Customer, Supplier and Product Concentration

9 Months Ended

Sep. 30, 2019

Customer, Supplier and Product Concentration

Customer Concentration

In the three and nine month periods ended September 30, 2019 and 2018, a significant portion of the Company’s gross and net revenues reported were to three large wholesale drug distributors, and a significant portion of the Company’s accounts receivable as of September 30, 2019 and December 31, 2018 were due from these wholesale drug distributors as well. AmerisourceBergen Health Corporation (“Amerisource”), Cardinal Health, Inc. (“Cardinal”) and McKesson Drug Company (“McKesson”) collectively referred to herein as the “Big 3 Wholesalers”, are all distributors of the Company’s products, as well as suppliers of a broad range of health care products. Aside from these three wholesale drug distributors, no other individual customer accounted for 10% or more of gross sales, net revenue or gross trade receivables for the indicated dates and periods.

If sales to the Big 3 Wholesalers were to diminish or cease, the Company believes that the end users of its products would find little difficulty obtaining the Company’s products from another distributor. The Company is subject to credit risk from its accounts receivable, heavily weighted to the Big 3 Wholesalers, but as of and for the three and nine month periods ended September 30, 2019 and December 31, 2018, the Company has not experienced significant losses with respect to collection of these gross accounts receivable balances.

The following table sets forth the percentage of the Company's gross accounts receivable attributable to the Big 3 Wholesalers as of September 30, 2019 and December 31, 2018:



Big 3 Wholesalers combined:	September 30, 2019	December 31, 2018
Percentage of gross trade accounts receivable	83%	86%

The following table sets forth the percentage of the Company’s gross sales attributable to the Big 3 Wholesalers for the three and nine month periods ended September 30, 2019 and 2018:



	Three Months Ended September 30,		Nine Months Ended September 30,
Big 3 Wholesalers combined:	2019	2018	2019	2018
Percentage of gross sales	81%	83%	83%	83%

The following table sets forth the Company’s net revenues disaggregated by major customers for the three and nine month periods ended September 30, 2019 and 2018 (dollar amounts in thousands):



	Three Months Ended September 30, 2019			Three Months Ended September 30, 2018			Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018
Disaggregation of net revenues by major customers	Net Revenue		Net Revenue %	Net Revenue		Net Revenue %	Net Revenue		Net Revenue %	Net Revenue		Net Revenue %
Amerisource	$	36,831	20.9%	$	36,613	22.1%	$	107,203	20.6%	$	113,824	21.1%
Cardinal	31,156		17.7%	26,835		16.2%	89,255		17.2%	83,886		15.5%
McKesson	38,525		21.9%	40,274		24.3%	117,020		22.5%	136,623		25.3%
Big 3 Wholesalers combined	106,512		60.4%	103,722		62.6%	313,478		60.3%	334,333		61.8%
All Others	69,732		39.6%	61,903		37.4%	206,694		39.7%	206,299		38.2%
Total Revenues	$	176,244	100.0%	$	165,625	100.0%	$	520,172	100.0%	$	540,632	100.0%

Sales to the Big 3 Wholesalers primarily represent purchases of products in the Prescription Pharmaceuticals segment and generate the majority of the Prescription Pharmaceuticals segment revenue. The Prescription Pharmaceuticals segment revenue represented 88.3% and 89.6% of the consolidated net revenue for three month periods ended September 30, 2019 and 2018, respectively, while during the nine month periods ended September 30, 2019 and 2018 the Prescription Pharmaceuticals segment revenue represented 88.8% and 89.7% of the consolidated net revenue, respectively. Chain pharmacies are the major customers in the Consumer Health segment. For more information, see Note 10 — Segment Information.

Supplier Concentration

The Company requires a supply of quality raw materials and components to manufacture and package pharmaceutical products for its own use and for third parties with which it has contracted. The principal components of the Company’s products are active and inactive pharmaceutical ingredients and certain packaging materials. Certain of these ingredients and components are available from only a single source and, in the case of certain of the Company’s abbreviated new drug applications and new drug applications, only one supplier of raw materials has been identified. Because FDA approval of drugs requires manufacturers to specify their proposed suppliers of active ingredients and certain packaging materials in their applications, FDA approval of any new supplier would be required if active ingredients or such packaging materials were no longer available from the specified supplier. The qualification of a new supplier could delay the Company’s development and marketing efforts. In addition, certain of the pharmaceutical products marketed by the Company are manufactured by a third party manufacturer, which serves as the Company’s sole source of that finished product. If for any reason the Company is unable to obtain sufficient quantities of any of the raw materials or components required to produce and package its products, it may not be able to manufacture its products as planned, which could have a material adverse effect on the Company’s business, financial condition and results of operations. Likewise, if the Company’s manufacturing partners experience any similar difficulties in obtaining raw materials or in manufacturing the finished product, the Company’s results of operations would be negatively impacted.

No individual supplier represented 10% or more of the Company’s purchases in the three and nine month periods ended September 30, 2019 or 2018.

Product Concentration

In the three and nine month periods ended September 30, 2019 and 2018, none of the Company's products represented 10% or more of its total net revenue. The Company attempts to minimize the risk associated with product concentration by continuing to acquire and develop new products to add to its existing product portfolio.