Description of Business and Summary of Significant Accounting Policies, in our Annual Report on Form 10-K for the year ended December 31, 2020.

The following table summarizes activity in the consolidated balance sheets for accruals and allowances for the three months ended March 31, 2021 and 2020, respectively:


	Accruals for Chargebacks, Returns, and Other Allowances
							Administrative		Prompt
			Government				Fees and Other		Payment
(in thousands)	Chargebacks		Rebates		Returns		Rebates		Discounts
Balance at December 31, 2019 (1)	$	49,882	$	8,901	$	16,595	$	8,281	$	2,549
Accruals/Adjustments		95,393		3,567		5,937		8,922		3,361
Credits Taken Against Reserve		(51,575)		(4,438)		(4,918)		(8,817)		(2,219)
Balance at March 31, 2020 (1)	$	93,700	$	8,030	$	17,614	$	8,386	$	3,691

Balance at December 31, 2020 (1)	$	88,746	$	7,826	$	27,155	$	8,906	$	3,839
Accruals/Adjustments		96,701		4,656		4,811		7,634		3,196
Credits Taken Against Reserve		(114,114)		(3,810)		(3,022)		(9,184)		(3,959)
Balance at March 31, 2021 (1)	$	71,333	$	8,672	$	28,944	$	7,356	$	3,076

(1)

Chargebacks are included as an offset to accounts receivable in the unaudited condensed consolidated balance sheets. Administrative Fees and Other Rebates and Prompt Payment Discounts are included as an offset to accounts receivable or as accrued expenses and other in the unaudited condensed consolidated balance sheets. Returns are included in returned goods reserve in the unaudited condensed consolidated balance sheets. Government Rebates are included in accrued government rebates in the unaudited condensed consolidated balance sheets.

Contract Manufacturing Product Sales Revenue

Contract manufacturing arrangements consists of agreements in which we manufacture a pharmaceutical product on behalf of a third party. Our performance obligation is to manufacture and provide pharmaceutical products to customers, typically pharmaceutical companies. The contract manufactured products are sold at pre-determined standalone selling prices and our performance obligations are considered to be satisfied when control of the product is transferred to the customer. Control is transferred to the customer when the product leaves our dock to be shipped to the customer, as our pharmaceutical products are sold on an FOB shipping point basis and the inventory risk and risk of ownership passes to the customer at that time. Payment terms for these sales are generally less than two months. We estimate returns based on historical experience. Historically, we have not had material returns for contract manufactured products.

As of March 31, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations for all open contract manufacturing customer contracts was $6.3 million, which consists of firm orders for contract manufactured products. We will recognize revenue for these performance obligations as they are satisfied, which is anticipated within 12 months.

Royalties from Licensing Agreements

From time to time, we enter into transition agreements with the sellers of products we acquire, under which we license to the seller the right to sell the acquired products. Therefore, we recognize the revenue associated with sales

of the underlying products as royalties. Because these royalties are sales-based, we recognize the revenue when the underlying sales occur, based on sales and gross profit information received from the sellers. Upon full transition of the products and upon launching the products under our own labels, we recognize revenue for the products as sales of generic or branded pharmaceutical products, as described above.

Pursuant to a 2012 Tripartite Agreement (the “Tripartite Agreement”) between the Company, The Regents of the University of California (“The Regents”), and Cabaret Biotech Ltd., an Israeli corporation (“Cabaret”) (as assignee of Dr. Zelig Eshhar’s rights under the Tripartite Agreement), and subsequent amendments thereto and assignments thereof, we are entitled to receive a percentage of the milestone and sales royalty payments paid to Cabaret by Kite Pharma, Inc. (“Kite”), a subsidiary of Gilead Sciences, Inc., under a license agreement. Under such license agreement, Kite licensed from Dr. Eshhar and Cabaret the patent rights covered by the Tripartite Agreement and agreed to make certain payments to Cabaret based on, among other things, Kite’s sales of Yescarta®. Under the Tripartite Agreement, portions of these payments are to be distributed to The Regents and to us.

We record royalty income related to Yescarta® on an accrual basis utilizing our best estimate of royalties earned based upon information available in the public domain, our understanding of the various agreements governing the royalty, and other information received from time to time from the relevant parties. Generally, cash is received directly from Cabaret once a year. The agreements governing this royalty were subject to multiple actions in multiple jurisdictions, including litigation between Cabaret and Kite, and separately, the Company and Cabaret. In the first quarter of 2021, we became aware that the litigation between Cabaret and Kite was dismissed. In April 2021, Cabaret and the Company settled all amounts due for amounts actually received by Cabaret or Eshhar for the licensing or use of the patent rights governed by the Kite license agreement. As a result, we recorded $11.2 million as royalties from licensing agreements in our net revenues for the period ended March 31, 2021. In addition, we agreed to reimburse Cabaret $0.4 million, which has been recorded as other expense, net in the accompanying unaudited interim condensed consolidated statement of operations, related to certain legal expenditures incurred. Based upon the events that led to the dismissal of the litigation between Cabaret and Kite, the Company does not expect to receive any future royalty income related to the Kite license agreement. In conjunction with payment of amounts due to us, all outstanding litigation between the Company and Cabaret were dismissed.

In addition, the Israeli Tax Authority (the “ITA”) has taken the position that any payments from Cabaret to us are subject to mandatory withholding tax. The Company and its tax counsel have disputed this position and are actively seeking to resolve the issue. The ultimate outcome of this matter may impact the amount of cash due to us from various tax escrow accounts that have been established.

Product Development Services Revenue

We provide product development services to customers, which are performed over time. These services primarily relate to the technical transfer of product development to our facility in Oakville, Ontario. The duration of these technical transfer projects can be up to three years. Deposits received from these customers are recorded as deferred revenue until revenue is recognized. For contracts with no deposits and for the remainder of contracts with deposits, we invoice customers as our performance obligations are satisfied. We recognize revenue on a percentage of completion basis, which results in contract assets on our balance sheet. As of March 31, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations for all open product development services contracts was $0.8 million. We expect to satisfy these performance obligations within the next 18 months.

Credit Concentration

Our customers are primarily wholesale distributors, chain drug stores, group purchasing organizations, and pharmaceutical companies.

During the three months ended March 31, 2021 and 2020 we had three customers that accounted for 10% or more of net revenues. As of March 31, 2021, accounts receivable from these customers totaled 73% of accounts receivable,

net. Additionally, 21% of our net revenue during the three months ended March 31, 2021 relates to royalty revenue from one customer pursuant to the Tripartite Agreement.

The three customers represent the total percentage of net revenues as follows:


	Three Months Ended
	March 31,		March 31,
	2021		2020
Customer 1	28	%	31	%
Customer 2	24	%	23	%
Customer 3	16	%	18	%