NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
NOTE 1. BASIS OF PRESENTATION
Basis of Presentation
Endo International plc is an Ireland-domiciled specialty pharmaceutical company that conducts business through its operating subsidiaries. Unless otherwise indicated or required by the context, references throughout to “Endo,” the “Company,” “we,” “our” or “us” refer to Endo International plc and its subsidiaries.
The accompanying unaudited Condensed Consolidated Financial Statements of Endo International plc and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements of Endo International plc and its subsidiaries, which are unaudited, include all normal and recurring adjustments necessary for a fair statement of the Company’s financial position as of June 30, 2022 and the results of its operations and its cash flows for the periods presented. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The year-end Condensed Consolidated Balance Sheet data as of December 31, 2021 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.
The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Consolidated Financial Statements and accompanying Notes included in the Annual Report.
Certain prior period amounts have been reclassified to conform to the current period presentation. The reclassification adjustments primarily relate to changes to the presentation of certain costs and expenses in our Condensed Consolidated Statements of Operations. Specifically, effective with the First Quarter 2022 Form 10-Q, the Company has added a new financial statement line item labeled Acquired in-process research and development. Any prior period amounts of acquired in-process research and development charges presented in this report have been reclassified to this line item from the existing financial statement line item labeled Research and development.
Going Concern
As previously disclosed, as a result of the possibility or occurrence of an unfavorable outcome with respect to any legal proceeding, we have engaged in and, at any given time, may further engage in strategic reviews of all or a portion of our business. Any such review or contingency planning may ultimately result in our pursuing one or more significant corporate transactions or other remedial measures, including on a preventative or proactive basis. Some of these actions could take significant time to implement and others may require judicial or other third-party approval. As further described below, thousands of governmental and private plaintiffs have filed suit against us and/or certain of our subsidiaries alleging opioid-related claims. We have not been able to settle most of the opioid claims made against us and, as a result, we are exploring a wide array of potential actions as part of our contingency planning.
During the second quarter of 2022, our contingency planning process continued to advance. For example, we have been working with our external advisors to explore a range of options and have been engaging in dialogue with certain financial creditors and litigation claimants, together with their advisors. While continuing these discussions and our evaluation of strategic alternatives, we elected, for certain of our senior notes, to not make certain interest payments as they became due beginning on June 30, 2022. Under each of the indentures governing these notes, we have a 30-day grace period from the respective due dates to make these interest payments before such non-payments constitute events of default with respect to such notes. As of the date of this report, these interest payments either: (i) had been paid before the end of any applicable grace periods or (ii) remained unpaid but were still within applicable grace periods. However, we remain in constructive negotiations with an ad hoc group of first lien creditors, among other parties, and, in light of the progress to date, we currently expect that these negotiations will likely result in a pre-arranged filing under Chapter 11 of the U.S. Bankruptcy Code by Endo International plc and substantially all of its subsidiaries, which could occur imminently. There can be no assurance of such an outcome. Despite a likely Chapter 11 filing, we retain substantial liquidity, with approximately $1.19 billion of unrestricted cash on our Condensed Consolidated Balance Sheets as of June 30, 2022, and we continue to meet our obligations to customers, vendors, counterparties and employees in the ordinary course of business.
As we continue discussions with certain of our creditors and/or consider further actions in connection with our evaluation of strategic alternatives, we cannot predict with certainty whether the remaining unpaid interest payments referenced above will be made by the end of any applicable grace periods or whether they and/or any of our future interest payments will be made timely, or at all. If one or more events of default were to occur under any of the agreements relating to our outstanding indebtedness, including without limitation as a result of us not making interest payments by the end of any applicable grace periods and/or us issuing audited financial statements containing an audit opinion with going concern or similar qualifications or exceptions, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to become due and payable immediately, terminate all commitments to extend further credit, foreclose against assets comprising the collateral securing or otherwise supporting the debt and pursue other legal remedies. Additionally, the instruments governing our debt contain cross-default or cross-acceleration provisions that may cause all of the debt issued under such instruments to become immediately due and payable as a result of a default under an unrelated debt instrument. Our assets and cash flows may be insufficient to fully repay borrowings under our outstanding debt instruments if the obligations thereunder were accelerated upon one or more events of default. Refer to the “Covenants and Events of Default” section of Note 13. Debt for further discussion.
Any of the circumstances above would subject us to additional risks and uncertainties that could adversely affect our business prospects and ability to continue as a going concern, including, but not limited to, by causing increased difficulty obtaining and maintaining commercial relationships on competitive terms with customers, suppliers and other counterparties; increased difficulty retaining and motivating key employees, as well as attracting new employees; diversion of management’s time and attention to dealing with bankruptcy and restructuring activities rather than focusing exclusively on business operations; incurrence of substantial costs, fees and other expenses associated with bankruptcy proceedings; and loss of ability to maintain or obtain sufficient financing sources for operations or to fund any reorganization plan and meet future obligations. We would, in that event, also be subject to risks and uncertainties caused by the actions of creditors and other third parties with interests that may be inconsistent with our plans. Certain of these risks and uncertainties could also occur if our suppliers or other third parties believe that we may pursue one or more significant corporate transactions or other remedial measures.
Taken together, we believe the conditions and events described above raise substantial doubt about our ability to continue as a going concern within one year after the date of issuance of these unaudited Condensed Consolidated Financial Statements. While the accompanying unaudited Condensed Consolidated Financial Statements have been prepared under the going concern basis of accounting, we continue to evaluate plans to resolve our risks to continue to operate as a going concern. These plans, however, have not yet been finalized and are not fully within our control. As a result, management has concluded that its plans at this stage do not alleviate substantial doubt about Endo’s ability to continue as a going concern.
The unaudited Condensed Consolidated Financial Statements do not include any material adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might result from the outcome of this uncertainty. See Note 18. Income Taxes for discussion regarding the impact of our going concern assessment on the valuation allowance related to our net deferred tax assets.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of our Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts and disclosures in our Condensed Consolidated Financial Statements, including the Notes thereto, and elsewhere in this report. For example, we are required to make significant estimates and assumptions related to revenue recognition, including sales deductions, long-lived assets, goodwill, other intangible assets, income taxes, contingencies, financial instruments and share-based compensation, among others. Some of these estimates can be subjective and complex. Uncertainties related to the continued magnitude and duration of the COVID-19 pandemic, the extent to which it will impact our estimated future financial results, worldwide macroeconomic conditions including interest rates, employment rates, consumer spending, health insurance coverage, the speed of the anticipated recovery and governmental and business reactions to the pandemic, including any possible re-initiation of shutdowns or renewed restrictions, have increased the complexity of developing these estimates, including the allowance for expected credit losses and the carrying amounts of long-lived assets, goodwill and other intangible assets. Furthermore, as further discussed in Note 1. Basis of Presentation, as a result of the possibility or occurrence of an unfavorable outcome with respect to any legal proceeding, we have engaged in and, at any given time, may further engage in strategic reviews of all or a portion of our business. Any such review or contingency planning may ultimately result in our pursuing one or more significant corporate transactions or other remedial measures, including on a preventative or proactive basis. Any such action could ultimately result in, among other things, asset impairment charges that may be material. Although we believe that our estimates and assumptions are reasonable, there may be other reasonable estimates or assumptions that differ significantly from ours. Further, our estimates and assumptions are based upon information available at the time they were made. Actual results may differ significantly from our estimates, including as a result of the uncertainties described in this report, those described in our other reports filed with the SEC or other uncertainties.
Significant Accounting Policies Added or Updated since December 31, 2021
There have been no significant changes to our significant accounting policies since December 31, 2021. For additional discussion of the Company’s significant accounting policies, see Note 2. Summary of Significant Accounting Policies in the Consolidated Financial Statements included in Part IV, Item 15 of the Annual Report.
NOTE 3. DISCONTINUED OPERATIONS AND HELD FOR SALE
Astora
The operating results of the Company’s Astora business, which the Board of Directors (the Board) resolved to wind down in 2016, are reported as Discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for all periods presented. The following table provides the operating results of Astora Discontinued operations, net of tax, for the three and six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | 2021 | | 2022 | | 2021 | | |
| | | | | | | | | |
Loss from discontinued operations before income taxes | $ | (4,544) | | | $ | (5,873) | | | $ | (11,218) | | | $ | (12,094) | | | |
Income tax benefit | — | | | (557) | | | — | | | (1,243) | | | |
Discontinued operations, net of tax | $ | (4,544) | | | $ | (5,316) | | | $ | (11,218) | | | $ | (10,851) | | | |
Loss from discontinued operations before income taxes includes mesh-related legal defense costs and certain other items.
The cash flows from discontinued operating activities related to Astora included the impact of net losses of $11.2 million and $10.9 million for the six months ended June 30, 2022 and 2021, respectively, and the impact of cash activity related to vaginal mesh cases. During the periods presented above, there were no material net cash flows related to Astora discontinued investing activities and there was no depreciation or amortization expense related to Astora.
Certain Assets and Liabilities of Endo’s Retail Generics Business
In November 2020, we announced the initiation of several strategic actions to further optimize the Company’s operations and increase overall efficiency, which are collectively referred to as the 2020 Restructuring Initiative and are further discussed in Note 4. Restructuring. These actions include an initiative to exit certain of our manufacturing and other sites to optimize our retail generics business cost structure. As part of this initiative, certain of these sites were sold in 2021 as further discussed in the Annual Report. Additionally, during the second quarter of 2022, we entered into a definitive agreement to sell certain additional assets located in Chestnut Ridge, New York that supported our retail generics business to Ram Ridge Partners BH LLC (Ram Ridge Partners). As of June 30, 2022, the sale has not yet closed; it is expected to close in the third quarter of 2022.
During the second quarter of 2022, these assets, which include property, plant and equipment with a carrying amount of approximately $11 million as of June 30, 2022, met the criteria to be classified as held for sale in the Condensed Consolidated Balance Sheets. Depreciation expense is not recorded on assets held for sale. These assets, which primarily related to the Company’s Generic Pharmaceuticals segment, did not meet the requirements for treatment as a discontinued operation.
NOTE 4. RESTRUCTURING
2020 Restructuring Initiative
On November 5, 2020, the Company announced the initiation of several strategic actions to further optimize the Company’s operations and increase overall efficiency (the 2020 Restructuring Initiative). These actions were initiated with the expectation of generating significant cost savings to be reinvested, among other things, to support the Company’s key strategic priority to expand and enhance its product portfolio. These actions, which we have been progressing, include the following:
•Optimizing the Company’s retail generics business cost structure by exiting manufacturing and other sites in Irvine, California and Chestnut Ridge, New York, as well as certain sites in India. Certain of the sites have already been exited and certain products historically manufactured at these sites have been transferred to other internal and external sites within the Company’s manufacturing network.
•Improving operating flexibility and reducing general and administrative costs by transferring certain transaction processing activities to third-party global business process service providers.
•Increasing organizational effectiveness by further integrating the Company’s commercial, operations and research and development functions, respectively, to support the Company’s key strategic priorities.
As a result of the 2020 Restructuring Initiative, the Company’s global workforce is ultimately expected to be reduced by up to approximately 500 net full-time positions. The Company expects to realize annualized pre-tax cash savings (without giving effect to the costs described below) of approximately $85 million to $95 million by the first half of 2023, primarily related to reductions in Cost of revenues of approximately $65 million to $70 million and other expenses, including Selling, general and administrative and Research and development expenses, of approximately $20 million to $25 million.
As a result of the 2020 Restructuring Initiative, the Company expects to incur total pre-tax restructuring-related expenses of approximately $170 million to $185 million, of which approximately $140 million to $155 million relates to the Generic Pharmaceuticals segment, with the remaining amounts relating to our other segments and certain corporate unallocated costs. The estimated expenses consist of accelerated depreciation charges of approximately $50 million to $55 million, asset impairment charges of approximately $50 million, employee separation, continuity and other benefit-related costs of approximately $55 million to $60 million and certain other restructuring costs of approximately $15 million to $20 million. Cash outlays associated with the 2020 Restructuring Initiative are expected to be approximately $75 million and consist primarily of employee separation, continuity and other benefit-related costs and certain other restructuring costs. By the end of 2022, the Company expects that substantially all of these costs will have been incurred and substantially all related cash payments will have been made.
The following pre-tax net amounts related to the 2020 Restructuring Initiative are included in the Company’s Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | 2021 | | 2022 | | 2021 | | |
Net restructuring (charge reversals) charges related to: | | | | | | | | | |
Accelerated depreciation | $ | 147 | | | $ | 9,072 | | | $ | 3,824 | | | $ | 15,979 | | | |
| | | | | | | | | |
Inventory adjustments | 261 | | | 745 | | | 1,027 | | | 5,794 | | | |
Employee separation, continuity and other benefit-related costs | (655) | | | 1,721 | | | 1,723 | | | 8,331 | | | |
Certain other restructuring costs | 108 | | | 936 | | | 682 | | | 1,794 | | | |
Total | $ | (139) | | | $ | 12,474 | | | $ | 7,256 | | | $ | 31,898 | | | |
These pre-tax net amounts were primarily attributable to our Generic Pharmaceuticals segment, which incurred $0.1 million and $5.1 million of pre-tax net charges during the three and six months ended June 30, 2022, respectively, and $7.6 million and $22.5 million of pre-tax net charges during the three and six months ended June 30, 2021, respectively. The remaining amounts related to our other segments and certain corporate unallocated costs.
As of June 30, 2022, cumulative amounts incurred to date include charges related to accelerated depreciation of approximately $51.0 million, asset impairments related to certain identifiable intangible assets, operating lease assets and disposal groups totaling approximately $49.5 million, inventory adjustments of approximately $11.1 million, employee separation, continuity and other benefit-related costs, net of approximately $54.4 million and certain other restructuring costs of approximately $3.4 million. Of these amounts, approximately $133.9 million was attributable to the Generic Pharmaceuticals segment, with the remaining amounts relating to our other segments and certain corporate unallocated costs.
The following pre-tax net amounts related to the 2020 Restructuring Initiative are included in the Company’s Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | 2021 | | 2022 | | 2021 | | |
Net restructuring (charge reversals) charges included in: | | | | | | | | | |
Cost of revenues | $ | 391 | | | $ | 5,048 | | | $ | 3,650 | | | $ | 20,344 | | | |
Selling, general and administrative | (712) | | | 6,686 | | | 444 | | | 10,228 | | | |
Research and development | 182 | | | 740 | | | 3,162 | | | 1,326 | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | $ | (139) | | | $ | 12,474 | | | $ | 7,256 | | | $ | 31,898 | | | |
Changes to the liability for the 2020 Restructuring Initiative during the six months ended June 30, 2022 were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Employee Separation, Continuity and Other Benefit-Related Costs | | Certain Other Restructuring Costs | | Total |
| | | | | |
| | | | | |
| | | | | |
Liability balance as of December 31, 2021 | $ | 10,979 | | | $ | 205 | | | $ | 11,184 | |
Net charges | 1,723 | | | 683 | | | 2,406 | |
Cash payments | (9,966) | | | (888) | | | (10,854) | |
Liability balance as of June 30, 2022 | $ | 2,736 | | | $ | — | | | $ | 2,736 | |
Of the liability at June 30, 2022, approximately $2.5 million is classified as current and is included in Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets, with the remaining amount classified as noncurrent and included in Other liabilities.
2022 Restructuring Initiative
On April 28, 2022, the Company communicated the initiation of actions to streamline and simplify certain functions, including its commercial organization, to increase its overall organizational effectiveness and better align with current and future needs (the 2022 Restructuring Initiative). These actions were initiated with the expectation of generating cost savings, with a portion to be reinvested to support the Company’s key strategic priority to expand and enhance its product portfolio.
