REVENUE RECOGNITION AND RELATED ALLOWANCES

3 Months Ended

Mar. 31, 2023

REVENUE RECOGNITION AND RELATED ALLOWANCES

REVENUE RECOGNITION AND RELATED ALLOWANCES

2. REVENUE RECOGNITION AND RELATED ALLOWANCES

Revenue Recognition

We recognize revenue using the following steps:

● Identification of the contract, or contracts, with a customer;

● Identification of the performance obligations in the contract;

● Determination of the transaction price, including the identification and estimation of variable consideration;

● Allocation of the transaction price to the performance obligations in the contract; and

● Recognition of revenue when we satisfy a performance obligation.

We derive our revenues primarily from sales of generic, rare disease, and established brand pharmaceutical products, royalties, and other pharmaceutical services. 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)	2023		2022
Sales of generic pharmaceutical products	$	63,713	$	49,107
Sales of established brand pharmaceutical products, royalties, and other pharmaceutical services		26,743		14,078
Sales of rare disease pharmaceutical products		16,330		1,292
Total net revenues	$	106,786	$	64,477

	Three Months Ended
Timing of Revenue Recognition	March 31,		March 31,
(in thousands)	2023		2022
Performance obligations transferred at a point in time	$	106,411	$	63,911
Performance obligations transferred over time		375		566
Total	$	106,786	$	64,477

In the three months ended March 31, 2023 and 2022, we did not incur, and therefore did not defer, any material incremental costs to obtain or fulfill contracts. We recognized an increase of $5.1 million to net revenue from performance obligations satisfied in prior periods during the three months ended March 31, 2023, consisting primarily of revised estimates for variable consideration, including chargebacks, rebates, returns, and other allowances, related to prior period sales. We recognized a decrease of $1.3 million to net revenue from performance obligations satisfied in prior periods during the three months ended March 31, 2022, consisting primarily of revised estimates for variable consideration, including chargebacks, rebates, returns, and other allowances, related to prior period sales. We provide technical transfer services to customers, for which services are transferred over time. As of March 31, 2023 and December 31, 2022, we did not have any contract assets related to revenue recognized based on percentage of completion but not yet billed. Our deferred revenue balance as of March 31, 2023, December 31, 2022, and December 31, 2021 was immaterial. For the three months ended March 31, 2023, we did not recognize deferred revenue. For the three months ended March 31, 2022, we recognized less than $0.1 million of revenue that was included in deferred revenue as of December 31, 2021. Deferred revenue is included in accrued expenses and other in the unaudited interim condensed consolidated balance sheets.

Variable consideration

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.

The following table summarizes activity in the consolidated balance sheets for accruals and allowances for the three months ended March 31, 2023 and 2022, 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, 2021	$	94,066	$	5,492	$	35,831	$	13,100	$	4,642
Accruals/Adjustments		152,566		2,810		6,942		9,785		5,060
Credits Taken Against Reserve		(142,991)		(3,745)		(7,219)		(10,915)		(4,539)
Balance at March 31, 2022 (1)	$	103,641	$	4,557	$	35,554	$	11,970	$	5,163
Balance at December 31, 2022	$	148,562	$	10,872	$	33,399	$	9,442	$	6,488
Accruals/Adjustments		146,113		4,461		4,640		12,026		5,483
Credits Taken Against Reserve		(193,859)		(6,726)		(3,931)		(12,018)		(6,538)
Balance at March 31, 2023 (1)	$	100,816	$	8,607	$	34,108	$	9,450	$	5,433

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

Credit Concentration

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

During the three months ended March 31, 2023 and 2022, we had three customers that accounted for 10% or more of net revenues. As of March 31, 2023, accounts receivable from these customers totaled 83% of accounts receivable, net.

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

	Three Months Ended
	March 31,		March 31,
	2023		2022
Customer 1	33	%	31	%
Customer 2	15	%	19	%
Customer 3	14	%	14	%