As a result of the 2022 Restructuring Initiative, the Company’s global workforce is ultimately expected to be reduced by up to approximately 125 net full-time positions. The Company expects to realize annualized pre-tax cash savings (without giving effect to the costs described below) of approximately $55 million to $65 million by the second quarter of 2023, primarily related to reductions in Selling, general and administrative expenses.
As a result of the 2022 Restructuring Initiative, the Company expects to incur total pre-tax restructuring-related expenses of approximately $40 million to $55 million, the majority of which relates to the Branded Pharmaceuticals segment, with the remaining amounts relating to our other segments and certain corporate unallocated costs. These estimates consist of employee separation, continuity and other benefit-related costs of approximately $25 million to $35 million and certain other restructuring costs of approximately $15 million to $20 million. Cash outlays associated with the 2022 Restructuring Initiative are expected to be approximately $30 million and consist primarily of employee separation, continuity and other benefit-related costs. The Company anticipates these actions will be substantially completed by the second quarter of 2023, with substantially all cash payments made by then.
The following pre-tax net amounts related to the 2022 Restructuring Initiative are included in the Company’s Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2022 (in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | | | 2022 | | | | |
Net restructuring charges (charge reversals) related to: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Inventory adjustments | $ | 905 | | | | | $ | 2,462 | | | | | |
Employee separation, continuity and other benefit-related costs | (233) | | | | | 20,087 | | | | | |
Certain other restructuring costs | — | | | | | 7,555 | | | | | |
Total | $ | 672 | | | | | $ | 30,104 | | | | | |
These pre-tax net amounts were primarily attributable to our Branded Pharmaceuticals segment, which incurred $0.6 million and $17.0 million of pre-tax net charges during the three and six months ended June 30, 2022, respectively. The remaining amounts related to our Generic Pharmaceuticals segment and certain corporate unallocated costs.
The following pre-tax net amounts related to the 2022 Restructuring Initiative are included in the Company’s Condensed Consolidated Statements of Operations during the three and six months ended June 30, 2022 (in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | | | 2022 | | | | |
Net restructuring charges (charge reversals) included in: | | | | | | | | | |
Cost of revenues | $ | 1,169 | | | | | $ | 13,284 | | | | | |
Selling, general and administrative | (907) | | | | | 12,719 | | | | | |
Research and development | 410 | | | | | 4,101 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | $ | 672 | | | | | $ | 30,104 | | | | | |
Changes to the liability for the 2022 Restructuring Initiative during the six months ended June 30, 2022 were as follows (in thousands):
| | | | | | | | | | | | | |
| Employee Separation, Continuity and Other Benefit-Related Costs | | | | Total |
| | | | | |
| | | | | |
| | | | | |
Liability balance as of December 31, 2021 | $ | — | | | | | $ | — | |
Net charges | 20,087 | | | | | 20,087 | |
Cash payments | (8,950) | | | | | (8,950) | |
Liability balance as of June 30, 2022 | $ | 11,137 | | | | | $ | 11,137 | |
Of the liability at June 30, 2022, approximately $7.3 million is classified as current and is included in Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets, with the remaining amount classified as noncurrent and included in Other liabilities.
NOTE 5. SEGMENT RESULTS
The Company’s four reportable business segments are Branded Pharmaceuticals, Sterile Injectables, Generic Pharmaceuticals and International Pharmaceuticals. These segments reflect the level at which the chief operating decision maker regularly reviews financial information to assess performance and to make decisions about resources to be allocated. Each segment derives revenue from the sales or licensing of its respective products and is discussed in more detail below.
We evaluate segment performance based on Segment adjusted income from continuing operations before income tax, which we define as (Loss) income from continuing operations before income tax and before acquired in-process research and development charges; acquisition-related and integration items, including transaction costs and changes in the fair value of contingent consideration; cost reduction and integration-related initiatives such as separation benefits, continuity payments, other exit costs and certain costs associated with integrating an acquired company’s operations; certain amounts related to strategic review initiatives; asset impairment charges; amortization of intangible assets; inventory step-up recorded as part of our acquisitions; litigation-related and other contingent matters; certain legal costs; gains or losses from early termination of debt; debt modification costs; gains or losses from the sales of businesses and other assets; foreign currency gains or losses on intercompany financing arrangements; and certain other items.
Certain of the corporate expenses incurred by the Company are not directly attributable to any specific segment. Accordingly, these costs are not allocated to any of the Company’s segments and are included in the results below as “Corporate unallocated costs.” Interest income and expense are also considered corporate items and not allocated to any of the Company’s segments. The Company’s Total segment adjusted income from continuing operations before income tax is equal to the combined results of each of its segments.
Branded Pharmaceuticals
Our Branded Pharmaceuticals segment includes a variety of branded products in the areas of urology, orthopedics, endocrinology, medical aesthetics and bariatrics, among others. The products in this segment include XIAFLEX®, SUPPRELIN® LA, NASCOBAL® Nasal Spray, AVEED®, QWO®, PERCOCET®, TESTOPEL® and EDEX®, among others.
Sterile Injectables
Our Sterile Injectables segment consists primarily of branded sterile injectable products such as VASOSTRICT®, ADRENALIN® and APLISOL®, among others, and certain generic sterile injectable products, including ertapenem for injection (the authorized generic of Merck Sharp & Dohme Corp.’s (Merck) Invanz®) and ephedrine sulfate injection, among others.
Generic Pharmaceuticals
Our Generic Pharmaceuticals segment consists of a product portfolio including solid oral extended-release, solid oral immediate-release, liquids, semi-solids, patches, powders, ophthalmics and sprays and includes products that treat and manage a wide variety of medical conditions.
International Pharmaceuticals
Our International Pharmaceuticals segment includes a variety of specialty pharmaceutical products sold outside the U.S., primarily in Canada through our operating company Paladin Labs Inc. (Paladin). The key products of this segment serve various therapeutic areas, including attention deficit hyperactivity disorder, pain, women’s health, oncology and transplantation.
The following represents selected information for the Company’s reportable segments for the three and six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | 2021 | | 2022 | | 2021 | | |
Net revenues from external customers: | | | | | | | | | |
Branded Pharmaceuticals | $ | 218,952 | | | $ | 228,040 | | | $ | 423,813 | | | $ | 434,675 | | | |
Sterile Injectables | 123,171 | | | 294,600 | | | 363,199 | | | 603,345 | | | |
Generic Pharmaceuticals | 203,377 | | | 167,272 | | | 389,321 | | | 348,145 | | | |
International Pharmaceuticals (1) | 23,614 | | | 23,918 | | | 45,040 | | | 45,584 | | | |
Total net revenues from external customers | $ | 569,114 | | | $ | 713,830 | | | $ | 1,221,373 | | | $ | 1,431,749 | | | |
Segment adjusted income from continuing operations before income tax: | | | | | | | | | |
Branded Pharmaceuticals | $ | 88,613 | | | $ | 101,659 | | | $ | 166,279 | | | $ | 195,428 | | | |
Sterile Injectables | 68,397 | | | 226,983 | | | 259,651 | | | 469,622 | | | |
Generic Pharmaceuticals | 83,337 | | | 20,922 | | | 149,719 | | | 55,026 | | | |
International Pharmaceuticals | 8,472 | | | 10,102 | | | 12,853 | | | 17,573 | | | |
Total segment adjusted income from continuing operations before income tax | $ | 248,819 | | | $ | 359,666 | | | $ | 588,502 | | | $ | 737,649 | | | |
__________
(1)Revenues generated by our International Pharmaceuticals segment are primarily attributable to external customers located in Canada.
There were no material revenues from external customers attributed to an individual country outside of the U.S. during any of the periods presented.
The table below provides reconciliations of our Total consolidated (loss) income from continuing operations before income tax, which is determined in accordance with U.S. GAAP, to our Total segment adjusted income from continuing operations before income tax for the three and six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | 2021 | | 2022 | | 2021 | | |
Total consolidated (loss) income from continuing operations before income tax | $ | (1,873,732) | | | $ | 916 | | | $ | (1,940,847) | | | $ | 48,699 | | | |
Interest expense, net | 139,784 | | | 141,553 | | | 274,733 | | | 275,894 | | | |
Corporate unallocated costs (1) | 38,388 | | | 36,500 | | | 81,669 | | | 75,974 | | | |
Amortization of intangible assets | 87,568 | | | 94,070 | | | 177,802 | | | 189,200 | | | |
| | | | | | | | | |
Acquired in-process research and development charges | 65,000 | | | 5,000 | | | 67,900 | | | 5,000 | | | |
Amounts related to continuity and separation benefits, cost reductions and strategic review initiatives (2) | 37,347 | | | 15,083 | | | 94,996 | | | 38,803 | | | |
Certain litigation-related and other contingencies, net (3) | 208 | | | 35,195 | | | 25,362 | | | 35,832 | | | |
Certain legal costs (4) | (9,462) | | | 24,843 | | | 23,270 | | | 44,119 | | | |
Asset impairment charges (5) | 1,781,063 | | | 4,929 | | | 1,801,016 | | | 8,238 | | | |
Acquisition-related and integration items, net (6) | 1,825 | | | 97 | | | 448 | | | (4,925) | | | |
Loss on extinguishment of debt | — | | | — | | | — | | | 13,753 | | | |
| | | | | | | | | |
Foreign currency impact related to the remeasurement of intercompany debt instruments | (2,092) | | | 1,355 | | | (894) | | | 2,502 | | | |
Other, net (7) | (17,078) | | | 125 | | | (16,953) | | | 4,560 | | | |
Total segment adjusted income from continuing operations before income tax | $ | 248,819 | | | $ | 359,666 | | | $ | 588,502 | | | $ | 737,649 | | | |
__________
(1)Amounts include certain corporate overhead costs, such as headcount, facility and corporate litigation expenses and certain other income and expenses.
(2)Amounts for the three months ended June 30, 2022 include net employee separation, continuity and other benefit-related charges of $11.7 million, accelerated depreciation charges of $0.1 million and other net charges, including those related to strategic review initiatives, of $25.5 million. Amounts for the six months ended June 30, 2022 include net employee separation, continuity and other benefit-related charges of $44.1 million, accelerated depreciation charges of $3.8 million and other net charges, including those related to strategic review initiatives, of $47.1 million. Amounts for the three months ended June 30, 2021 include net employee separation, continuity and other benefit-related charges of $1.6 million, accelerated depreciation charges of $9.1 million and other net charges, including those related to strategic review initiatives, of $4.4 million. Amounts for the six months ended June 30, 2021 include net employee separation, continuity and other benefit-related charges of $10.1 million, accelerated depreciation charges of $16.0 million and other net charges, including those related to strategic review initiatives, of $12.7 million. These amounts relate primarily to our restructuring activities as further described in Note 4. Restructuring, certain continuity and transitional compensation arrangements, certain other cost reduction initiatives and certain strategic review initiatives.
(3)Amounts include adjustments to our accruals for litigation-related settlement charges. Our material legal proceedings and other contingent matters are described in more detail in Note 14. Commitments and Contingencies.
(4)Amounts relate to opioid-related legal expenses. The amount during the second quarter of 2022 reflects the recovery of certain previously-incurred opioid-related legal expenses.
(5)Amounts primarily relate to charges to impair goodwill and intangible assets. For additional information, refer to Note 9. Goodwill and Other Intangibles.
(6)Amounts primarily relate to changes in the fair value of contingent consideration.
(7)Amounts for the six months ended June 30, 2021 primarily relate to $3.9 million of third-party fees incurred in connection with the March 2021 Refinancing Transactions, which were accounted for as debt modification costs. Refer to Note 13. Debt for additional information. Other amounts in this row relate to gains and losses on sales of businesses and other assets and certain other items.
Asset information is not reviewed or included within our internal management reporting. Therefore, the Company has not disclosed asset information for each reportable segment.
During the three and six months ended June 30, 2022 and 2021, the Company disaggregated its revenue from contracts with customers into the categories included in the table below (in thousands). The Company believes these categories depict how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | 2021 | | 2022 | | 2021 | | |
Branded Pharmaceuticals: | | | | | | | | | |
Specialty Products: | | | | | | | | | |
XIAFLEX® | $ | 120,878 | | | $ | 111,487 | | | $ | 220,362 | | | $ | 206,757 | | | |
SUPPRELIN® LA | 24,739 | | | 27,568 | | | 53,569 | | | 55,596 | | | |
Other Specialty (1) | 18,246 | | | 28,036 | | | 38,990 | | | 48,068 | | | |
Total Specialty Products | $ | 163,863 | | | $ | 167,091 | | | $ | 312,921 | | | $ | 310,421 | | | |
Established Products: | | | | | | | | | |
PERCOCET® | $ | 26,256 | | | $ | 26,156 | | | $ | 52,431 | | | $ | 51,781 | | | |
TESTOPEL® | 10,021 | | | 9,439 | | | 18,901 | | | 20,628 | | | |
| | | | | | | | | |
Other Established (2) | 18,812 | | | 25,354 | | | 39,560 | | | 51,845 | | | |
Total Established Products | $ | 55,089 | | | $ | 60,949 | | | $ | 110,892 | | | $ | 124,254 | | | |
Total Branded Pharmaceuticals (3) | $ | 218,952 | | | $ | 228,040 | | | $ | 423,813 | | | $ | 434,675 | | | |
Sterile Injectables: | | | | | | | | | |
VASOSTRICT® | $ | 35,630 | | | $ | 197,121 | | | $ | 191,520 | | | $ | 421,067 | | | |
ADRENALIN® | 26,774 | | | 29,977 | | | 60,597 | | | 59,414 | | | |
| | | | | | | | | |
| | | | | | | | | |
Other Sterile Injectables (4) | 60,767 | | | 67,502 | | | 111,082 | | | 122,864 | | | |
Total Sterile Injectables (3) | $ | 123,171 | | | $ | 294,600 | | | $ | 363,199 | | | $ | 603,345 | | | |
Total Generic Pharmaceuticals (5) | $ | 203,377 | | | $ | 167,272 | | | $ | 389,321 | | | $ | 348,145 | | | |
Total International Pharmaceuticals (6) | $ | 23,614 | | | $ | 23,918 | | | $ | 45,040 | | | $ | 45,584 | | | |
Total revenues, net | $ | 569,114 | | | $ | 713,830 | | | $ | 1,221,373 | | | $ | 1,431,749 | | | |
__________
(1)Products included within Other Specialty include NASCOBAL® Nasal Spray, AVEED® and QWO®.
(2)Products included within Other Established include, but are not limited to, EDEX®.
(3)Individual products presented above represent the top two performing products in each product category for either the three or six months ended June 30, 2022 and/or any product having revenues in excess of $25 million during any completed quarterly period in 2022 or 2021.
(4)Products included within Other Sterile Injectables include ertapenem for injection, APLISOL® and others.
(5)The Generic Pharmaceuticals segment is comprised of a portfolio of products that are generic versions of branded products, are distributed primarily through the same wholesalers, generally have no intellectual property protection and are sold within the U.S. During the three and six months ended June 30, 2022, varenicline tablets (our generic version of Pfizer Inc.’s Chantix®), which launched in September 2021, made up 13% and 12%, respectively, of consolidated total revenues. No other individual product within this segment has exceeded 5% of consolidated total revenues for the periods presented.
(6)The International Pharmaceuticals segment, which accounted for less than 5% of consolidated total revenues for each of the periods presented, includes a variety of specialty pharmaceutical products sold outside the U.S., primarily in Canada through our operating company Paladin.
NOTE 6. FAIR VALUE MEASUREMENTS
Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
•Level 1—Quoted prices in active markets for identical assets or liabilities.
•Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Financial Instruments
The financial instruments recorded in our Condensed Consolidated Balance Sheets include cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, acquisition-related contingent consideration and debt obligations. Included in cash and cash equivalents and restricted cash and cash equivalents are money market funds representing a type of mutual fund required by law to invest in low-risk securities (for example, U.S. government bonds, U.S. Treasury Bills and commercial paper). Money market funds pay dividends that generally reflect short-term interest rates. Due to their initial maturities, the carrying amounts of non-restricted and restricted cash and cash equivalents (including money market funds), accounts receivable, accounts payable and accrued expenses approximate their fair values.
Restricted Cash and Cash Equivalents
The following table presents current and noncurrent restricted cash and cash equivalent balances at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | |
| Balance Sheet Line Items | | June 30, 2022 | | December 31, 2021 |
Restricted cash and cash equivalents—current (1) | Restricted cash and cash equivalents | | $ | 113,493 | | | $ | 124,114 | |
Restricted cash and cash equivalents—noncurrent (2) | Other assets | | 85,000 | | | — | |
Total restricted cash and cash equivalents | | $ | 198,493 | | | $ | 124,114 | |
__________
(1)Amounts at June 30, 2022 and December 31, 2021 include: (i) restricted cash and cash equivalents associated with litigation-related matters, including $68.2 million and $78.4 million, respectively, held in Qualified Settlement Funds (QSFs) for mesh- and/or opioid-related matters, and (ii) approximately $45.0 million of restricted cash and cash equivalents at both June 30, 2022 and December 31, 2021 related to certain insurance-related matters. In July 2022, the amount of restricted cash and cash equivalents associated with insurance-related matters increased by approximately $40 million to approximately $85 million, which resulted in a corresponding decrease to unrestricted cash and cash equivalents. See Note 14. Commitments and Contingencies for further information about litigation-related matters.
(2)The amount at June 30, 2022 relates to the TLC Agreement (as defined below). See Note 10. License, Collaboration and Asset Acquisition Agreements for further information about this amount.
Acquisition-Related Contingent Consideration
The fair value of contingent consideration liabilities is determined using unobservable inputs; hence, these instruments represent Level 3 measurements within the above-defined fair value hierarchy. These inputs include the estimated amount and timing of projected cash flows, the probability of success (achievement of the contingent event) and the risk-adjusted discount rate used to present value the probability-weighted cash flows. Subsequent to the acquisition date, at each reporting period, the contingent consideration liability is remeasured at current fair value with changes recorded in earnings. The estimates of fair value are uncertain and changes in any of the estimated inputs used as of the date of this report could have resulted in significant adjustments to fair value. See the “Recurring Fair Value Measurements” section below for additional information on acquisition-related contingent consideration.
Recurring Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements at June 30, 2022 using: |
| Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs | | Total |
Assets: | | | | | | | |
Money market funds | $ | 13,513 | | | $ | — | | | $ | — | | | $ | 13,513 | |
Liabilities: | | | | | | | |
Acquisition-related contingent consideration—current | $ | — | | | $ | — | | | $ | 5,140 | | | $ | 5,140 | |
Acquisition-related contingent consideration—noncurrent | $ | — | | | $ | — | | | $ | 13,102 | | | $ | 13,102 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements at December 31, 2021 using: |
| Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs | | Total |
Assets: | | | | | | | |
Money market funds | $ | 134,847 | | | $ | — | | | $ | — | | | $ | 134,847 | |
Liabilities: | | | | | | | |
Acquisition-related contingent consideration—current | $ | — | | | $ | — | | | $ | 5,748 | | | $ | 5,748 | |
Acquisition-related contingent consideration—noncurrent | $ | — | | | $ | — | | | $ | 14,328 | | | $ | 14,328 | |
At June 30, 2022 and December 31, 2021, money market funds include $13.5 million and $16.2 million, respectively, in QSFs to be disbursed to litigation claimants. Amounts in QSFs are considered restricted cash equivalents. See Note 14. Commitments and Contingencies for further discussion of our litigation. At June 30, 2022 and December 31, 2021, the differences between the amortized cost and the fair value of our money market funds were not material, individually or in the aggregate.
Fair Value Measurements Using Significant Unobservable Inputs
The following table presents changes to the Company’s liability for acquisition-related contingent consideration, which is measured at fair value on a recurring basis using significant unobservable inputs (Level 3), for the three and six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Beginning of period | $ | 17,976 | | | $ | 29,763 | | | $ | 20,076 | | | $ | 36,249 | |
Amounts settled | (1,357) | | | (2,539) | | | (2,159) | | | (3,690) | |
Changes in fair value recorded in earnings | 1,825 | | | 117 | | | 448 | | | (5,336) | |
Effect of currency translation | (202) | | | 106 | | | (123) | | | 224 | |
End of period | $ | 18,242 | | | $ | 27,447 | | | $ | 18,242 | | | $ | 27,447 | |
At June 30, 2022, the fair value measurements of the contingent consideration obligations were determined using risk-adjusted discount rates ranging from 10.0% to 15.0% (weighted average rate of approximately 10.8%, weighted based on relative fair value). Changes in fair value recorded in earnings related to acquisition-related contingent consideration are included in our Condensed Consolidated Statements of Operations as Acquisition-related and integration items, net. Amounts recorded for the current and noncurrent portions of acquisition-related contingent consideration are included in Accounts payable and accrued expenses and Other liabilities, respectively, in our Condensed Consolidated Balance Sheets.
The following table presents changes to the Company’s liability for acquisition-related contingent consideration during the six months ended June 30, 2022 by acquisition (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2021 | | | | Changes in Fair Value Recorded in Earnings | | Amounts Settled and Other | | Balance as of June 30, 2022 |
Auxilium acquisition | $ | 9,038 | | | | | $ | 394 | | | $ | (536) | | | $ | 8,896 | |
Lehigh Valley Technologies, Inc. acquisitions | 3,600 | | | | | (284) | | | (416) | | | 2,900 | |
| | | | | | | | | |
Other | 7,438 | | | | | 338 | | | (1,330) | | | 6,446 | |
Total | $ | 20,076 | | | | | $ | 448 | | | $ | (2,282) | | | $ | 18,242 | |
Nonrecurring Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a nonrecurring basis during the six months ended June 30, 2022 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements during the Six Months Ended June 30, 2022 (1) using: | | Total Expense for the Six Months Ended June 30, 2022 |
| Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs | |
| | | | | | | |
Intangible assets, excluding goodwill (2)(3) | $ | — | | | $ | — | | | $ | 37,898 | | | $ | (49,953) | |
Certain property, plant and equipment | — | | | — | | | — | | | (3,063) | |
| | | | | | | |
| | | | | | | |
Total | $ | — | | | $ | — | | | $ | 37,898 | | | $ | (53,016) | |
__________
(1)The fair value amounts are presented as of the date of the fair value measurement as these assets are not measured at fair value on a recurring basis. Such measurements generally occur in connection with our quarter-end financial reporting close procedures.
(2)These fair value measurements were determined using risk-adjusted discount rates ranging from 9.5% to 12.0% (weighted average rate of approximately 11.6%, weighted based on relative fair value).
(3)The Company also performed fair value measurements in connection with its goodwill impairment tests. Refer to Note 9. Goodwill and Other Intangibles for additional information on goodwill and other intangible asset impairment tests, including information about the valuation methodologies used.
NOTE 7. INVENTORIES
Inventories consist of the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Raw materials (1) | $ | 108,779 | | | $ | 90,453 | |
Work-in-process (1) | 62,204 | | | 82,728 | |
Finished goods (1) | 116,773 | | | 110,371 | |
Total | $ | 287,756 | | | $ | 283,552 | |
__________
(1)The components of inventory shown in the table above are net of allowance for obsolescence.
Inventory that is in excess of the amount expected to be sold within one year is classified as noncurrent inventory and is not included in the table above. At June 30, 2022 and December 31, 2021, $31.6 million and $10.7 million, respectively, of noncurrent inventory was included in Other assets in the Condensed Consolidated Balance Sheets. As of June 30, 2022 and December 31, 2021, the Company’s Condensed Consolidated Balance Sheets included approximately $10.4 million and $12.2 million, respectively, of capitalized pre-launch inventories related to products that were not yet available to be sold.
NOTE 8. LEASES
The following table presents information about the Company’s right-of-use assets and lease liabilities at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | |
| Balance Sheet Line Items | | June 30, 2022 | | December 31, 2021 |
Right-of-use assets: | | | | | |
Operating lease right-of-use assets | Operating lease assets | | $ | 31,343 | | | $ | 34,832 | |
Finance lease right-of-use assets | Property, plant and equipment, net | | 30,852 | | | 38,365 | |
Total right-of-use assets | | $ | 62,195 | | | $ | 73,197 | |
Operating lease liabilities: | | | | | |
Current operating lease liabilities | Current portion of operating lease liabilities | | $ | 10,870 | | | $ | 10,992 | |
Noncurrent operating lease liabilities | Operating lease liabilities, less current portion | | 29,068 | | | 33,727 | |
Total operating lease liabilities | | $ | 39,938 | | | $ | 44,719 | |
Finance lease liabilities: | | | | | |
Current finance lease liabilities | Accounts payable and accrued expenses | | $ | 6,704 | | | $ | 6,841 | |
Noncurrent finance lease liabilities | Other liabilities | | 15,160 | | | 18,374 | |
Total finance lease liabilities | | $ | 21,864 | | | $ | 25,215 | |
The following table presents information about lease costs and expenses and sublease income for the three and six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | |
| Statement of Operations Line Items | | 2022 | | 2021 | | 2022 | | 2021 | | |
Operating lease cost | Various (1) | | $ | 2,311 | | | $ | 3,521 | | | $ | 5,037 | | | $ | 7,257 | | | |
Finance lease cost: | | | | | | | | | | | |
Amortization of right-of-use assets | Various (1) | | $ | 2,120 | | | $ | 2,311 | | | $ | 4,431 | | | $ | 4,622 | | | |
Interest on lease liabilities | Interest expense, net | | $ | 353 | | | $ | 338 | | | $ | 606 | | | $ | 705 | | | |
Other lease costs and income: | | | | | | | | | | | |
Variable lease costs (2) | Various (1) | | $ | 2,188 | | | $ | 3,042 | | | $ | 4,695 | | | $ | 6,064 | | | |
Finance lease right-of-use asset impairment charges | Asset impairment charges | | $ | 3,063 | | | $ | — | | | $ | 3,063 | | | $ | — | | | |
| | | | | | | | | | | |
Sublease income | Various (1) | | $ | (1,410) | | | $ | (947) | | | $ | (3,250) | | | $ | (1,880) | | | |
__________
(1)Amounts are included in the Condensed Consolidated Statements of Operations based on the function that the underlying leased asset supports. The following table presents the components of such aggregate amounts for the three and six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | 2021 | | 2022 | | 2021 | | |
Cost of revenues | $ | 1,523 | | | $ | 2,986 | | | $ | 3,129 | | | $ | 6,044 | | | |
Selling, general and administrative | $ | 3,632 | | | $ | 4,887 | | | $ | 7,676 | | | $ | 9,911 | | | |
Research and development | $ | 54 | | | $ | 54 | | | $ | 108 | | | $ | 108 | | | |
(2)Amounts represent variable lease costs incurred that were not included in the initial measurement of the lease liability such as common area maintenance and utilities costs associated with leased real estate and certain costs associated with our automobile leases.
The following table provides certain cash flow and supplemental noncash information related to our lease liabilities for the six months ended June 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2022 | | 2021 | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
Operating cash payments for operating leases | $ | 6,344 | | | $ | 6,453 | | | |
Operating cash payments for finance leases | $ | 1,063 | | | $ | 1,297 | | | |
Financing cash payments for finance leases | $ | 2,970 | | | $ | 2,669 | | | |
| | | | | |
| | | | | |
| | | | | |
NOTE 9. GOODWILL AND OTHER INTANGIBLES
Goodwill
Changes in the carrying amounts of our goodwill for the six months ended June 30, 2022 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Branded Pharmaceuticals | | Sterile Injectables | | Generic Pharmaceuticals | | International Pharmaceuticals | | Total |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Goodwill as of December 31, 2021 | $ | 828,818 | | | $ | 2,368,193 | | | $ | — | | | $ | — | | | $ | 3,197,011 | |
| | | | | | | | | |
Goodwill impairment charges | — | | | (1,748,000) | | | — | | | — | | | (1,748,000) | |
| | | | | | | | | |
Goodwill as of June 30, 2022 | $ | 828,818 | | | $ | 620,193 | | | $ | — | | | $ | — | | | $ | 1,449,011 | |
The carrying amounts of goodwill at June 30, 2022 and December 31, 2021 are net of the following accumulated impairments (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Branded Pharmaceuticals | | Sterile Injectables | | Generic Pharmaceuticals | | International Pharmaceuticals | | Total |
Accumulated impairment losses as of December 31, 2021 | $ | 855,810 | | | $ | 363,000 | | | $ | 3,142,657 | | | $ | 550,355 | | | $ | 4,911,822 | |
Accumulated impairment losses as of June 30, 2022 | $ | 855,810 | | | $ | 2,111,000 | | | $ | 3,142,657 | | | $ | 540,339 | | | $ | 6,649,806 | |
Other Intangible Assets
Changes in the amounts of other intangible assets for the six months ended June 30, 2022 are set forth in the table below (in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost basis: | Balance as of December 31, 2021 | | Acquisitions | | Impairments | | | | Effect of Currency Translation | | Balance as of June 30, 2022 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Licenses (weighted average life of 14 years) | $ | 442,107 | | | $ | — | | | $ | — | | | | | $ | — | | | $ | 442,107 | |
Tradenames | 6,409 | | | — | | | — | | | | | — | | | 6,409 | |
Developed technology (weighted average life of 12 years) | 6,226,139 | | | — | | | (49,953) | | | | | (4,700) | | | 6,171,486 | |
| | | | | | | | | | | |
Total other intangibles (weighted average life of 12 years years) | $ | 6,674,655 | | | $ | — | | | $ | (49,953) | | | | | $ | (4,700) | | | $ | 6,620,002 | |
| | | | | | | | | | | |
Accumulated amortization: | Balance as of December 31, 2021 | | Amortization | | Impairments | | | | Effect of Currency Translation | | Balance as of June 30, 2022 |
| | | | | | | | | | | |
Licenses | $ | (419,932) | | | $ | (2,288) | | | $ | — | | | | | $ | — | | | $ | (422,220) | |
Tradenames | (6,409) | | | — | | | — | | | | | — | | | (6,409) | |
Developed technology | (3,885,491) | | | (175,514) | | | — | | | | | 3,587 | | | (4,057,418) | |
Total other intangibles | $ | (4,311,832) | | | $ | (177,802) | | | $ | — | | | | | $ | 3,587 | | | $ | (4,486,047) | |
Net other intangibles | $ | 2,362,823 | | | | | | | | | | | $ | 2,133,955 | |
Amortization expense for the three and six months ended June 30, 2022 totaled $87.6 million and $177.8 million, respectively. Amortization expense for the three and six months ended June 30, 2021 totaled $94.1 million and $189.2 million, respectively. Amortization expense is included in Cost of revenues in the Condensed Consolidated Statements of Operations.
Impairments
Goodwill and, if applicable, indefinite-lived intangible assets are tested for impairment annually and when events or changes in circumstances indicate that the asset might be impaired. Our annual assessment is performed as of October 1.
As part of our goodwill and intangible asset impairment assessments, we estimate the fair values of our reporting units and our intangible assets using an income approach that utilizes a discounted cash flow model or, where appropriate, a market approach.
The discounted cash flow models are dependent upon our estimates of future cash flows and other factors including estimates of (i) future operating performance, including future sales, long-term growth rates, gross margins, operating expenses, discount rate and the probability of achieving the estimated cash flows and (ii) future economic conditions. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The discount rates applied to the estimated cash flows are determined depending on the overall risk associated with the particular assets and other market factors. We believe the discount rates and other inputs and assumptions are consistent with those that a market participant would use. Any impairment charges resulting from annual or interim goodwill and intangible asset impairment assessments are recorded to Asset impairment charges in our Condensed Consolidated Statements of Operations.
Beginning in May 2022, our share price and the aggregate estimated fair value of our debt experienced significant declines. We believe these declines, which persisted through the end of the second quarter of 2022, were predominantly attributable to continuing and increasing investor and analyst uncertainty with respect to: (i) ongoing opioid and other litigation matters for which we have been unable to reach a broad-based resolution of outstanding claims and (ii) speculation surrounding the possibility of a future bankruptcy filing. Further, rising inflation and interest rates unfavorably affected the cost of borrowing, which is one of several inputs used in the determination of the discount rates used in our discounted cash flow models. For example, the U.S. Federal Reserve raised its benchmark interest rate by 50 basis points in May 2022 and by an additional 75 basis points in June 2022. Taken together, we determined that these factors represented triggering events that required the performance of interim goodwill impairments tests for both our Sterile Injectables and Branded Pharmaceuticals reporting units as of June 30, 2022.
When performing these goodwill impairment tests, we estimated the fair values of our reporting units taking into consideration management’s continued commitment to Endo’s strategic plans and the corresponding projected cash flows, as well as the fact that management’s views on litigation risk have not materially changed since our annual goodwill impairment tests performed on October 1, 2021. However, when analyzing our aggregated estimated internal valuation of our reporting units as of June 30, 2022 compared to our market capitalization, we also considered the increased level of investor and analyst uncertainty described above, coupled with our belief that investors and analysts are unlikely to modify their projections or valuation models unless or until we can demonstrate significant progression on the resolution of outstanding litigation matters and/or demonstrate that the risks of potential future strategic alternatives, including the possibility of a future bankruptcy filing, are no longer applicable. After performing this analysis, we made certain adjustments to incorporate these factors into the valuations of our reporting units and determined that: (i) the estimated fair value of our Sterile Injectables reporting unit was less than its carrying amount, resulting in a pre-tax non-cash goodwill impairment charge of $1,748.0 million, and (ii) while the estimated fair value declined, there was no goodwill impairment for our Branded Pharmaceuticals reporting unit, for which the estimated fair value exceeded the carrying amount by more than 10%. The discount rates used in the June 30, 2022 goodwill tests were 13.5% and 18.5% for the Branded Pharmaceuticals and Sterile Injectables reporting units, respectively.
With respect to other intangible assets, we recorded asset impairment charges of $30.0 million and $50.0 million during the three and six months ended June 30, 2022, respectively, and $4.9 million and $7.8 million during the three and six months ended June 30, 2021, respectively. These pre-tax non-cash asset impairment charges related primarily to certain developed technology intangible assets that were tested for impairment following changes in market conditions and certain other factors impacting recoverability.
NOTE 10. LICENSE, COLLABORATION AND ASSET ACQUISITION AGREEMENTS
We have entered into certain license, collaboration and discovery agreements with third parties for product development. Generally speaking, these agreements require us to share in the development costs of such product candidates with third parties who in turn grant us marketing rights for such product candidates. Under these agreements we are generally required to: (i) make upfront payments and/or other payments upon successful completion of regulatory, sales and/or other milestones and/or (ii) pay royalties on sales of the products arising from these agreements. We have also, from time to time, entered into agreements to directly acquire certain assets from third parties.
Nevakar Agreement
In May 2022, we announced that our Endo Ventures Limited subsidiary had entered into an agreement to acquire six development-stage ready-to-use injectable product candidates from Nevakar Injectables, Inc., a subsidiary of Nevakar, Inc., for an upfront cash payment of $35.0 million (the Nevakar Agreement). The acquisition closed during the second quarter of 2022. The acquired set of assets and activities did not meet the definition of a business. As a result, we accounted for the transaction as an asset acquisition. Upon closing, the upfront payment was recorded as Acquired in-process research and development in the Condensed Consolidated Statements of Operations.
The product candidates, which relate to our Sterile Injectables segment, are in various stages of development. The first commercial launch is expected in 2025; however, there can be no assurance this will occur within this timeframe or at all. With this acquisition, the Company will control all remaining development, regulatory, manufacturing and commercialization activities for the acquired product candidates.
TLC Agreement
In June 2022, we announced that our Endo Ventures Limited subsidiary had entered into an agreement with Taiwan Liposome Company, Ltd. (TLC) to commercialize TLC599 (the TLC Agreement). We are accounting for the agreement as an asset acquisition. TLC599 is an injectable compound in Phase 3 development for the treatment of osteoarthritis knee pain. The TLC Agreement provides us the opportunity to commercialize this differentiated nonsurgical product candidate to complement our Branded Pharmaceuticals segment’s current on-market and in-development orthopedic-focused opportunities. We currently expect to launch TLC599 in the U.S. in 2025; however, there can be no assurance this will occur within this timeframe or at all.
Under the terms of the TLC Agreement, TLC will primarily be responsible for the development of the product and we will primarily be responsible for obtaining regulatory approval and for commercialization of the product in the U.S. Upon receipt of regulatory approval, we will have exclusive rights to manufacture, market, sell and distribute the product in the U.S.
During the second quarter of 2022, we made an upfront payment of $30.0 million to TLC and recorded a corresponding charge to Acquired in-process research and development in the Condensed Consolidated Statements of Operations. TLC is also eligible to receive: (i) payments of up to an additional $110.0 million based on the achievement of certain development, regulatory and manufacturing milestones related to the initial indication for the treatment of osteoarthritis knee pain; (ii) payments of up to an additional $30.0 million based on the achievement of certain development and regulatory milestones related to certain potential future indications; (iii) payments of up to an additional $500.0 million based on the achievement of certain commercial milestones; and (iv) tiered royalties based on net sales of TLC599 in the U.S. Unless terminated earlier or extended, the term of the TLC Agreement generally extends until the 20-year anniversary of the first commercial sale of TLC599.
Pursuant to the terms of the TLC Agreement, we have deposited approximately $85.0 million of cash into a bank account which may be used to fund certain future obligations under the TLC Agreement, or returned to us upon satisfaction of certain conditions. As further described in Note 6. Fair Value Measurements, this amount is considered restricted cash as of June 30, 2022 and is included in our Condensed Consolidated Balance Sheets at June 30, 2022 as Other assets.
NOTE 11. CONTRACT ASSETS AND LIABILITIES
Our revenue consists almost entirely of sales of our products to customers, whereby we ship products to a customer pursuant to a purchase order. Revenue contracts such as these do not generally give rise to contract assets or contract liabilities because: (i) the underlying contracts generally have only a single performance obligation and (ii) we do not generally receive consideration until the performance obligation is fully satisfied. At June 30, 2022, the unfulfilled performance obligations for these types of contracts relate to ordered but undelivered products. We generally expect to fulfill the performance obligations and recognize revenue within one week of entering into the underlying contract. Based on the short-term initial contract duration, additional disclosure about the remaining performance obligations is not required.
Certain of our other revenue-generating contracts, including license and collaboration agreements, may result in contract assets and/or contract liabilities. For example, we may recognize contract liabilities upon receipt of certain upfront and milestone payments from customers when there are remaining performance obligations.
The following table shows the opening and closing balances of contract assets and contract liabilities from contracts with customers (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 | | $ Change | | % Change |
Contract assets (1) | $ | 3,826 | | | $ | 13,005 | | | $ | (9,179) | | | (71) | % |
Contract liabilities (2) | $ | 4,381 | | | $ | 4,663 | | | $ | (282) | | | (6) | % |
__________
(1)At June 30, 2022 and December 31, 2021, approximately $2.2 million and $2.8 million, respectively, of these contract asset amounts are classified as current and are included in Prepaid expenses and other current assets in the Company’s Condensed Consolidated Balance Sheets. The remaining amounts are classified as noncurrent and are included in Other assets. The decrease in contract assets during the six months ended June 30, 2022 primarily relates to: (i) reclassifications of certain amounts to receivables as a result of rights to consideration becoming unconditional and (ii) changes in estimates with respect to amounts of consideration expected to be received from sales of certain intellectual property rights.
(2)At June 30, 2022 and December 31, 2021, approximately $0.6 million and $0.6 million, respectively, of these contract liability amounts are classified as current and are included in Accounts payable and accrued expenses in the Company’s Condensed Consolidated Balance Sheets. The remaining amounts are classified as noncurrent and are included in Other liabilities. During the six months ended June 30, 2022, approximately $0.3 million of revenue was recognized that was included in the contract liability balance at December 31, 2021.
During the six months ended June 30, 2022, we recognized revenue of $1.9 million relating to performance obligations satisfied, or partially satisfied, in prior periods. Such revenue generally relates to changes in estimates with respect to our variable consideration.
NOTE 12. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following at June 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Trade accounts payable | $ | 90,643 | | | $ | 123,129 | |
Returns and allowances | 175,083 | | | 183,116 | |
Rebates | 134,679 | | | 150,039 | |
Chargebacks | 1,543 | | | 2,617 | |
Other sales deductions | 3,759 | | | 2,500 | |
Accrued interest | 139,616 | | | 106,735 | |
Accrued payroll and related benefits | 70,601 | | | 90,029 | |
Accrued royalties and other distribution partner payables | 33,690 | | | 58,422 | |
Acquisition-related contingent consideration—current | 5,140 | | | 5,748 | |
Other | 95,119 | | | 114,563 | |
Total | $ | 749,873 | | | $ | 836,898 | |
NOTE 13. DEBT
The following table presents information about the Company’s total indebtedness at June 30, 2022 and December 31, 2021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Effective Interest Rate | | Principal Amount | | Carrying Amount | | Effective Interest Rate | | Principal Amount | | Carrying Amount |
7.25% Senior Notes due 2022 | | | $ | — | | | $ | — | | | 7.25 | % | | $ | 8,294 | | | $ | 8,294 | |
5.75% Senior Notes due 2022 | | | — | | | — | | | 5.75 | % | | 172,048 | | | 172,048 | |
5.375% Senior Notes due 2023 | 5.62 | % | | 6,127 | | | 6,119 | | | 5.62 | % | | 6,127 | | | 6,111 | |
6.00% Senior Notes due 2023 | 6.28 | % | | 56,436 | | | 56,276 | | | 6.28 | % | | 56,436 | | | 56,203 | |
5.875% Senior Secured Notes due 2024 | 6.14 | % | | 300,000 | | | 298,273 | | | 6.14 | % | | 300,000 | | | 297,928 | |
6.00% Senior Notes due 2025 | 6.27 | % | | 21,578 | | | 21,437 | | | 6.27 | % | | 21,578 | | | 21,413 | |
7.50% Senior Secured Notes due 2027 | 7.70 | % | | 2,015,479 | | | 1,999,173 | | | 7.70 | % | | 2,015,479 | | | 1,997,777 | |
9.50% Senior Secured Second Lien Notes due 2027 | 9.68 | % | | 940,590 | | | 933,833 | | | 9.68 | % | | 940,590 | | | 933,330 | |
6.00% Senior Notes due 2028 | 6.11 | % | | 1,260,416 | | | 1,253,160 | | | 6.11 | % | | 1,260,416 | | | 1,252,667 | |
6.125% Senior Secured Notes due 2029 | 6.34 | % | | 1,295,000 | | | 1,279,620 | | | 6.34 | % | | 1,295,000 | | | 1,278,718 | |
Term Loan Facility | 6.43 | % | | 1,975,000 | | | 1,940,206 | | | 6.12 | % | | 1,985,000 | | | 1,947,633 | |
Revolving Credit Facility | 3.56 | % | | 277,200 | | | 277,200 | | | 2.63 | % | | 277,200 | | | 277,200 | |
| | | | | | | | | | | |
Total (1) | | | $ | 8,147,826 | | | $ | 8,065,297 | | | | | $ | 8,338,168 | | | $ | 8,249,322 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
__________
(1)As of June 30, 2022, $26.1 million of the carrying amount of the Company’s long-term debt is classified as a current liability and is included in the Current portion of long-term debt line in the Condensed Consolidated Balance Sheets. As of December 31, 2021, $200.3 million of the carrying amount of the Company’s long-term debt is classified as a current liability and is included in the Current portion of long-term debt line in the Condensed Consolidated Balance Sheets. Any long-term debt not classified as a current liability is included in the Long-term debt, less current portion, net line in the Condensed Consolidated Balance Sheets.
The Company and its subsidiaries, with certain customary exceptions, guarantee or serve as issuers or borrowers of the debt instruments representing substantially all of the Company’s indebtedness at June 30, 2022. The obligations under (i) the 5.875% Senior Secured Notes due 2024, (ii) the 7.50% Senior Secured Notes due 2027, (iii) the 6.125% Senior Secured Notes due 2029 and (iv) the Credit Agreement (as defined below) and related loan documents are secured on a pari passu basis by a first priority lien (subject to certain permitted liens) on the collateral securing such instruments, which collateral represents substantially all of the assets of the issuers or borrowers and the guarantors party thereto (subject to customary exceptions). The obligations under the 9.50% Senior Secured Second Lien Notes due 2027 are secured by a second priority lien (subject to certain permitted liens) on, and on a junior basis with respect to, the collateral securing the obligations under the Credit Agreement, the 5.875% Senior Secured Notes due 2024, the 7.50% Senior Secured Notes due 2027 and the 6.125% Senior Secured Notes due 2029 and the related guarantees. Our senior unsecured notes are unsecured and effectively subordinated in right of priority to the obligations under the Credit Agreement, the 5.875% Senior Secured Notes due 2024, the 7.50% Senior Secured Notes due 2027, the 9.50% Senior Secured Second Lien Notes due 2027 and the 6.125% Senior Secured Notes due 2029, in each case to the extent of the value of the collateral securing such instruments.
The aggregate estimated fair value of the Company’s long-term debt, which was estimated using inputs based on quoted market prices for the same or similar debt issuances, was $4.9 billion and $8.0 billion at June 30, 2022 and December 31, 2021, respectively. Based on this valuation methodology, we determined these debt instruments represent Level 2 measurements within the fair value hierarchy.
Credit Facilities
The Company and certain of its subsidiaries are party to the Credit Agreement, which, immediately following the March 2021 Refinancing Transactions (as defined and further described below) provided for (i) a $1,000.0 million senior secured revolving credit facility (the Revolving Credit Facility) and (ii) a $2,000.0 million senior secured term loan facility (the Term Loan Facility and, together with the Revolving Credit Facility, the Credit Facilities). Current amounts outstanding as of June 30, 2022 under the Credit Facilities are set forth in the table above. As of June 30, 2022, $76.0 million of commitments under the Revolving Credit Facility have matured and $924.0 million of commitments remain outstanding under the Revolving Credit Facility. After giving effect to net borrowings under the Revolving Credit Facility and issued and outstanding letters of credit, approximately $640.1 million of remaining credit is available under the Revolving Credit Facility as of June 30, 2022. Additionally, the Company’s outstanding debt agreements contain a number of restrictive covenants, including certain limitations on the Company’s ability to incur additional indebtedness.
Covenants and Events of Default
As further described below and in the Annual Report, the agreements relating to our outstanding indebtedness contain certain covenants and events of default. The events of default are subject to certain grace periods, may require the administrative agent, trustee, lenders and/or holders, as applicable, to take certain action to accelerate our indebtedness and may be waived or amended in a number of circumstances.
As of June 30, 2022 and December 31, 2021, we were in compliance with all covenants contained in the Credit Agreement and the indentures governing our various senior notes and senior secured notes.
Beginning during the second quarter of 2022, we elected to not make the following interest payments on or prior to their scheduled due dates: (i) approximately $38 million that was due on June 30, 2022 with respect to our outstanding 6.00% Senior Notes due 2028; (ii) approximately $2 million that was due on July 15, 2022 with respect to our outstanding 5.375% Senior Notes due 2023 and 6.00% Senior Notes due 2023; (iii) approximately $45 million that was due on July 31, 2022 with respect to our outstanding 9.50% Senior Secured Second Lien Notes due 2027; and (iv) approximately $1 million that was due on August 1, 2022 with respect to our outstanding 6.00% Senior Notes due 2025. Under each of the indentures governing these notes, we have a 30-day grace period from the respective due dates to make these interest payments before such non-payments constitute events of default with respect to such notes. We chose to enter these grace periods while continuing discussions with certain creditors in connection with our evaluation of strategic alternatives. Our decision to enter these grace periods was not driven by liquidity constraints, as we had approximately $1.19 billion in cash as of June 30, 2022. Accordingly, our day-to-day operations are not impacted by the decision at this time. We made the $38 million interest payment that became due on June 30, 2022 with respect to our outstanding 6.00% Senior Notes due 2028 on July 28, 2022, which was prior to the end of the applicable grace period.
Additionally, as further described in Note 1. Basis of Presentation, we believe there is substantial doubt about our ability to continue as a going concern. Pursuant to the terms of the Credit Agreement, in the event we issue audited financial statements in the future that contain an audit opinion with going concern or similar qualifications or exceptions, it could result in, among other things, an event of default with respect to our Credit Facilities.
If one or more events of default were to occur under any of the agreements relating to our outstanding indebtedness, including without limitation as a result of us not making interest payments by the end of any applicable grace periods and/or us issuing audited financial statements containing an audit opinion with going concern or similar qualifications or exceptions, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to become due and payable immediately, terminate all commitments to extend further credit, foreclose against assets comprising the collateral securing or otherwise supporting the debt and pursue other legal remedies. Additionally, the instruments governing our debt contain cross-default or cross-acceleration provisions that may cause all of the debt issued under such instruments to become immediately due and payable as a result of a default under an unrelated debt instrument. Our assets and cash flows may be insufficient to fully repay borrowings under our outstanding debt instruments if the obligations thereunder were accelerated upon one or more events of default. We may need to conduct asset sales or pursue other alternatives, including proceedings under applicable insolvency laws relating to some or all of our business.
Debt Financing Transactions
Set forth below are certain disclosures relating to debt financing transactions that occurred during the six months ended June 30, 2022 or the year ended December 31, 2021. For additional disclosures relating to debt financing transactions that occurred during the year ended December 31, 2021, refer to Note 15. Debt in the Consolidated Financial Statements included in Part IV, Item 15 of the Annual Report.
March 2021 Refinancing
In March 2021, the Company executed certain transactions (the March 2021 Refinancing Transactions) that included:
•refinancing in full its previously-existing term loans, which had approximately $3,295.5 million of principal outstanding immediately before refinancing (the Existing Term Loans), with the proceeds from: (i) a new $2,000.0 million term loan (the Term Loan Facility) and (ii) $1,295.0 million of newly issued 6.125% Senior Secured Notes due 2029 (collectively, the Term Loan Refinancing);
•extending the maturity of approximately $675.3 million of existing revolving commitments under the Revolving Credit Facility to March 2026; and
•making certain other modifications to the credit agreement that was in effect immediately prior to the March 2021 Refinancing Transactions (the Prior Credit Agreement).
The changes to the Credit Facilities and the Prior Credit Agreement were effected pursuant to an amendment and restatement agreement entered into by the Company in March 2021 (the Restatement Agreement), which amended and restated the Prior Credit Agreement (as amended and restated by the Restatement Agreement, the Credit Agreement), among Endo International plc, certain of its subsidiaries, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, issuing bank and swingline lender.
The $2,000.0 million portion of the Term Loan Refinancing associated with the new term loan was accounted for as a debt modification, while the $1,295.0 million portion associated with the new notes issued was accounted for as an extinguishment. During the first quarter of 2021, in connection with the Term Loan Refinancing, $7.8 million of deferred and unamortized costs associated with the Existing Term Loans, representing the portion associated with the extinguishment, was charged to expense and is included in the Loss on extinguishment of debt line item in the Condensed Consolidated Statements of Operations. The Company also incurred an additional $56.7 million of new costs and fees, of which: (i) $29.2 million and $17.6 million have been deferred to be amortized as interest expense over the terms of the Term Loan Facility and the newly issued 6.125% Senior Secured Notes due 2029, respectively; (ii) $6.0 million was considered debt extinguishment costs and was charged to expense in the first quarter of 2021 and is included in the Loss on extinguishment of debt line item in the Condensed Consolidated Statements of Operations; and (iii) $3.9 million was considered debt modification costs and was charged to expense in the first quarter of 2021 and is included in the Selling, general and administrative expense line item in the Condensed Consolidated Statements of Operations.
During the first quarter of 2021, the Company also incurred $2.1 million of new costs and fees associated with the extension of the Revolving Credit Facility, which have been deferred and are being amortized as interest expense over the new term of the Revolving Credit Facility.
October 2021 Revolving Credit Facility Repayment and January 2022 Senior Notes Repayments
In October 2021, commitments under the Revolving Credit Facility of approximately $76.0 million matured, thereby reducing the remaining commitments outstanding under the Revolving Credit Facility. This maturity, which reduced the remaining credit available under the Revolving Credit Facility, occurred because the 7.25% Senior Notes due 2022 and the 5.75% Senior Notes due 2022 were not refinanced or repaid in full prior to the date that was 91 days prior to their January 15, 2022 maturity dates. As a result of this maturity, the Company repaid approximately $22.8 million of borrowings in October 2021, representing the amount that had been borrowed pursuant to these matured commitments. The 7.25% Senior Notes due 2022 and the 5.75% Senior Notes due 2022 were repaid in January 2022.
NOTE 14. COMMITMENTS AND CONTINGENCIES
Legal Proceedings and Investigations
We and certain of our subsidiaries are involved in various claims, legal proceedings and internal and governmental investigations (collectively, proceedings) arising from time to time, including, among others, those relating to product liability, intellectual property, regulatory compliance, consumer protection, tax and commercial matters. While we cannot predict the outcome of these proceedings and we intend to vigorously prosecute or defend our position as appropriate, there can be no assurance that we will be successful or obtain any requested relief. An adverse outcome in any of these proceedings could have a material adverse effect on our business, financial condition, results of operations and cash flows. We are subject to a number of matters that are not being disclosed herein because, in the opinion of our management, these matters are immaterial both individually and in the aggregate with respect to our financial position, results of operations and cash flows.
We believe that certain settlements and judgments, as well as legal defense costs, relating to certain product liability or other matters are or may be covered in whole or in part under our insurance policies with a number of insurance carriers. In certain circumstances, insurance carriers reserve their rights to contest or deny coverage. We intend to contest vigorously any disputes with our insurance carriers and to enforce our rights under the terms of our insurance policies. Accordingly, we will record receivables with respect to amounts due under these policies only when the realization of the potential claim for recovery is considered probable.
Notwithstanding the foregoing, amounts recovered under our insurance policies could be materially less than stated coverage limits and may not be adequate to cover damages, other relief and/or costs relating to claims. In addition, there is no guarantee that insurers will pay claims in the amounts we expect or that coverage will otherwise be available. We may not have and may be unable to obtain or maintain insurance on acceptable terms or with adequate coverage against potential liabilities or other losses, including costs, judgments, settlements and other liabilities incurred in connection with current or future legal proceedings, regardless of the success or failure of the claim. For example, we do not have insurance sufficient to satisfy all of the opioid claims that have been made against us and, should we suffer an adverse judgment, appeal and similar bonds may not be available in such amounts as may be necessary to further challenge all or part of such judgment. We also generally no longer have product liability insurance to cover claims in connection with the mesh-related litigation described herein. Additionally, we may be limited by the surviving insurance policies of acquired entities, which may not be adequate to cover potential liabilities or other losses. Even where claims are submitted to insurance carriers for defense and indemnity, there can be no assurance that the claims will be covered by insurance or that the indemnitors or insurers will remain financially viable or will not challenge our right to reimbursement in whole or in part. The failure to generate sufficient cash flow or to obtain other financing could affect our ability to pay the amounts due under those liabilities not covered by insurance. Additionally, the nature of our business, the legal proceedings to which we are exposed and any losses we suffer may increase the cost of insurance, which could impact our decisions regarding our insurance programs.
As a result of the possibility or occurrence of an unfavorable outcome with respect to any legal proceeding, we have engaged in and, at any given time, may further engage in strategic reviews of all or a portion of our business. Any such review or contingency planning may ultimately result in our pursuing one or more significant corporate transactions or other remedial measures, including on a preventative or proactive basis. Some of these actions could take significant time to implement and others may require judicial or other third-party approval. As further described below, thousands of governmental and private plaintiffs have filed suit against us and/or certain of our subsidiaries alleging opioid-related claims. We have not been able to settle most of the opioid claims made against us and, as a result, we are exploring a wide array of potential actions as part of our contingency planning. We have been working with our external advisors to explore a range of options and have been engaging in dialogue with certain financial creditors and litigation claimants, together with their advisors. We remain in constructive negotiations with an ad hoc group of first lien creditors, among other parties, and, in light of the progress to date, we currently expect that these negotiations will likely result in a pre-arranged filing under Chapter 11 of the U.S. Bankruptcy Code by Endo International plc and substantially all of its subsidiaries, which could occur imminently. There can be no assurance of such an outcome. Any of the circumstances above would subject us to additional risks and uncertainties that could adversely affect our business prospects and ability to continue as a going concern, including, but not limited to, by causing increased difficulty obtaining and maintaining commercial relationships on competitive terms with customers, suppliers and other counterparties; increased difficulty retaining and motivating key employees, as well as attracting new employees; diversion of management’s time and attention to dealing with bankruptcy and restructuring activities rather than focusing exclusively on business operations; incurrence of substantial costs, fees and other expenses associated with bankruptcy proceedings; and loss of ability to maintain or obtain sufficient financing sources for operations or to fund any reorganization plan and meet future obligations. We would, in that event, also be subject to risks and uncertainties caused by the actions of creditors and other third parties with interests that may be inconsistent with our plans. Certain of these risks and uncertainties could also occur if our suppliers or other third parties believe that we may pursue one or more significant corporate transactions or other remedial measures.
As of June 30, 2022, our accrual for loss contingencies totaled $395.8 million, the most significant components of which relate to: (i) product liability and related matters associated with transvaginal surgical mesh products, which we have not sold since March 2016 and (ii) various opioid-related matters as further described herein. Although we believe there is a possibility that a loss in excess of the amount recognized exists, we are unable to estimate the possible loss or range of loss in excess of the amount recognized at this time. As of June 30, 2022, $390.8 million of our accrual for loss contingencies is classified in the Current portion of legal settlement accrual in the Condensed Consolidated Balance Sheets, with the remainder classified as Long-term legal settlement accrual, less current portion. The timing of the resolution of certain of these matters remains uncertain.
Vaginal Mesh Matters
Since 2008, we and certain of our subsidiaries, including American Medical Systems Holdings, Inc. (AMS) (subsequently converted to Astora Women’s Health Holding LLC and merged into Astora Women’s Health LLC and referred to herein as AMS and/or Astora), have been named as defendants in multiple lawsuits in various state and federal courts in the U.S., Canada, Australia and other countries, alleging personal injury resulting from the use of transvaginal surgical mesh products designed to treat pelvic organ prolapse (POP) and stress urinary incontinence (SUI). We have not sold such products since March 2016. Plaintiffs claim a variety of personal injuries, including chronic pain, incontinence, inability to control bowel function and permanent deformities, and seek compensatory and punitive damages, where available.
Various Master Settlement Agreements (MSAs) and other agreements have resolved approximately 71,000 filed and unfiled U.S. mesh claims as of June 30, 2022. These MSAs and other agreements were entered into at various times between June 2013 and the present, were solely by way of compromise and settlement and were not an admission of liability or fault by us or any of our subsidiaries. All MSAs are subject to a process that includes guidelines and procedures for administering the settlements and the release of funds. In certain cases, the MSAs provide for the creation of QSFs into which the settlement funds will be deposited, establish participation requirements and allow for a reduction of the total settlement payment in the event participation thresholds are not met. Funds deposited in QSFs are considered restricted cash and/or restricted cash equivalents. Distribution of funds to any individual claimant is conditioned upon the receipt of documentation substantiating product use, the dismissal of any lawsuit and the release of the claim as to us and all affiliates. Prior to receiving funds, an individual claimant must represent and warrant that liens, assignment rights or other claims identified in the claims administration process have been or will be satisfied by the individual claimant. Confidentiality provisions apply to the settlement funds, amounts allocated to individual claimants and other terms of the agreements.
The following table presents the changes in the mesh-related QSFs and liability accrual balances during the six months ended June 30, 2022 (in thousands):
| | | | | | | | | | | |
| Mesh Qualified Settlement Funds | | Mesh Liability Accrual |
Balance as of December 31, 2021 | $ | 78,402 | | | $ | 258,137 | |
| | | |
Cash received for reversionary interests, net of cash contributions to Qualified Settlement Funds | (367) | | | — | |
Cash distributions to settle disputes from Qualified Settlement Funds | (10,610) | | | (10,610) | |
Other cash distributions to settle disputes | — | | | (5,629) | |
Other (1) | 30 | | | (941) | |
Balance as of June 30, 2022 | $ | 67,455 | | | $ | 240,957 | |
__________
(1)Amounts deposited in the QSFs may earn interest, which is generally used to pay administrative costs of the funds and is reflected in the table above as an increase to the QSF and Mesh Liability Accrual balances. Any interest remaining after all claims have been paid will generally be distributed to the claimants who participated in that settlement. Also included within this line are foreign currency adjustments for settlements not denominated in U.S. dollars.
Charges related to vaginal mesh liability and associated legal fees and other expenses for all periods presented are reported in Discontinued operations, net of tax in our Condensed Consolidated Statements of Operations.
As of June 30, 2022, the Company has made total cumulative mesh liability payments of approximately $3.6 billion, $67.5 million of which remains in the QSFs as of June 30, 2022. We currently expect to fund all of the remaining payments under all previously executed mesh settlement agreements within the next 12 months. As funds are disbursed out of the QSFs from time to time, the liability accrual will be reduced accordingly with a corresponding reduction to restricted cash and cash equivalents.
In addition, we may pay cash distributions to settle disputes separate from the QSFs, which will also decrease the liability accrual and decrease cash and cash equivalents.
We were contacted in October 2012 regarding a civil investigation initiated by various U.S. state attorneys general into mesh products, including transvaginal surgical mesh products designed to treat POP and SUI. In November 2013, we received a subpoena relating to this investigation from the state of California, and we subsequently received additional subpoenas from California and other states. We are cooperating with the investigations.
We will continue to vigorously defend any unresolved claims and to explore other options as appropriate in our best interests. The next trial is currently scheduled to begin in September 2022. Trials may occur earlier or later than currently scheduled, as timing remains uncertain due to the impact of COVID-19 and other factors.
Similar matters may be brought by others or the foregoing matters may be expanded. We are unable to predict the outcome of these matters or to estimate the possible range of any additional losses that could be incurred.
Although the Company believes it has appropriately estimated the probable total amount of loss associated with all mesh-related matters as of the date of this report, litigation is ongoing in certain cases that have not settled, and it is reasonably possible that further claims may be filed or asserted and that adjustments to our overall liability accrual may be required. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Opioid-Related Matters
Since 2014, multiple U.S. states as well as other governmental persons or entities and private plaintiffs in the U.S. and Canada have filed suit against us and/or certain of our subsidiaries, including Endo Health Solutions Inc. (EHSI), Endo Pharmaceuticals Inc. (EPI), Par Pharmaceutical, Inc. (PPI), Par Pharmaceutical Companies, Inc. (PPCI), Endo Generics Holdings, Inc. (EGHI), Vintage Pharmaceuticals, LLC, Generics Bidco I, LLC, DAVA Pharmaceuticals, LLC, Par Sterile Products, LLC (PSP LLC) and in Canada, Paladin and Endo Ventures Limited, as well as various other manufacturers, distributors, pharmacies and/or others, asserting claims relating to the defendants’ alleged sales, marketing and/or distribution practices with respect to prescription opioid medications, including certain of our products. As of August 1, 2022, pending cases in the U.S. of which we were aware include, but are not limited to, approximately 15 cases filed by or on behalf of states; approximately 2,570 cases filed by counties, cities, Native American tribes and/or other government-related persons or entities; approximately 310 cases filed by hospitals, health systems, unions, health and welfare funds or other third-party payers and approximately 220 cases filed by individuals, including but not limited to legal guardians of children born with neonatal abstinence syndrome. Certain of the U.S. cases have been filed as putative class actions; to date, however, no court has certified a litigation class. The Canadian cases include an action filed by British Columbia on behalf of a proposed class of all federal, provincial and territorial governments and agencies in Canada that paid healthcare, pharmaceutical and treatment costs related to opioids; an action filed in Alberta by the City of Grand Prairie, Alberta, and The Corporation of the City of Brantford, Ontario, on behalf of a proposed class of all local or municipal governments in Canada; an action filed in Saskatchewan by the Peter Ballantyne Cree Nation and the Lac La Ronge Indian Band, on behalf of a proposed class of all First Nations communities and local or municipal governments in Canada; and five additional putative class actions, filed in British Columbia, Manitoba, Ontario and Quebec, seeking relief on behalf of Canadian residents who were prescribed and/or consumed opioid medications.
The complaints in the cases assert a variety of claims, including but not limited to statutory claims asserting violations of public nuisance, consumer protection, unfair trade practices, racketeering, Medicaid fraud and/or drug dealer liability laws and/or common law claims for public nuisance, fraud/misrepresentation, strict liability, negligence and/or unjust enrichment. The claims are generally based on alleged misrepresentations and/or omissions in connection with the sale and marketing of prescription opioid medications and/or alleged failures to take adequate steps to identify and report suspicious orders and to prevent abuse and diversion. Plaintiffs seek various remedies including, without limitation, declaratory and/or injunctive relief; compensatory, punitive and/or treble damages; restitution, disgorgement, civil penalties, abatement, attorneys’ fees, costs and/or other relief. The damages sought exceed our applicable insurance.
Many of the U.S. cases have been coordinated in a federal multidistrict litigation (MDL) pending in the U.S. District Court for the Northern District of Ohio; however, in April 2022, the Judicial Panel on Multidistrict Litigation issued an order suggesting that, based on the progress of the MDL, it would no longer transfer new cases filed in or removed to federal court to the MDL. Other cases are pending in various federal or state courts. A case in Superior Court in Orange County, California, People of the State of California v. Purdue Pharma L.P., et al., has been tried to verdict. The plaintiffs in the case, Orange, Santa Clara and Los Angeles Counties and the City of Oakland, asserted claims against EPI and EHSI, among others, for public nuisance, alleged violations of California’s Unfair Competition Law and alleged violations of California’s False Advertising Law. Following a bench trial on liability, the court issued a final decision in defendants’ favor on all counts in December 2021. The plaintiffs filed a notice of appeal in February 2022. Other opioid-related cases are at various stages in the litigation process. Certain cases have been stayed pending settlement discussions; excluding such cases the next trial is currently set to begin in early 2023. Trials may occur earlier or later than currently scheduled, as timing remains uncertain due to the impact of COVID-19 and other factors.
In September 2019, EPI, EHSI, PPI and PPCI received subpoenas from the New York State Department of Financial Services (DFS) seeking documents and information regarding the marketing, sale and distribution of opioid medications in New York. In June 2020, DFS commenced an administrative action against the Company, EPI, EHSI, PPI and PPCI alleging violations of the New York Insurance Law and New York Financial Services Law. In July 2021, DFS filed an amended statement of charges. The amended statement of charges alleges that fraudulent or otherwise wrongful conduct in the marketing, sale and/or distribution of opioid medications caused false claims to be submitted to insurers. DFS seeks civil penalties for each allegedly fraudulent prescription as well as injunctive relief. In July 2021, EPI, EHSI, PPI and PPCI, among others, filed a petition in New York state court seeking to prohibit DFS from proceeding with its administrative enforcement action. In December 2021, DFS filed a motion to dismiss that petition, which the court granted in June 2022. The Company’s subsidiaries, among others, appealed that ruling in July 2022.
In February 2022, the court in Dunaway, et al. v. Purdue Pharma, L.P., et al. (now known as Bedford County, et al. v. AmerisourceBergen Drug Corp., et al.), a case pending in the Circuit Court for Cumberland County, Tennessee, entered an order imposing certain sanctions, including a default judgment on liability, against EPI and EHSI based on alleged discovery improprieties in a different case which EPI and EHSI had settled in August 2021. Because discovery in the earlier case had also been provided to the Dunaway plaintiffs, the Dunaway court deemed the alleged discovery improprieties to have occurred in Dunaway as well. The sanctions order also severed EPI and EHSI from the remaining defendants and set a damages trial to begin in April 2023. In a separate order, the Dunaway court denied a motion by EPI and EHSI to disqualify the judge based on, among other things, statements he made about the lawsuit to the press and on Facebook. In March 2022, EPI and EHSI appealed both orders. In April 2022, the Tennessee Court of Appeals, ruling on the appeal of the disqualification order, reversed the trial court’s order denying disqualification, vacated the sanctions order and remanded the case for reassignment to a different judge. It also denied the separate appeal of the sanctions order as moot.
Since 2019, the Company and/or certain of its subsidiaries have executed a number of settlement agreements to resolve governmental opioid claims brought by certain states, counties, cities and/or other governmental entities. Certain related developments include but are not limited to the following:
•In September 2019, EPI, EHSI, PPI and PPCI executed a settlement agreement with two Ohio counties providing for payments totaling $10 million and up to $1 million of VASOSTRICT® and/or ADRENALIN®. The settlement amount was paid during the third quarter of 2019 and there is no remaining liability accrual for this matter as of June 30, 2022.
•In January 2020, EPI and PPI executed a settlement agreement with the state of Oklahoma providing for a payment of $8.75 million. The settlement amount was paid during the first quarter of 2020 and there is no remaining liability accrual for this matter as of June 30, 2022.
•In August 2021, EPI, EHSI, nine counties in eastern Tennessee, eighteen municipalities within those counties and a minor individual executed a settlement agreement providing for a payment of $35 million. The settlement amount was paid during the third quarter of 2021 and there is no remaining liability accrual for this matter as of June 30, 2022.
•In September 2021, Endo International plc, EPI, EHSI, PPI and PPCI executed a settlement agreement with the state of New York and two of its counties providing for a payment of $50 million. The settlement amount was paid during the third quarter of 2021 and there is no remaining liability accrual for this matter as of June 30, 2022.
•In October 2021, EPI and EHSI executed a settlement agreement with the Alabama Attorney General’s office intended to resolve opioid-related cases and claims of the state and other Alabama governmental persons and entities in exchange for a total payment of $25 million, subject to certain participation thresholds. The settlement amount has not yet been paid; the parties dispute whether the required participation thresholds have been satisfied. In July 2022, the Alabama Attorney General filed a motion to compel payment in the Circuit Court for Montgomery County, Alabama, which the court granted before EPI and EHSI filed a response. EPI and EHSI have filed a motion to reconsider and stay enforcement of the court’s order, which remains pending, as does a motion by the Alabama Attorney General to convert the court’s order into a final judgment. The full settlement amount is included in our liability accrual as of June 30, 2022.
•In December 2021, Endo International plc, EPI, EHSI, PPI and PPCI executed a settlement agreement with the Texas Attorney General’s office and four Texas counties intended to resolve opioid-related cases and claims of the state and other Texas governmental persons and entities in exchange for a total payment of $63 million, subject to certain participation thresholds. The settlement amount was deposited into a QSF during the first quarter of 2022 and, as of June 30, 2022, there is no remaining liability accrual for this matter.
•In January 2022, EPI and EHSI executed a settlement agreement with the Florida Attorney General’s office intended to resolve opioid-related cases and claims of the state and other Florida governmental persons and entities in exchange for a total payment of up to $65 million, subject to certain participation thresholds. The settlement amount was deposited into a QSF during the second quarter of 2022 and, as of June 30, 2022, the remaining liability accrual for this matter was not material.
•In February 2022, EPI and EHSI executed a settlement agreement with the Louisiana Attorney General’s office intended to resolve opioid-related cases and claims of the state and other Louisiana governmental persons and entities in exchange for a total payment of $7.5 million, subject to certain participation thresholds. The settlement amount has not yet been paid; certain conditions for payment remain outstanding. The full settlement amount is included in our liability accrual as of June 30, 2022
•In March 2022, EPI, EHSI and PPI executed a settlement agreement with the West Virginia Attorney General’s office intended to resolve opioid-related cases and claims of the state and other West Virginia governmental persons and entities in exchange for a total payment of $26 million, subject to certain participation thresholds. The settlement amount has not yet been paid; certain conditions for payment remain outstanding. The full settlement amount is included in our liability accrual as of June 30, 2022.
•In June 2022, EPI and EHSI executed a settlement agreement with the Arkansas Attorney General’s office and certain Arkansas local governments intended to resolve opioid-related cases and claims of the state and other Arkansas governmental persons and entities in exchange for a total payment of $9.75 million, subject to certain participation thresholds. With the exception of certain amounts held back pursuant to the MDL common benefit fund order discussed below, the settlement amount was paid during the third quarter of 2022. The full settlement amount is included in our liability accrual as of June 30, 2022.
•In July 2022, EPI and EHSI executed a settlement agreement with the Mississippi Attorney General’s office intended to resolve opioid-related cases and claims of the state and other Mississippi governmental persons and entities in exchange for a total payment of $9 million, subject to certain participation thresholds. The settlement amount is not yet due and has not been paid. The full settlement amount is included in our liability accrual as of June 30, 2022.
•In July 2022, EPI, EHSI, PPI and PPCI executed a settlement agreement with the City and County of San Francisco providing for an initial payment of $5 million and subsequent payments of $500,000 a year over ten years. The settlement amount is not yet due and has not been paid. The full settlement amount is included in our liability accrual as of June 30, 2022.
While the specific terms of the agreements vary, each agreement was solely by way of compromise and settlement and was not in any way an admission of wrongdoing, fault or liability of any kind by us or any of our subsidiaries. Certain agreements provide for injunctive relief. Some agreements provide for additional payments in the event certain conditions, such as a comprehensive resolution of government-related opioid claims, are met; Florida may also be entitled to additional payments in the event we enter into a settlement with the attorney general of a state with a smaller population than Florida for an amount greater than $65 million prior to November 15, 2022.
Some settlement agreements may be subject to a May 2022 order of the MDL court generally requiring that a percentage of certain settlement amounts be held back from payment to plaintiffs and paid into an MDL common-benefit fund. Certain plaintiffs have filed motions with the MDL court or taken other procedural steps to vacate aspects of the order, seek clarification that the order does not apply to their settlements and/or request relief from the order. Such plaintiffs do not seek an increase of any settlement amount but rather in certain instances dispute that a portion of the total amount should be held back for the MDL common-benefit fund and argue that this portion should instead be paid to the settling plaintiffs.
In some states, certain governmental entities have declined to participate in the settlements and/or actively taken steps to try to challenge the release of their claims. For example:
•The plaintiffs in Mobile County Board of Health, et al. v. Richard Sackler, et al., a case pending in the Circuit Court of Mobile County, Alabama, initially refused to dismiss their claims against our subsidiaries. In April 2022, EPI and EHSI filed a motion in State of Alabama v. Endo Health Solutions Inc., et al., filed in the Circuit Court of Montgomery County, Alabama, seeking an order enjoining the Mobile County Board of Health plaintiffs from continuing their case and directing their compliance with the Alabama settlement. The court granted this motion and the Mobile County Board of Health plaintiffs dismissed their claims in June 2022.
•In March 2022, two public hospitals in Florida filed an emergency motion to intervene in State of Florida v. Walgreen Co. to stay court approval of our subsidiaries’ settlement in Florida. In April 2022, the court denied the motion to intervene and entered a final consent judgment dismissing the state’s claims against EPI and EHSI with prejudice. Meanwhile, the Florida Attorney General commenced a separate declaratory judgment action against those same public hospitals, as well as additional public hospitals and a school board, in a different Florida state court, seeking a judicial declaration that their claims were released by the Florida Attorney General’s settlements with EPI, EHSI and other companies. The declaratory judgment action remains pending.
It is reasonably possible that other governmental persons or entities in states where we have reached settlements will bring similar challenges or otherwise continue to bring and/or litigate claims against us and our subsidiaries notwithstanding the settlements. We are unable to predict the outcome of these matters or to estimate the possible range of any losses that could be incurred. Adjustments to our overall liability accrual may be required in the future, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Certain settlement agreements provide for the creation of QSFs into which settlement funds have been or will be deposited and/or provide for the repayment of some or all of the settlement amount under certain conditions. Depending on the terms of the respective agreements, funds deposited in QSFs have been and may continue to be considered restricted cash and/or restricted cash equivalents for a period of time subsequent to the initial funding. Distribution of funds from the QSFs is conditioned upon certain criteria that vary by agreement.
We recorded total charges for opioid-related matters of $10.0 million during the six months ended June 30, 2022 and as of June 30, 2022 our corresponding accrual totaled $141.4 million. In addition to the developments described above, our accrual for opioid-related matters as of June 30, 2022 includes amounts relating to certain unresolved matters for which, based on the progress of ongoing settlement negotiations and/or certain other factors, the Company believes a loss is probable and can reasonably be estimated. As further described below, the Company may be exposed to additional losses in excess of the amounts currently accrued, which could be material.
To the extent unresolved, we will continue to vigorously defend the foregoing matters and to explore other options as appropriate in our best interests, including entering into settlement negotiations and settlements even in circumstances where we believe we have meritorious defenses. Similar matters may be brought by others or the foregoing matters may be expanded. We are unable to predict the outcome of these matters or to estimate the possible range of any losses that could be incurred. Adjustments to our overall liability accrual may be required in the future, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition to the lawsuits and administrative matters described above, the Company and/or its subsidiaries have received certain subpoenas, civil investigative demands (CIDs) and informal requests for information concerning the sale, marketing and/or distribution of prescription opioid medications, including but not limited to the following:
Various state attorneys general have served subpoenas and/or CIDs on EHSI and/or EPI. We are cooperating with the investigations.
In January 2018, EPI received a federal grand jury subpoena from the U.S. District Court for the Southern District of Florida seeking documents and information related to OPANA® ER, other oxymorphone products and marketing of opioid medications. We are cooperating with the investigation.
In December 2020, the Company received a subpoena issued by the U.S. Attorney’s Office for the Western District of Virginia seeking documents related to McKinsey & Company. The Company received a related subpoena in May 2021, also issued by the U.S. Attorney’s Office for the Western District of Virginia. We are cooperating with the investigation.
Similar investigations may be brought by others or the foregoing matters may be expanded or result in litigation. We are unable to predict the outcome of these matters or to estimate the possible range of any losses that could be incurred. Adjustments to our overall liability accrual may be required in the future, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Ranitidine Matters
In June 2020, an MDL pending in the U.S. District Court for the Southern District of Florida, In re Zantac (Ranitidine) Products Liability Litigation, was expanded to add PPI and numerous other manufacturers and distributors of generic ranitidine as defendants. The claims are generally based on allegations that under certain conditions the active ingredient in Zantac® and generic ranitidine medications can break down to form an alleged carcinogen known as N-Nitrosodimethylamine (NDMA). The complaints assert a variety of claims, including but not limited to various product liability, breach of warranty, fraud, negligence, statutory and unjust enrichment claims. Plaintiffs generally seek various remedies including, without limitation, compensatory, punitive and/or treble damages; restitution, disgorgement, civil penalties, abatement, attorneys’ fees and costs as well as injunctive and/or other relief. Similar complaints against various defendants, in some instances including PPI, have also been filed in certain state courts, including but not limited to California, Illinois and Pennsylvania. Neither PPI nor its subsidiaries have manufactured or sold ranitidine since 2016.
The MDL court has issued various case management orders, including orders directing the filing of “master” and short-form complaints, establishing a census registry process for potential claimants and addressing various discovery issues. In December 2020, the court dismissed the master complaints as to PPI and other defendants with leave to amend certain claims. Certain plaintiffs, including third-party payers pursuing class action claims, have appealed the dismissal orders to the U.S. Court of Appeals for the Eleventh Circuit. In February 2021, various other plaintiffs filed an amended master personal injury complaint, a consolidated amended consumer economic loss class action complaint and a consolidated medical monitoring class action complaint. PPI was not named as a defendant in the consumer economic loss complaint or the medical monitoring complaint. In July 2021, the MDL court dismissed all claims in the master complaints as to PPI and other generic defendants with prejudice on federal preemption grounds. In November 2021, the MDL court issued a final judgment as to PPI and other generic defendants. Certain MDL plaintiffs have appealed the July 2021 dismissal order and/or the November 2021 judgment.
In July 2022, claimants who alleged certain types of injuries were “exited” from the MDL census registry. Some of these claimants subsequently filed lawsuits in various courts.
We will continue to vigorously defend the foregoing matters and to explore other options as appropriate in our best interests. Similar matters may be brought by others or the foregoing matters may be expanded. We are unable to predict the outcome of these matters or to estimate the possible range of any losses that could be incurred. Adjustments to our overall liability accrual may be required in the future, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Generic Drug Pricing Matters
Since March 2016, various private plaintiffs, state attorneys general and other governmental entities have filed cases against our subsidiary PPI and/or, in some instances, the Company, Generics Bidco I, LLC, DAVA Pharmaceuticals, LLC, DAVA International, LLC, EPI, EHSI and/or PPCI, as well as other pharmaceutical manufacturers and, in some instances, other corporate and/or individual defendants, alleging price-fixing and other anticompetitive conduct with respect to generic pharmaceutical products. These cases, which include proposed class actions filed on behalf of direct purchasers, end-payers and indirect purchaser resellers, as well as non-class action suits, have generally been consolidated and/or coordinated for pretrial proceedings in a federal MDL pending in the U.S. District Court for the Eastern District of Pennsylvania; three cases commenced by writ of summons in Pennsylvania state court are in deferred status. There is also a proposed class action filed in the Federal Court of Canada on behalf of a proposed class of Canadian purchasers.
The various complaints and amended complaints generally assert claims under federal and/or state antitrust law, state consumer protection statutes and/or state common law, and seek damages, treble damages, civil penalties, disgorgement, declaratory and injunctive relief, costs and attorneys’ fees. Some claims are based on alleged product-specific conspiracies; other claims allege broader, multiple-product conspiracies. Under these overarching conspiracy theories, plaintiffs generally seek to hold all alleged participants in a particular conspiracy jointly and severally liable for all harms caused by the alleged conspiracy, not just harms related to the products manufactured and/or sold by a particular defendant.
The MDL court has issued various case management and substantive orders, including orders denying certain motions to dismiss, and discovery is ongoing. In June 2022, the MDL court dismissed certain state attorney general claims for disgorgement.
We will continue to vigorously defend the foregoing matters and to explore other options as appropriate in our best interests. Similar matters may be brought by others or the foregoing matters may be expanded. We are unable to predict the outcome of these matters or to estimate the possible range of any losses that could be incurred. Adjustments to our overall liability accrual may be required in the future, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In December 2014, our subsidiary PPI received from the Antitrust Division of the U.S. Department of Justice (DOJ) a federal grand jury subpoena issued by the U.S. District Court for the Eastern District of Pennsylvania addressed to “Par Pharmaceuticals.” The subpoena requested documents and information focused primarily on product and pricing information relating to the authorized generic version of Lanoxin® (digoxin) oral tablets and generic doxycycline products, and on communications with competitors and others regarding those products. We are cooperating with the investigation.
In May 2018, we and our subsidiary PPCI each received a CID from the DOJ in relation to a False Claims Act investigation concerning whether generic pharmaceutical manufacturers engaged in price-fixing and market allocation agreements, paid illegal remuneration and caused the submission of false claims. We are cooperating with the investigation.
Similar investigations may be brought by others or the foregoing matters may be expanded or result in litigation. We are unable to predict the outcome of these matters or to estimate the possible range of any losses that could be incurred. Adjustments to our overall liability accrual may be required in the future, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Other Antitrust Matters
Beginning in June 2014, multiple alleged purchasers of OPANA® ER sued our subsidiaries EHSI and EPI and other pharmaceutical companies, including Impax Laboratories, LLC (formerly Impax Laboratories, Inc. and referred to herein as Impax) and Penwest Pharmaceuticals Co., which our subsidiary EPI had acquired, alleging violations of antitrust law arising out of an agreement between EPI and Impax to settle certain patent infringement litigation and EPI’s introduction of reformulated OPANA® ER. Some cases were filed on behalf of putative classes of direct and indirect purchasers, while others were filed on behalf of individual retailers or health care benefit plans. The cases were consolidated and/or coordinated for pretrial proceedings in a federal MDL pending in the U.S. District Court for the Northern District of Illinois. The various complaints asserted claims under Sections 1 and 2 of the Sherman Act, state antitrust and consumer protection statutes and/or state common law. Plaintiffs generally sought damages, treble damages, disgorgement of profits, restitution, injunctive relief and attorneys’ fees. In June 2021, the court certified a direct purchaser class and an end-payer class; in August 2021, following an appeal and remand from the U.S. Court of Appeals for the Seventh Circuit, the district court amended its class certification order to certify a narrower end-payer class. Trial on all plaintiffs’ claims began in June 2022. In July 2022, the jury returned a verdict in favor of defendants. Later that month, plaintiffs filed a motion for judgment as a matter of law or for a new trial, which remains pending.
Beginning in February 2009, the U.S. Federal Trade Commission (FTC) and certain private plaintiffs sued our subsidiaries PPCI (since June 2016, EGHI) and/or PPI as well as other pharmaceutical companies alleging violations of antitrust law arising out of the settlement of certain patent litigation concerning the generic version of AndroGel® and seeking damages, treble damages, equitable relief and attorneys’ fees and costs. The cases were consolidated and/or coordinated for pretrial proceedings in a federal MDL pending in the U.S. District Court for the Northern District of Georgia. In May 2016, plaintiffs representing a putative class of indirect purchasers voluntarily dismissed their claims with prejudice. In February 2017, the FTC voluntarily dismissed its claims against EGHI with prejudice. In June 2018, the MDL court granted in part and denied in part various summary judgment and evidentiary motions filed by defendants. In particular, among other things, the court rejected two of the remaining plaintiffs’ causation theories and rejected damages claims related to AndroGel® 1.62%. In July 2018, the court denied certain plaintiffs’ motion for certification of a direct purchaser class. In November 2019, PPI and PPCI entered into settlement agreements with all but one of the plaintiffs remaining in the MDL; a settlement with the remaining plaintiff was reached in April 2021. The settlement agreements were solely by way of compromise and settlement and were not in any way an admission of wrongdoing, fault or liability of any kind. Separately, in August 2019, several alleged direct purchasers filed suit in the U.S. District Court for the Eastern District of Pennsylvania asserting claims substantially similar to those asserted in the MDL, as well as additional claims against other defendants relating to other alleged conduct. In January 2020, the U.S. District Court for the Eastern District of Pennsylvania denied defendants’ motion to transfer venue to the Northern District of Georgia. The case is currently in discovery.
Beginning in May 2018, multiple complaints were filed in the U.S. District Court for the Southern District of New York against PPI, EPI and/or us, as well as other pharmaceutical companies, alleging violations of antitrust law arising out of the settlement of certain patent litigation concerning the generic version of Exforge® (amlodipine/valsartan). Some cases were filed on behalf of putative classes of direct and indirect purchasers; others are non-class action suits. The various complaints assert claims under Sections 1 and 2 of the Sherman Act, state antitrust and consumer protection statutes and/or state common law. Plaintiffs generally seek damages, treble damages, equitable relief and attorneys’ fees and costs. In September 2018, the putative class plaintiffs stipulated to the dismissal without prejudice of their claims against EPI and us, and the retailer plaintiffs later did the same. PPI filed a partial motion to dismiss certain claims in September 2018; the court granted the motion in August 2019. In March 2022, the putative class plaintiffs filed motions for class certification. In May 2022, defendants filed motions for summary judgment. The court has ordered that the cases be trial-ready by January 2023.
Beginning in August 2019, multiple complaints were filed in the U.S. District Court for the Southern District of New York against PPI and other pharmaceutical companies alleging violations of antitrust law arising out the settlement of certain patent litigation concerning generic versions of Seroquel XR® (extended-release quetiapine fumarate). The claims against PPI are based on allegations that PPI entered into an exclusive acquisition and license agreement with Handa Pharmaceuticals, LLC (Handa) in 2012 pursuant to which Handa assigned to PPI certain rights under a prior settlement agreement between Handa and AstraZeneca resolving certain patent litigation. Some cases were filed on behalf of putative classes of direct and indirect purchasers; others are non-class action suits. The various complaints assert claims under Sections 1 and 2 of the Sherman Act, state antitrust and consumer protection statutes and/or state common law. Plaintiffs generally seek damages, treble damages, equitable relief and attorneys’ fees and costs. In October 2019, the defendants filed various motions to dismiss and, in the alternative, moved to transfer the litigation to the U.S. District Court for the District of Delaware. In August 2020, the Southern District of New York granted the motion to transfer without ruling on the motions to dismiss. In January 2021, the defendants filed motions to dismiss in the District of Delaware. In July 2022, the court dismissed certain claims asserted under state law but otherwise denied defendants’ motions to dismiss.
Beginning in June 2020, multiple complaints were filed against Jazz Pharmaceuticals and other pharmaceutical companies, including PPI, alleging violations of state and/or federal antitrust laws in connection with the settlement of certain patent litigation concerning generic versions of Xyrem® (sodium oxybate). Some cases were filed on behalf of putative classes of indirect purchasers; others are non-class action suits. The cases have generally been consolidated and/or coordinated for pretrial proceedings in a federal MDL pending in the U.S. District Court for the Northern District of California; a case filed by Aetna Inc. in May 2022 is pending in California state court. The various complaints allege that Jazz entered into a series of “reverse-payment” settlements, including with PPI, to delay generic competition for Xyrem® and assert claims under Sections 1 and 2 of the Sherman Act, Section 16 of the Clayton Act, state antitrust and consumer protection statutes and/or state common law. Plaintiffs generally seek damages, treble damages, equitable relief and attorneys’ fees and costs. In April 2021, the defendants moved to dismiss the MDL complaints that had been filed as of that time. In August 2021, the MDL court issued an order dismissing certain aspects of the plaintiffs’ claims but otherwise denying the motions to dismiss. Discovery is ongoing. In July 2022, PPI, among others, filed a motion to quash the Aetna action for lack of personal jurisdiction; the defendants also filed a demurrer, motion to strike and motion to stay Aetna’s action.
Beginning in June 2021, multiple complaints were filed on behalf of a putative class of direct purchasers in the U.S. District Court for the District of Massachusetts against Takeda Pharmaceuticals, PPI and us, alleging violations of federal antitrust law in connection with the settlement of certain patent litigation related to generic versions of Amitiza® (lubiprostone). The complaints allege that Takeda and PPI entered into a settlement agreement that delayed the entry of generic Amitiza® and assert claims under Section 1 and Section 2 of the Sherman Act. Plaintiffs seek damages, treble damages and attorneys’ fees and costs. In September 2021, the plaintiffs voluntarily dismissed all claims against Endo International plc. In December 2021, PPI filed a motion to dismiss, which remains pending. Trial is currently scheduled to begin in February 2023.
In August 2021, a putative class action complaint was filed in the U.S. District Court for the Eastern District of Pennsylvania against Takeda Pharmaceuticals, EPI, PPI and others, alleging violations of federal antitrust law in connection with the settlement of certain patent litigation related to generic versions of Colcrys® (colchicine). In particular, the complaint alleged, among other things, that a distribution agreement between Takeda and PPI with respect to an authorized generic was in effect an output restriction conspiracy; the plaintiff asserted claims under Section 1 and Section 2 of the Sherman Act and sought damages, treble damages and attorneys’ fees and costs. In December 2021, the court dismissed the complaint for failure to state a claim (the plaintiff had already voluntarily dismissed all claims against EPI in November 2021). In January 2022, the plaintiff filed an amended complaint. In February 2022, the defendants filed a motion to dismiss the amended complaint, which the court granted in part and denied in part in March 2022. The case is currently in discovery.
In January 2021, the FTC filed a lawsuit in the U.S. District Court for the District of Columbia against us, EPI, Impax Laboratories, LLC and Amneal Pharmaceuticals, Inc., generally alleging that the 2017 settlement of a contract dispute between EPI and Impax (now Amneal) constituted unfair competition in violation of Section 5(a) of the FTC Act. The complaint generally sought injunctive and equitable monetary relief. In April 2021, the defendants filed motions to dismiss, which the court granted in March 2022. The FTC filed a notice of appeal in May 2022.
To the extent unresolved, we will continue to vigorously defend the foregoing matters and to explore other options as appropriate in our best interests. Similar matters may be brought by others or the foregoing matters may be expanded. We are unable to predict the outcome of these matters or to estimate the possible range of any losses that could be incurred. Adjustments to our overall liability accrual may be required in the future, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Securities Litigation
In June 2020, a putative class action entitled Benoit Albiges v. Endo International plc, Paul V. Campanelli, Blaise Coleman, and Mark T. Bradley was filed in the U.S. District Court for the District of New Jersey by an individual shareholder on behalf of himself and all similarly situated shareholders. The lawsuit alleges violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder relating to the marketing and sale of opioid medications and the New York Department of Financial Services’ administrative action against the Company, EPI, EHSI, PPI and PPCI. In September 2020, the court appointed Curtis Laakso lead plaintiff in the action. In November 2020, the plaintiffs filed an amended complaint that among other things added Matthew J. Maletta as a defendant. In January 2021, the defendants filed a motion to dismiss, which the court granted in August 2021. In November 2021, the plaintiffs filed a second amended complaint, which among other things added allegations about discovery issues in certain opioid-related lawsuits. In January 2022, the defendants moved to dismiss the second amended complaint.
To the extent unresolved, we will continue to vigorously defend the foregoing matter and to explore other options as appropriate in our best interests. Similar matters may be brought by others or the foregoing matter may be expanded. We are unable to predict the outcome of this matter or to estimate the possible range of any losses that could be incurred. Adjustments to our overall liability accrual may be required in the future, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Other Government Investigations
In March 2022, EPI received a CID from the Texas Attorney General’s office seeking documents and information related to hormone blocker products. This followed the Texas Attorney General’s December 2021 announcement of an investigation into whether EPI and AbbVie Inc. had advertised or promoted such products, including SUPPRELIN® LA and VANTAS®, for unapproved uses. We are cooperating with the investigation.
Similar investigations may be brought by others or the foregoing matter may be expanded or result in litigation. We are unable to predict the outcome of this matter or to estimate the possible range of any losses that could be incurred. Adjustments to our overall liability accrual may be required in the future, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
VASOSTRICT® Related Matters
Beginning in April 2018, PSP LLC and PPI received notice letters from Eagle Pharmaceuticals, Inc. (Eagle) and other companies advising of the filing by such companies of Abbreviated New Drug Applications (ANDAs)/New Drug Applications (NDAs) for generic versions of VASOSTRICT® (vasopressin IV solution (infusion)) 20 units/ml and/or 200 units/10 ml. Beginning in May 2018, PSP LLC, PPI and Endo Par Innovation Company, LLC (EPIC) filed lawsuits against Eagle and other generic filers in the U.S. District Court for the District of Delaware or New Jersey within the 45-day deadline to invoke a 30-month stay of U.S. Food and Drug Administration (FDA) approval pursuant to the Hatch-Waxman statutory framework. We reached settlements and voluntarily dismissed the suits against many of these filers. The remaining Delaware cases against Eagle and Amneal Pharmaceuticals LLC were consolidated and a trial was held in July 2021. In August 2021, the court issued an opinion holding that Eagle’s proposed generic product will not infringe PPI’s asserted patent claims. The court made no finding regarding the validity of the patents. We appealed the ruling. The appellate argument was held in July 2022 before the Federal Circuit.
In December 2020, we separately filed suit against Eagle, Amneal Pharmaceuticals LLC, Dr. Reddy’s Laboratories, Inc. and Aurobindo Pharma Limited in the U.S. District Court for the District of New Jersey in connection with a newly issued VASOSTRICT® genotyping patent. All of these cases have since been dismissed.
During the first quarter of 2022, multiple competitive generic alternatives to VASOSTRICT® 20 units/ml were launched, beginning with Eagle’s generic that was launched at risk and began shipping toward the end of January 2022. Since then, additional competitive alternatives have entered the market, including authorized generics. These launches began to significantly impact both Endo’s market share and product price toward the middle of the first quarter of 2022, and the effects of competition have since increased and are likely to continue to increase throughout 2022 and beyond. This competition could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In March 2022, PSP LLC, PPI and EPIC received a notice letter from Cipla Limited (Cipla) advising of its filing of an ANDA for generic versions of VASOSTRICT® (vasopressin injection) for IV use 40 units/100 ml and 60 units/100 ml. In May 2022, PSP LLC and PPI filed a complaint against Cipla in the District Court of New Jersey within the 45-day statutory period to invoke a 30-month stay of FDA approval pursuant to the Hatch-Waxman statutory framework. The 30-month stay expires in September 2024.
Other Proceedings and Investigations
Proceedings similar to those described above may also be brought in the future. Additionally, we are involved in, or have been involved in, arbitrations or various other proceedings that arise from the normal course of our business. We cannot predict the timing or outcome of these other proceedings. Currently, neither we nor our subsidiaries are involved in any other proceedings that we expect to have a material effect on our business, financial condition, results of operations and cash flows.
NOTE 15. OTHER COMPREHENSIVE (LOSS) INCOME
During the three and six months ended June 30, 2022 and 2021, there were no tax effects allocated to any component of Other comprehensive (loss) income and there were no reclassifications out of Accumulated other comprehensive loss. Substantially all of the Company’s Accumulated other comprehensive loss balances at June 30, 2022 and December 31, 2021 consist of Foreign currency translation loss.
NOTE 16. SHAREHOLDERS’ DEFICIT
The following table presents a reconciliation of the beginning and ending balances in Total shareholders’ deficit for the three and six months ended June 30, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Euro Deferred Shares | | Ordinary Shares | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Deficit |
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BALANCE, DECEMBER 31, 2021 | $ | 45 | | | $ | 23 | | | $ | 8,953,906 | | | $ | (9,981,515) | | | $ | (216,445) | | | $ | (1,243,986) | |
Net loss | — | | | — | | | — | | | (71,974) | | | — | | | (71,974) | |
Other comprehensive income | — | | | — | | | — | | | — | | | 1,895 | | | 1,895 | |
Compensation related to share-based awards | — | | | — | | | 4,929 | | | — | | | — | | | 4,929 | |
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Tax withholding for restricted shares | — | | | — | | | (1,863) | | | — | | | — | | | (1,863) | |
Other | (1) | | | 1 | | | 1 | | | — | | | — | | | 1 | |
BALANCE, MARCH 31, 2022 | $ | 44 | | | $ | 24 | | | $ | 8,956,973 | | | $ | (10,053,489) | | | $ | (214,550) | | | $ | (1,310,998) | |
Net loss | — | | | — | | | — | | | (1,885,427) | | | — | | | (1,885,427) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (4,334) | | | (4,334) | |
Compensation related to share-based awards | — | | | — | | | 2,721 | | | — | | | — | | | 2,721 | |
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Tax withholding for restricted shares | — | | | — | | | (31) | | | — | | | — | | | (31) | |
Other | (2) | | | — | | | (1) | | | — | | | — | | | (3) | |
BALANCE, JUNE 30, 2022 | $ | 42 | | | $ | 24 | | | $ | 8,959,662 | | | $ | (11,938,916) | | | $ | (218,884) | | | $ | (3,198,072) | |
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The following table presents a reconciliation of the beginning and ending balances in Total shareholders’ deficit for the three and six months ended June 30, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Euro Deferred Shares | | Ordinary Shares | | Additional Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Deficit |
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BALANCE, DECEMBER 31, 2020 | $ | 49 | | | $ | 23 | | | $ | 8,938,012 | | | $ | (9,368,270) | | | $ | (217,753) | | | $ | (647,939) | |
Net income | — | | | — | | | — | | | 41,524 | | | — | | | 41,524 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 1,692 | | | 1,692 | |
Compensation related to share-based awards | — | | | — | | | 9,993 | | | — | | | — | | | 9,993 | |
Exercise of options | — | | | — | | | 622 | | | — | | | — | | | 622 | |
Tax withholding for restricted shares | — | | | — | | | (4,863) | | | — | | | — | | | (4,863) | |
Other | (2) | | | — | | | — | | | — | | | — | | | (2) | |
BALANCE, MARCH 31, 2021 | $ | 47 | | | $ | 23 | | | $ | 8,943,764 | | | $ | (9,326,746) | | | $ | (216,061) | | | $ | (598,973) | |
Net loss | — | | | — | | | — | | | (15,500) | | | — | | | (15,500) | |
Other comprehensive income | — | | | — | | | — | | | — | | | 2,238 | | | 2,238 | |
Compensation related to share-based awards | — | | | — | | | 4,444 | | | — | | | — | | | 4,444 | |
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Tax withholding for restricted shares | — | | | — | | | (9,251) | | | — | | | — | | | (9,251) | |
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BALANCE, JUNE 30, 2021 | $ | 47 | | | $ | 23 | | | $ | 8,938,957 | | | $ | (9,342,246) | | | $ | (213,823) | | | $ | (617,042) | |
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Share-Based Compensation
The Company recognized share-based compensation expense of $2.7 million and $7.7 million during the three and six months ended June 30, 2022, respectively, and $4.4 million and $14.4 million during the three and six months ended June 30, 2021, respectively. As of June 30, 2022, the total remaining unrecognized compensation cost related to non-vested share-based compensation awards amounted to $15.2 million.
As of June 30, 2022, the weighted average remaining requisite service period for non-vested restricted stock units and performance share units was 1.4 years.
NOTE 17. OTHER (INCOME) EXPENSE, NET
The components of Other (income) expense, net for the three and six months ended June 30, 2022 and 2021 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | 2021 | | 2022 | | 2021 | | |
Net (gain) loss on sale of business and other assets (1) | $ | (11,880) | | | $ | (264) | | | $ | (11,745) | | | $ | 91 | | | |
Foreign currency (gain) loss, net (2) | (2,280) | | | 876 | | | (568) | | | 2,261 | | | |
Net loss from our investments in the equity of other companies (3) | 140 | | | 159 | | | 226 | | | 310 | | | |
Other miscellaneous, net | (5,418) | | | (399) | | | (6,062) | | | (1,378) | | | |
Other (income) expense, net | $ | (19,438) | | | $ | 372 | | | $ | (18,149) | | | $ | 1,284 | | | |
__________
(1)Amounts primarily relate to the sales of certain intellectual property rights and certain other assets.
(2)Amounts relate to the remeasurement of the Company’s foreign currency denominated assets and liabilities.
(3)Amounts relate to the income statement impacts of our investments in the equity of other companies, including investments accounted for under the equity method.
NOTE 18. INCOME TAXES
The following table displays our (Loss) income from continuing operations before income tax, Income tax expense and Effective tax rate for the three and six months ended June 30, 2022 and 2021 (dollars in thousands):
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| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | 2021 | | 2022 | | 2021 | | |
(Loss) income from continuing operations before income tax | $ | (1,873,732) | | | $ | 916 | | | $ | (1,940,847) | | | $ | 48,699 | | | |
Income tax expense | $ | 7,151 | | | $ | 11,100 | | | $ | 5,336 | | | $ | 11,824 | | | |
Effective tax rate | (0.4) | % | | 1,211.8 | % | | (0.3) | % | | 24.3 | % | | |
The change in Income tax expense for the three and six months ended June 30, 2022 compared to the prior year period primarily relates to the 2021 discrete tax expense related to Canadian uncertain tax positions and changes in the geographic mix of pre-tax earnings.
As discussed in Note 1. Basis of Presentation, in the second quarter of 2022, the Company concluded that there was substantial doubt about its ability to continue as a going concern within one year after the date of issuance of the Condensed Consolidated Financial Statements. The Company considered this in determining that certain net deferred tax assets were no longer more likely than not realizable. As a result, an immaterial increase in valuation allowance on the Company’s net deferred tax assets was recorded in various jurisdictions during the second quarter of 2022.
The Company maintains a full valuation allowance against the net deferred tax assets in the U.S., Luxembourg and certain other foreign tax jurisdictions as of June 30, 2022. It is possible that within the next 12 months there may be sufficient positive evidence to release a portion or all of the valuation allowance. Release of these valuation allowances would result in a benefit to income tax expense for the period the release is recorded, which could have a material impact on net earnings. The timing and amount of the potential valuation allowance release are subject to significant management judgment and prospective earnings.
On June 3, 2020, in connection with the IRS’s examination of our U.S. income tax return for the fiscal year ended December 31, 2015 (2015 Return), we received an acknowledgement of facts (AoF) from the IRS related to transfer pricing positions taken by Endo U.S., Inc. and its subsidiaries (Endo U.S.). The AoF asserted that Endo U.S. overpaid for certain pharmaceutical products that it purchased from certain non-U.S. related parties and proposed a specific adjustment to our 2015 U.S. income tax return position. On September 4, 2020, we received a Form 5701 Notice of Proposed Adjustment (NOPA) that is consistent with the previously disclosed AoF. We believe that the terms of the subject transactions are consistent with comparable transactions for similarly situated unrelated parties, and we intend to contest the proposed adjustment. While the NOPA is not material to our business, financial condition, results of operations or cash flows, the IRS could seek to apply its position to subsequent tax periods and propose similar adjustments. The aggregate impact of these adjustments, if sustained, could have a material adverse effect on our business, financial condition, results of operations and cash flows. Although the timing of the outcome of this matter is uncertain, it is possible any final resolution of the matter could take a number of years.
In connection with the IRS’s examination of our 2015 Return, on December 31, 2020, the IRS issued a Technical Advice Memorandum (TAM) that we previously disclosed regarding the portion of our 2015 NOL that we believe qualifies as a specified product liability loss (SLL). The TAM concurred in part with our positions on the 2015 Return but disagreed with our position that the AMS worthless stock loss qualifies as an SLL. On April 23, 2021, we received draft NOPAs from the IRS consistent with the TAM. We continue to disagree with the IRS’s position and the draft NOPAs received and, if necessary, intend to contest any additional tax determined to be owed with respect to the NOPAs. However, if we were unsuccessful in contesting the IRS’s position, we have preliminarily estimated that we would have additional cash taxes payable to the IRS of between $70 million and $250 million excluding interest. We continue to discuss this position with the IRS and the actual amount that may be owed to the IRS if we are unsuccessful may be different than our preliminary estimate. Although the timing of the outcome of this matter is uncertain, it is possible any final resolution of the matter could take a number of years.
NOTE 19. NET (LOSS) INCOME PER SHARE
The following is a reconciliation of the numerator and denominator of basic and diluted net (loss) income per share for the three and six months ended June 30, 2022 and 2021 (in thousands):
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| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | 2021 | | 2022 | | 2021 | | |
Numerator: | | | | | | | | | |
(Loss) income from continuing operations | $ | (1,880,883) | | | $ | (10,184) | | | $ | (1,946,183) | | | $ | 36,875 | | | |
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Loss from discontinued operations, net of tax | (4,544) | | | (5,316) | | | (11,218) | | | (10,851) | | | |
Net (loss) income | $ | (1,885,427) | | | $ | (15,500) | | | $ | (1,957,401) | | | $ | 26,024 | | | |
Denominator: | | | | | | | | | |
For basic per share data—weighted average shares | 235,117 | | | 233,331 | | | 234,498 | | | 231,941 | | | |
Dilutive effect of ordinary share equivalents | — | | | — | | | — | | | 5,102 | | | |
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For diluted per share data—weighted average shares | 235,117 | | | 233,331 | | | 234,498 | | | 237,043 | | | |
Basic per share amounts are computed based on the weighted average number of ordinary shares outstanding during the period. Diluted per share amounts are computed based on the weighted average number of ordinary shares outstanding and, if there is net income from continuing operations during the period, the dilutive effect of ordinary share equivalents outstanding during the period.
The dilutive effect of ordinary share equivalents is measured using the treasury stock method. Any stock options and/or awards that have been issued but for which a grant date has not yet been established are not considered in the calculation of basic or diluted weighted average shares.
The following table presents, for the three and six months ended June 30, 2022 and 2021, outstanding stock options and stock awards that could potentially dilute per share amounts in the future that were not included in the computation of diluted per share amounts for the periods presented because to do so would have been antidilutive (in thousands):
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| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2022 | | 2021 | | 2022 | | 2021 | | |
Stock options | 5,397 | | | 6,591 | | | 5,701 | | | 5,163 | | | |
Stock awards | 5,493 | | | 9,541 | | | 6,523 | | | 3,496 | | | |